<PAGE>
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1993
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 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number 1-10145
LYONDELL PETROCHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
------------------------
Delaware 95-4160558
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1221 McKinney Street, 77010
Suite 1600, Houston, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 652-7200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock ($1.00 par value) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulations-S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
X
---
There were 80,000,000 shares of the registrant's common stock
outstanding on December 31, 1993. The aggregate market value of the voting
stock held by non-affiliates of the registrant on March 1, 1994 based on the
closing price on the New York Stock Exchange composite tape on that date, was
$909,464,465.
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<C> <S> <C>
1. and 2. Business and Properties........................................ 1
The Company's Business......................................... 1
Summary Description of Business Segments....................... 2
Petrochemical Segment.......................................... 2
Overview....................................................... 2
Feedstocks..................................................... 3
Marketing and Sales............................................ 4
Competition and Industry Conditions............................ 4
Properties..................................................... 5
Capital Program................................................ 5
Employee Relations............................................. 6
Refining Segment............................................... 6
Overview....................................................... 6
Upgrade Project................................................ 7
Management of LYONDELL-CITGO Refining.......................... 8
Feedstocks..................................................... 9
Marketing and Sales............................................ 9
Competition and Industry Conditions............................ 9
Properties..................................................... 10
Capital Program................................................ 10
Employee Relations............................................. 11
Research and Technology; Patents and Trademarks................ 11
Finance Matters................................................ 11
Long-Term Debt and Financing Arrangements...................... 12
Environmental Matters.......................................... 13
3. Legal Proceedings.............................................. 14
4. Submission of Matters to a Vote of Security Holders............ 19
Executive Officers of the Registrant........................... 19
Description of Capital Stock................................... 22
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters...................................................... 23
6. Selected Financial Data........................................ 25
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 25
8. Financial Statements and Supplementary Data.................... 33
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 55
PART III
10. Directors and Executive Officers of the Registrant............. 55
11. Executive Compensation......................................... 58
12. Security Ownership of Certain Beneficial Owners and
Management................................................... 63
13. Certain Relationships and Related Transactions................. 65
PART IV
14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..................................................... 69
</TABLE>
i
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PART I
Items 1 and 2. Business and Properties
THE COMPANY'S BUSINESS
Lyondell Petrochemical Company and LYONDELL-CITGO Refining Company Ltd. (LCR)
operate in two business segments: petrochemicals and refining. The Company
manufactures a wide variety of petrochemicals, including olefins (ethylene,
propylene, butadiene, butylenes and certain specialty products), polyolefins
(polypropylene and low density polyethylene), methanol, methyl tertiary butyl
ether (MTBE), and aromatics and, through LCR, a Texas limited liability company,
refined petroleum products, including gasoline, heating oil, jet fuel, fuel oil,
aromatics and lubricants (lube oils). The Company generally sells its
petrochemical products to customers for use primarily in the manufacture of
other chemicals and products, which in turn are used in the production of a wide
variety of consumer and industrial products. LCR sells its principal refined
products primarily to CITGO Petroleum Corporation (CITGO) and to a lesser
extent, to other marketers of petroleum products.
As the context may require, all references hereafter to the "Company" or
"Lyondell" include Lyondell Petrochemical Company and its wholly-owned
subsidiaries.
Development of Business
The Company was incorporated under the laws of the State of Delaware in 1985.
Atlantic Richfield Company (ARCO) originally created a separate division
(Lyondell Division) by the combination of the operations of the Channelview,
Texas petrochemical complex (Channelview Complex), and the full conversion
Houston, Texas refinery (Refinery).
Effective July 1, 1988, ARCO transferred substantially all the assets and
liabilities relating to the integrated petrochemical and petroleum processing
business of the Lyondell Division to the Company. In addition, certain pipeline
assets that were not formerly a part of the Lyondell Division were transferred
to Lyondell. In exchange for the transfer of such assets and liabilities,
Lyondell issued ARCO additional shares of its common stock. On January 25,
1989, ARCO completed an initial public offering of 43,000,000 shares of
Lyondell's common stock.
In February, 1990, the Company acquired a polypropylene plant and a low density
polyethylene plant located in Pasadena, Texas (Polymers Facility).
In July, 1993, pursuant to agreements between the Company and CITGO (and its
affiliates), the Company contributed its refining business (including the lube
oil blending and packaging plant in Birmingport, Alabama) and refining working
capital to LCR and retained an initial 95% participation interest in LCR. At
December 31, 1993, the Company had an approximate 90% interest in LCR. The
results of LCR currently are consolidated into Lyondell's financial statements.
For further discussion of this transaction, see "REFINING SEGMENT - Overview".
LCR is undertaking a major upgrade project at the Refinery to enable the
facility to process substantial additional volumes of very heavy crude oil. LCR
also has entered into a long-term crude supply contract (Crude Supply Contract)
with Lagoven, S.A. (LAGOVEN), an affiliate of CITGO. In addition, under the
terms of a long-term product sales agreement (Products Agreement), CITGO
purchases from LCR a majority of the refined products produced at the Refinery.
Both LAGOVEN and CITGO are direct or indirect wholly-owned subsidiaries of
Petroleos de Venezuela, S.A. (PDVSA), the national oil company of Venezuela.
See "REFINING SEGMENT".
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At March 1, 1994, ARCO owned 39,921,400 shares of Lyondell common stock, which
represent 49.9 percent of the issued and outstanding common stock of the
Company. ARCO officers and directors currently hold five of the eleven
directorships on the Company's Board of Directors. Although officers and
directors of ARCO do not constitute a majority of the Board of Directors, for
certain federal and state securities laws purposes, ARCO could be deemed to be a
"control" person or an "affiliate" of Lyondell.
For additional information relating to certain continuing relationships and
potential conflicts of interest among Lyondell, LCR, ARCO and ARCO Chemical
Company (ARCO Chemical), an 83.3 percent owned subsidiary of ARCO, including
their respective subsidiaries, see Item 13 -- "Certain Relationships and Related
Transactions" included herein.
See Note 19 - Segment Information of Notes to Consolidated Financial Statements.
SUMMARY DESCRIPTION OF BUSINESS SEGMENTS
PETROCHEMICAL SEGMENT
Overview
Channelview Complex -- Lyondell's Channelview Complex, located in Channelview,
Texas, 20 miles east of Houston, includes two large olefins plants, a methanol
plant, a butadiene recovery unit, a product flexibility unit (which has the
capability to convert ethylene and other light hydrocarbon streams into
propylene), an aromatics (benzene and toluene) recovery unit, two MTBE units, an
isoprene recovery unit and other petrochemical processing units. The
Channelview Complex is connected by multiple pipelines to the Refinery, which is
approximately 16 miles away. The Channelview Complex also is connected by a
comprehensive pipeline system to the Company's Mont Belvieu, Texas storage
facility, to leased storage terminals and to Gulf Coast customers. Ethylene and
propylene are shipped or exchanged via this pipeline system. See "Properties".
The Company's olefins plants and related processing units produce ethylene,
propylene, butadiene, butylenes, benzene, toluene, hydrogen and certain
specialty products, such as isoprene, dicyclopentadiene, resin oils and
piperylenes, along with gasoline blendstocks and heavy liquid fuels. The Company
also produces methanol and MTBE. The Company's petrochemical products are used
by its customers to manufacture intermediate chemicals, which are used in a
variety of consumer and industrial products.
Ethylene is used to manufacture polyethylene, which is used in products such as
trash bags, housewares and milk containers. Ethylene also is used to produce
ethylene oxide (used to produce ethylene glycol which is used to produce
antifreeze and polyester fibers), ethylene dichloride (used to produce polyvinyl
chloride for pipe and other vinyl products), ethylbenzene (used to produce
styrene, which in turn is used to produce polystyrene for packaging and
containers) and alpha olefins (used in the manufacture of detergents, as well as
other intermediate chemicals).
Propylene is used to manufacture polypropylene, which is used in products such
as carpets, food packaging, upholstery, automobile parts and plastic bottles.
Propylene is also used to manufacture acrylonitrile (used in clothing and high
impact plastics), propylene oxide (used in polyurethane foams for furniture and
insulation) and oxo products (used in industrial solvents, as well as other
intermediate chemicals).
Butadiene is used to manufacture styrene butadiene rubber and polybutadiene
rubber, both of which are used in the manufacture of tires and other rubber
products. Butadiene is also used in the production of nylon and acrylonitrile-
butadiene-styrene plastics.
Methanol is used to produce MTBE and a variety of chemical intermediates,
including formaldehyde, acetic acid and methyl methacrylate. These
intermediates are used to produce bonding adhesives for plywood, polyester
fibers and plastics. Other end uses include solvents and antifreeze
applications.
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MTBE is an octane enhancer and clean fuel additive in reformulated gasoline.
All MTBE produced at the Channelview Complex and not blended at the Refinery is
sold to a single customer. See "Properties" and Item 13 - "Certain
Relationships and Related Transactions".
The following table shows the current annual rated capacity for certain of the
Company's principal petrochemical products:
<TABLE>
<CAPTION>
Rated Capacity(a)
at December 31,
1993
-----------------
(Millions)
<S> <C>
Petrochemical Product
Ethylene (pounds).................................... 3,600
Propylene (pounds)................................... 2,100 (b)
Butadiene (pounds)................................... 615
Methanol (gallons)................................... 233 (c)
MTBE (gallons)....................................... 167
Aromatics (gallons).................................. 130
</TABLE>
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(a) The term "rated capacity," as used in this table and throughout this
report, is calculated by estimating the number of days in a typical year
that a production unit of a plant is expected to operate, after allowing
for downtime for regular maintenance, and multiplying that number by an
amount equal to the unit's optimal daily output based on the design
feedstock mix. Because the rated capacity of a production unit is an
estimated amount, the actual production volumes may be more or less than
rated capacity.
(b) Does not include refinery grade material or production from the product
flexibility unit, which has a current rated capacity of 1 billion pounds per
year of propylene. In 1993, the Company completed an expansion project that
more than doubled propylene capacity of the product flexibility unit.
(c) Capacity as shown includes equivalent methanol that could be produced from
reformed gas, an intermediate in the production of methanol.
Bayport Polymers Facility -- The Polymers Facility converts propylene and
ethylene supplied by the Channelview Complex into polypropylene and low density
polyethylene that is sold into the derivative markets and transported by railcar
and truck. The Polymers Facility is connected by pipeline to the Company's Mont
Belvieu, Texas storage facility for feedstock supply. The following table shows
the current annual rated capacity for each of the Company's principal
polyolefins products.
<TABLE>
<CAPTION>
Rated Capacity
at December 31,
1993
---------------
(Millions)
<S> <C>
Polyolefins Product
Polypropylene (pounds)................................ 300
Low density polyethylene (pounds)..................... 140
</TABLE>
Feedstocks
The Company's olefins plants can process 100 percent heavy petroleum liquids
(naphtha, condensates and gas oils) or up to 90 percent natural gas liquids
(ethane, propane, butane and natural gasoline; collectively, "NGL") feedstocks.
The Company's olefins plants use approximately 125,000 to 160,000 barrels per
day of NGLs and/or heavy liquids feedstocks. The Company obtains a portion of
its olefins feedstock requirements from LCR (NGLs, naphtha and gas oil) and
additional olefins feedstock in the form of petroleum condensates pursuant to a
contract with a producing country. The remainder of its heavy liquids
requirements are obtained under short-term
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contracts or on the spot market from a variety of foreign and domestic
sources. The Company purchases NGLs from a wide variety of domestic sources,
many of which have pipeline connections to the Company's facilities.
The Company's methanol plant generally processes natural gas feedstocks but also
has the ability to process NGL feedstocks (other than natural gasoline). The
Company purchases natural gas from a variety of domestic sources for use as fuel
at its facilities and as feedstock for the methanol plant.
The Channelview Complex is currently the sole supplier of propylene and ethylene
feedstocks to the Polymers Facility, which uses them to make polypropylene and
low density polyethylene.
Marketing and Sales
Lyondell sells a majority of its olefins products to customers with whom it has
long-standing relationships. Sales generally are made pursuant to written
agreements, which typically provide for monthly negotiation of price based upon
current market prices for products sold under contract. The parties are
contractually committed to use their best efforts to agree monthly on price
terms. Nonetheless, if the parties fail to agree on a monthly price, in some
cases deliveries may be suspended for the month. The term of these contracts is
typically three to five years with automatic one year term extension provisions
which cause the contract to remain in effect after the initial term unless
expressly terminated by one of the parties. Some of these contracts are subject
to early termination if deliveries have been suspended for several months. The
contracts typically require the customer to purchase a specified minimum
quantity while establishing a quantity range whereby the customer has the right
to purchase additional quantities up to a specified maximum.
The Company sells substantially all of its methanol output and most of its
aromatics output under contracts that have initial terms ranging from two to
three years and that typically contain automatic one year term extension
provisions which cause the contracts to remain in effect after the initial term
expires unless expressly terminated by one of the parties. These contracts
generally provide for monthly or quarterly price adjustments based upon current
market prices. Aromatics produced at the Refinery are marketed by Lyondell for
LCR under contracts with similar terms to its own with the exception of benzene
which is sold directly to Lyondell at market-related prices.
Competition and Industry Conditions
The basis for competition in all of Lyondell's petrochemical products is price,
product quality and product deliverability. Lyondell competes with other large
domestic producers of olefins, including, but not limited to, Amoco Chemical
Company, Chevron Chemical Company, Exxon Chemical Company, Occidental Chemical
Corporation, Phillips Petroleum Company, Shell Chemical Company and Texaco
Chemical Company.
The combined rated capacity of the Company's olefins units at January 1, 1994
was approximately 3.6 billion pounds of ethylene per year or approximately 7.7
percent of total domestic production capacity. Based on published rated
production capacities, the Company believes it is one of the five largest
producers of ethylene in the United States. Of the total ethylene production
capacity in the United States, approximately 93 percent is located along the
Gulf Coast, and approximately 77 percent is owned by ten manufacturers.
During the period from January 1, 1991 to December 31, 1993, domestic industry
ethylene capacity increased by approximately 4.9 billion pounds. This increase
significantly outpaced demand and resulted in declining product margins.
Domestic industry ethylene rated capacity at January 1, 1994 was approximately
46.6 billion pounds per year. New plants coming on-line and debottlenecking of
existing plants are expected to add an additional 2.5 billion pounds of capacity
in 1994 and an additional 1.5 billion pounds of capacity in 1995, which
additional capacity is expected to be relatively in balance with domestic demand
growth. There are no additional capacity expansions currently announced for the
U. S. after 1995. Although the demand for ethylene is expected to continue
growing during the 1990's, there is no assurance that recent and anticipated
ethylene capacity increases, or other factors, will not adversely affect the
industry's supply and demand balance.
The Company's principal competitors in polypropylene production include Amoco
Chemical Company, Aristech Chemical Corporation, Texas Eastman Division of
Eastman Chemical, FINA Oil & Chemical Company, and Himont Incorporated. The
Company's principal competitors in low density polyethylene production include
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Chevron Corporation, Dow Chemical Company, Mobil Chemical Company, Quantum
Chemical Corporation and Westlake Polymers Corporation.
The provisions of the Clean Air Act Amendments of 1990 will require the
manufacture and sale of alternative fuels, including reformulated gasoline.
Management believes the Company is well positioned currently to respond to
increased demand for reformulated gasoline due to its ability to manufacture
MTBE (and its primary ingredients) and its ability to extract aromatics.
Lyondell has entered into a joint development and licensing arrangement to
accelerate commercialization of two isomerization processes that produce
feedstocks for MTBE and tertiary amyl methyl ether (TAME) which are blending
components for reformulated gasoline. Proposed regulations by the EPA could
mandate that 30 percent of the gasoline sold in the reformulated gasoline
program be derived from renewable sources such as ethanol by 1995. These
regulations may have a negative impact on the market for MTBE and methanol.
Historically, petrochemical industry profitability has been heavily influenced
by price competition, which may intensify due to, among other things, new
domestic and foreign industry capacity. In general, weak economic conditions
either in the United States or in world markets also tend to reduce demand and
put pressure on margins. Petrochemical profitability also is expected to be
affected by reduced derivative exports as a result of weak worldwide economic
conditions and more balanced regional production throughout the world. Because
of the uncertainties inherent in these businesses, it is not possible to predict
accurately how changes in feedstock costs, market conditions or other factors
will affect petrochemical industry margins in the future.
Properties
The Company owns all of the plant and equipment that comprise its two olefins
plants at its Channelview Complex and owns the approximately 2,875 acre parcel
on which the complex is situated. The Company also owns the methanol plant and
other petrochemical processing units which are located at the Channelview
Complex. These include the product flexibility unit, two MTBE units, the benzene
and toluene recovery unit, the butadiene recovery unit, the isoprene recovery
unit and an isopropyl alcohol unit. One of the MTBE units and the isopropyl
alcohol unit are used exclusively to process products for ARCO Chemical. The
Company also operates a styrene maleic anhydride unit (SMA) and a polybutadiene
unit which are owned by a third party and are located on property leased from
the Company within the Channelview Complex. A third party owns and operates a
facility on land leased from the Company that is used to upgrade hydrogen from
the Company's methanol plant. The Company owns the real property, plant and
equipment which comprise the Polymers Facility, located on approximately 187
acres in Pasadena, Texas. Lyondell owns several pipelines connecting the
Channelview Complex, the Refinery and the Mont Belvieu storage facility,
including six lines used to transport heavy liquid feedstocks, butylenes,
benzene, hydrogen, butane, MTBE and unfinished gasolines between the Channelview
Complex and the Refinery.
Lyondell also owns a storage facility, a brine pond facility and a tract of
vacant land at Mont Belvieu, Texas, located approximately 15 miles east of the
Channelview Complex. Storage capacity for up to 10 million barrels of NGL
feedstocks, ethylene and propylene is provided in salt domes at the Mont Belvieu
facility. The Company also owns an approximate 10 percent undivided joint
interest in much of the real property surrounding the Mont Belvieu site. This
property, which is owned jointly with several other companies that operate
storage or processing facilities at Mont Belvieu, is maintained as a greenbelt
for these facilities. The Company has a long-term lease on product pipelines
from Mont Belvieu to most olefins customers.
Lyondell leases its executive offices and corporate headquarters in downtown
Houston. In addition, the Company leases storage facilities for the handling of
its products from various third parties, primarily in the Gulf Coast area.
Capital Program
The petrochemical segment's fixed asset capital expenditures totaled $15 million
in 1993. The petrochemical segment's capital budget for 1994 is $30 million, of
which approximately $3 million is for environmentally-
5
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related capital projects. See "ENVIRONMENTAL MATTERS" for a discussion of
these environmentally-related capital projects.
As part of its ongoing operations, the Company periodically conducts maintenance
turnarounds on its facilities. When conducting a maintenance turnaround on a
principal facility, capital expenditures and maintenance expenses as well as
lost operating income are typically incurred. Unscheduled shutdowns were
necessary on the two olefins units at the Channelview Complex during 1993. In
addition to the required repairs, other work was performed during the shutdowns
which is expected to postpone the next scheduled turnaround on the olefins
units. Although turnarounds on principal facilities are usually scheduled well
in advance, the timing of such turnarounds can be accelerated or delayed because
of numerous factors, many of which are beyond the Company's control.
Effective January 1, 1993, the Company changed its method of accounting for
turnarounds. Under the new method, repair and maintenance expenses associated
with turnarounds exceeding $5 million are capitalized when incurred and
amortized on a straight-line basis until the next planned turnaround, generally
four to six years. In prior years, all repair and maintenance expenses
associated with turnarounds were expensed as incurred. The Company believes
that the new method of accounting is preferable in that it provides for a better
matching of repair and maintenance expenses associated with turnarounds with
future product revenues. See Note 4 of "NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS".
In the last several years, there have been several mergers, acquisitions and
spin-offs in the chemical industry. The Company believes that the end result of
this activity will be an industry with fewer, but more competitive,
participants. The Company further believes that the current industry economic
environment creates potential opportunities for expansion or diversification by
the Company. The Company continually evaluates opportunities that are intended
to enhance cash flow and total return to stockholders. This ongoing evaluation
process involves both potential expansion and debottlenecking projects for the
Company's existing facilities, as well as potential acquisition, joint venture
and other opportunities involving third parties. The Company expects that its
efficient, low-cost operation of petrochemical assets could be a leveraging
factor in enhancing the value to the Company of any external opportunities.
Potential funding sources for long-term capital projects, whether involving
transactions with third parties or otherwise, could include, without limitation,
the Company's current financial resources, potential earnings growth, future
borrowings and future issuance of equity securities, as well as possible
contractual arrangements such as joint ventures or partnerships. Both the
Company's ability to undertake and fund the particular strategies described
above, and the general level of the Company's capital commitments and
expenditures from period to period, will be affected by a variety of factors
including, without limitation, the general business environment, as well as
changes in applicable government regulations and tax laws.
Employee Relations
At year end, Lyondell employed 1,083 full-time employees. The Company also uses
the services of approximately 443 employees of independent contractors in the
routine conduct of its business.
REFINING SEGMENT
Overview
LCR's Refinery, located adjacent to the Houston Ship Channel, includes a coker,
a fluid catalytic cracking unit, three reformers, four crude distillation units,
two sulfur recovery plants and several hydrodesulfurization units, as well as
lube oil manufacturing and packaging facilities and an aromatics recovery unit.
It is connected by multiple pipelines to the Channelview Complex and provides
feedstocks to and receives by-products from that facility.
Products manufactured at the Refinery include gasoline, heating oil, jet fuel,
aromatics (benzene, toluene, paraxylene and orthoxylene), lubricants (industrial
lubricants, motor oils, white oils, process oils and base oils) carbon black
oil, sulfur and petroleum coke. The aromatics recovery unit at the Refinery
produces benzene, toluene, paraxylene and orthoxylene. Aromatics are used to
manufacture a variety of intermediate chemicals,
6
<PAGE>
including ethylbenzene, cumene, urethane foam components and polyester
intermediates for films, fibers and resins. End uses of these products include
packaging and containers, furniture, apparel and flooring.
Although the Refinery is currently processing primarily heavy Venezuelan crude
oil, the Refinery does have the capability (known as "full conversion") to
process West Texas Sour (WTS) - type crude oil feedstocks into a product output
mix that consists of a significant percentage of high value products, such as
gasoline, heating oil, jet fuel, aromatics and lube oils and olefins feedstocks
(which are used by the Channelview Complex). It currently has a capacity rating
of 265,000 barrels per day of crude oil and related feedstocks which is based on
running WTS or equivalent crude oil in a full conversion mode. The actual
operating capability varies with the type of crude oil it processes. See
"Feedstocks".
On July 1, 1993, the Company contributed its refining assets (including the lube
oil blending and packaging plant in Birmingport, Alabama) and refining working
capital to LCR and retained an approximate 95 percent interest in LCR. CITGO
contributed $50 million for future capital projects of LCR and in exchange
received an approximate five percent interest in LCR. CITGO also made an
additional $50 million contribution for future capital projects of LCR on
December 31, 1993. As a result of this additional contribution, CITGO had an
approximate 10 percent interest in LCR at December 31, 1993. In addition to the
funding related to the upgrade project described below, CITGO has one additional
contribution commitment of $30 million to be made upon completion of the upgrade
project and it has an option to make an additional equity contribution
sufficient to increase its interest in LCR to 50 percent.
The Company believes that the principal benefit from its participation in LCR
will be stabilized earnings and cash flow from the refining business. The
expected stabilization of earnings and cash flows resulting from the agreement
with CITGO will not be fully realized until the projected completion of the
Refinery upgrade project described below. During 1993, the Refinery increased
the volumes of heavy Venezuelan crude oil processed and it is anticipated that
the Refinery will continue to achieve increased benefits from processing heavy
Venezuelan crude oil as it achieves improved operating efficiency. The
Refinery also has obtained a long-term crude oil supply. See "Feedstocks" and
"Marketing and Sales" for further discussion of the Crude Supply Contract and
Product Agreement.
Effective July 1, 1993, LCR and Lyondell entered into multiple agreements for
feedstock and product sales designed to preserve much of the synergy between the
Refinery and the Company's petrochemical business. Under the terms of these
agreements, various feedstock and product streams will be transferred between
the Refinery and Lyondell's Channelview Complex at market-related prices. LCR
and Lyondell also have entered into tolling agreements, pursuant to which
alkylate and MTBE attributable to Refinery feedstocks will be produced for LCR
at Lyondell's Channelview Complex.
Also effective July 1, 1993, the majority of the employees formerly employed by
Lyondell in its refining business became employees of LCR. Pursuant to the
terms of a number of service agreements, Lyondell has contracted with LCR to
continue to perform services in certain areas, including employee services,
administrative services and marketing services. Lyondell and LCR also have
entered into a variety of contracts providing for the assignment or licensing of
intellectual property rights associated with the refining business.
Upgrade Project
LCR is undertaking a major upgrade project at the Refinery to enable the
facility to process substantial additional volumes of very heavy crude oil.
CITGO will provide a major portion of the funds for the upgrade project, as well
as funds for certain capital projects. Project engineering for the upgrade is
currently underway and at the present time, LCR management anticipates the cost
over the next three to four years will be approximately $800 million. The
upgrade project is subject to regulatory approvals and resolution of certain
other matters. The upgrade project is intended to increase the heavy crude oil
processing capability of the Refinery from 130,000 barrels per day of 22 degree
API gravity crude oil to 200,000 barrels per day of 17 degree API gravity
Venezuelan BCF-17 crude oil. The upgrade is not intended to increase the total
throughput of the Refinery, but rather its ability to process heavier, higher
margin, crude oils. The project also will include expansion of the Refinery's
7
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reformulated gasoline and low sulfur diesel production capability. Major
components of the upgrade include new coking, hydrotreating and sulfur recovery
units; a new crude distillation unit and modifications to the Refinery's largest
existing crude distillation unit and various hydrodesulfurization units.
Funding for the upgrade project will occur in three phases. The first phase,
the initial $300 million, will be funded by CITGO. The second phase will be
funded by an LCR borrowing of approximately $200 million. The third phase,
which is expected to occur toward the end of the upgrade project, will be a
combination of LCR borrowing and contributions from CITGO and the Company.
Prior to completion of the upgrade project, the financing costs for the upgrade
project loans will be funded by CITGO. The timing of the third phase and the
level of contributions from the Company and CITGO will be dependent upon the
total cost of the upgrade project. The Company will contribute, in the form of a
subordinated loan, 25 percent of the cost of the upgrade project in excess of
$500 million. Following completion of the upgrade project, CITGO's participation
interest is expected to be approximately 35 percent. Following the upgrade
project, CITGO has a one-time option to make an additional equity contribution
sufficient to increase its participation interest in LCR to 50 percent.
Following the upgrade, the earnings potential of the Refinery is expected to be
improved, because of the higher margins expected to be associated with the
resulting heavier crude oil mix, increased coking capability and other yield
improvements.
Management of LYONDELL-CITGO Refining
LCR is a limited liability company organized under the laws of the state of
Texas. The Company owns its interest in LCR through a wholly-owned subsidiary,
Lyondell Refining Company. CITGO holds its interest through CITGO Refining
Investment Company, a wholly-owned subsidiary of CITGO (together with Lyondell
Refining Company, Owners). The operative agreement with respect to the rights of
each of the Owners and their parent companies is the Amended and Restated
Limited Liability Company Regulations (Regulations) of LCR. The Regulations
govern ownership and cash distribution rights. CITGO has committed to reinvest
its share of operating cash flow during the upgrade project which will increase
its participation percentage, while the Company has unrestricted access to its
share of operating cash flow from LCR. The initial term of the Regulations is 25
years, although they may be terminated under certain circumstances, including
insolvency of LCR or either Owner, uncured material breaches by either Owner and
failure to obtain permits for the upgrade project. Under the terms of a
reciprocal "Performance Guarantee and Control Agreement" (Performance
Guarantee), Lyondell and CITGO each unconditionally guarantee the obligations
and performance of their respective subsidiary-Owner under the terms of the
Regulations.
There are risks associated with enforcing the provisions of contracts with an
affiliate of a foreign government such as LAGOVEN, including the risks
associated with enforcing judgments of United States courts against entities
whose assets may be located outside of the United States and whose management
are not residents of the United States. However, the Company believes that this
transaction holds substantial economic and other incentives for all parties to
perform their obligations, including the obligations of LAGOVEN pursuant to the
Crude Supply Contract. Lyondell believes that PDVSA has a strategic interest in
expanding its crude oil refining operations in the United States in order to
increase the markets for its heavy, sour crude oil. Depending on then current
market conditions, breach or termination of the Crude Supply Contract could
adversely affect the Company; provided, however, that the impact of any such
event is likely to be less significant for Lyondell after the completion of the
upgrade project. In addition, the financial commitments of CITGO should provide
an economic incentive for all PDVSA affiliates to perform their obligations
under the various agreements. The parties have negotiated alternative
arrangements in the event of certain force majeure conditions, including
governmental or other actions restricting or otherwise limiting LAGOVEN's
ability to perform. However, LCR bears the risk that such alternative
arrangements will not fully provide LCR with the benefits of the Crude Supply
Contract.
The Regulations provide that LCR is managed by an Owners Committee, which has
three representatives (Representatives) from each Owner. Certain actions
require unanimous consent of the Representatives, including, without limitation,
amendment of the Regulations, borrowing money in excess of LCR's existing credit
facility, delegation of authority to committees, certain purchase commitments
and capital expenditures in excess of designated amounts and budgetary approval.
All actions not requiring unanimous consent can be determined by
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Lyondell as majority owner. The day-to-day operations of the Refinery are
managed by the executive officers of LCR, including former Lyondell officers
with responsibility for manufacturing and refining operations and refined
products marketing. The results of LCR's operations are consolidated into
Lyondell's financial statements.
Feedstocks
The following table sets forth the Refinery's runs of blended crude oils (which
include crude oil and other petroleum liquids, unfinished oils and other
hydrocarbons) and unfinished stock.
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1993 1992 1991
---- ---- ----
(Thousand barrels per day)
<S> <C> <C> <C>
Refinery Runs
Blended crude oils.............. 234 236 255
Unfinished stock................ 50 50 50
--- --- ---
Total............................. 284 286 305
=== === ===
</TABLE>
The Refinery can process a wide variety of domestic and foreign crude oil
feedstocks, including heavy (low API gravity, high viscosity) and sour (high
sulfur content) crude oils. The Refinery can process up to approximately
220,000 barrels per day (83 percent of rated capacity) of light sour crude
oils, or approximately 130,000 barrels per day of heavy sour crude oils
(22(degrees) API gravity) plus 80,000 barrels per day of light sour crude oil.
The upgrade project is intended to increase the Refinery's processing
capability to 200,000 barrels per day of very heavy Venezuelan crude oil
(17(degrees) API gravity).
The Crude Supply Contract requires LAGOVEN to supply and LCR to purchase minimum
quantities of crude oil for 25 years. The contract incorporates a formula price
based on the market value of a slate of refined products deemed to be produced
from each particular crude oil or feedstock, less: (i) certain deemed refining
costs, including crude transportation costs, adjustable for inflation; (ii)
certain actual costs, including import duties and taxes; and (iii) a deemed
margin, which varies according to the grade of crude oil or other feedstock
delivered and which is adjustable for inflation. Because deemed operating costs
and the slate of refined products deemed to be produced for a given barrel of
crude oil or other feedstock do not necessarily reflect the actual costs and
yields in any period, the actual refining margin earned by LCR under the
contract will vary depending on, among other things, the efficiency with which
LCR conducts its operations during such period. The contract is designed to
reduce the inherent earnings and cash flow volatility of the refining
operations of LCR.
The Refinery began processing Venezuelan crude oil in the third quarter of 1992.
Since that time, the Company and LCR have identified and overcome obstacles
inherent in processing high rates of heavy Venezuelan crude oil, including
making modifications to the coker and one of the crude distillation units. The
improved unit reliability and increased unit processing capability has increased
the Refinery's capability of running high volumes of heavy Venezuelan crude oil
and raised the capacity to 130,000 barrels per day. The remainder of the
Refinery's capacity is used to process lighter crude oils and feedstocks.
LCR utilizes its Select Refinery Feedstock program to recycle used lubricating
oil purchased from third parties by processing it into gasoline and other
refined products. During 1993 approximately 3 million gallons of used oil were
processed by the Refinery. When the program is fully implemented, the Refinery
will have the capability to process significantly more used oil.
Marketing and Sales
Lyondell was formerly a merchant marketer of gasoline, heating oil and jet fuel.
LCR currently sells a majority of these light refined products to CITGO under
the Products Agreement and sells the remainder into the merchant market. Lube
oils are manufactured and sold by LCR directly to industrial consumers and to
distributors throughout the United States and international markets. LCR's
branded lubricants include both paraffinic and naphthenic oils, rubber process
oils, base oils used to blend into finished lubricant products, food-grade white
oils and an extensive variety of engine oils and industrial lubricants. Lyondell
is the sole marketing agent for LCR's aromatics (see "PETROCHEMICAL SEGMENT -
Marketing and Sales") with the exception of benzene which is sold directly to
Lyondell at market-related prices.
Competition and Industry Conditions
The Company formerly competed with many other refiners for sales of gasoline,
heating oil, and jet fuel in the domestic and international merchant market.
With the formation of LCR, the majority of these products are sold to CITGO
under the Products Agreement. LCR continues to sell lube oils directly to major
industrial consumers and through several hundred distributors in domestic and
international markets.
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Many of the domestic refiners are owned by or affiliated with major integrated
oil companies. Based on published industry data, as of January 1, 1993, there
were 177 crude oil refineries in operation in the United States and total
domestic refinery capacity was approximately 15.1 million barrels per day.
During 1993, Lyondell and LCR processed an average of 234,000 barrels per day of
crude oil and other petroleum liquids, or less than two percent of domestic
capacity.
Profitability of the refining industry is affected by, among other things,
market conditions, volatility in world oil markets, capital expenditures
required to meet increasing environmental standards, repair and maintenance
costs and downtime of manufacturing units. However, management believes that
the combination of the Crude Supply Contract and the Products Agreement will
stabilize future earnings and cash flows and reduce the market driven aspects of
such volatility.
Prior to the completion of the upgrade, the keys to operational success for LCR
will be to maximize the amount of heavy Venezuelan crude oil processed in the
coking mode, to optimize the efficient utilization of the remaining cracking
capacity, and to maintain an overall focus on low cost operations.
In 1992, the U.S. Coast Guard proposed rules to implement the Oil Pollution Act
of 1990. Although Lyondell or LCR neither owns nor operates vessels covered by
the proposed regulations, Lyondell and LCR are major users of charter services
to deliver petroleum feedstocks to their facilities. The financial
responsibility requirements imposed by the proposed rules will limit the choice
of potential carriers and are expected to increase costs for transporting
feedstock and refined products.
Properties
LCR owns the real property, plant and equipment which comprise the Refinery,
located on an approximately 700-acre site in Houston, Texas. Units include the
fluid catalytic cracking unit, the coker, three reformers, four crude
distillation units, two sulfur recovery plants, several hydrodesulfurization
units, as well as lube oil manufacturing and packaging facilities and an
aromatics recovery unit. LCR also owns the real property, plant and equipment
which comprise a lube oil blending and packaging plant in Birmingport, Alabama.
Lyondell owns several pipelines connecting the Channelview Complex, the Refinery
and the Mont Belvieu storage facility, including six lines used to transport
heavy liquid feedstocks, butylenes, benzene, hydrogen, butane, MTBE and
unfinished gasolines between the Channelview Complex and the Refinery. LCR owns
a pipeline used to transport refined products (gasoline, kerosene, and heating
oil) from the Refinery to the GATX Terminal to interconnect with common carrier
pipelines.
Capital Program
The refining segment's capital expenditures for additions to fixed assets
(excluding spending on the upgrade project) totaled $45 million in 1993. The
refining segment's capital budget (excluding the upgrade project) for 1994 is
approximately $60 million. Of the total 1994 capital budget, approximately $48
million is expected to be spent on environmentally-related capital projects. The
funds contributed by CITGO (see "Overview") are required to be used for capital
spending by LCR and other expenditures as determined by the Owners, and will
substantially reduce the total capital spending that the Company otherwise would
be required to make in connection with Refinery operations over approximately
the next three to four years. See "ENVIRONMENTAL MATTERS" for further
discussion of these capital projects.
As part of its ongoing operations, LCR periodically conducts maintenance
turnarounds on its facilities. When conducting a maintenance turnaround on a
principal facility, capital expenditures as well as maintenance expenses and
lost operating income are typically incurred. Although turnarounds on principal
facilities are usually scheduled well in advance, the timing of such turnarounds
can be accelerated or delayed because of numerous factors, many of which are
beyond LCR's control. Unscheduled shutdowns were necessary on two principal
units at the Refinery during the year. Turnarounds on two principal units at the
Refinery are currently scheduled for late 1994, although it is possible that
they may be delayed.
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Effective January 1, 1993, the Company changed its method of accounting for
turnarounds. Under the new method, repair and maintenance expenses associated
with turnarounds exceeding $5 million are capitalized when incurred and
amortized on a straight-line basis until the next planned turnaround, generally
four to six years. In prior years, all repair and maintenance expenses
associated with turnarounds were expensed as incurred. The Company believes
that the new method of accounting is preferable in that it provides for a better
matching of repair and maintenance expenses associated with turnarounds with
future product revenues. See Note 4 of "NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS".
The Company remains obligated to fund certain Refinery environmental projects
initiated prior to the creation of LCR as well as its share of a base level of
Refinery capital improvements; the total of these obligations is estimated to be
$50-75 million through the completion of the upgrade project. The level and
timing of these anticipated capital commitments and expenditures will be
affected by changes in applicable governmental regulations, including
environmental and tax laws.
Employee Relations
At year end, LCR employed 1,200 full time employees. LCR also uses the services
of approximately 200 employees of independent contractors in the routine conduct
of its business. Certain hourly workers at the Refinery are covered by
collective bargaining agreements between LCR and the Oil, Chemical and Atomic
Workers Union (approximately 700 employees).
RESEARCH AND TECHNOLOGY; PATENTS AND TRADEMARKS
The Company, including LCR, uses numerous patents in its operations, many of
which are licensed from third parties, including ARCO. See Item 13 -- "Certain
Relationships and Related Transactions". Although the Company's licenses from
ARCO and others are significant to its operations, the Company is not dependent
upon any particular patent, trade secret or the like, and it believes that the
loss of any individual patent, trade secret, or similar proprietary right would
not have a material adverse effect on the operations of the Company. The
Company submitted several new patent applications during 1993 to protect new
processes it developed.
Lyondell Licensing, Inc., a wholly-owned subsidiary of the Company, has entered
into a joint development and licensing relationship with CDTECH, a leading
supplier of ethers technologies used in reformulated fuels production, to
commercialize two isomerization processes that produce blending agents for
cleaner burning gasolines. This alliance is aimed at improving these
technologies through a joint development effort. If successful, the alliance is
expected to accelerate worldwide commercialization of Lyondell's butene
isomerization process and Lyondell's or CDTECH's pentene isomerization process.
The Company, including LCR, uses numerous trademarks in its marketing
operations, a portion of which are licensed from third parties, including ARCO.
The Company is not dependent upon any particular trademark, and it believes the
loss of any individual trademark would not have a material adverse effect on its
operations. The Company submitted several new trademark applications during
1993 to protect product line names and to foster its marketing position.
FINANCE MATTERS
The Company generally intends to use its cash position and cash flows to enhance
total return to stockholders. In addition, the Company's strategy is to
maintain a suitable rating on its debt securities. Any proposed action
affecting the Company's cash position or cash flow is evaluated in competition
with other available investments and other alternatives. This allows the
Company to take advantage of opportunities intended to maximize total return to
stockholders. See "PETROCHEMICAL SEGMENT - Capital Program" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
11
<PAGE>
Long-Term Debt and Financing Arrangements
As of December 31, 1993, the Company had $725 million of long-term debt
consisting of $300 million of notes due 1996 and 1999, $200 million of notes due
1997 and 2002 and $225 million of medium-term notes due from 1994 to 2005.
The Notes due 1996 and 1999 and the medium-term notes contain provisions that
would allow the holders to require the Company to repurchase the debt upon the
occurrence of certain events combined with specified declines in public ratings
on the Notes due 1996 and 1999 (Put Rights). Events which may trigger the Put
Rights include, among other things, acquisitions by persons other than ARCO or
the Company of more than 20 percent of the Company's common stock, any merger or
transfer of substantially all of the Company's assets in connection with which
the Company's common stock is changed into or exchanged for cash, securities or
other property and payment of "special" dividends. See Item 5 - Market for
Registrant's Common Equity and Related Stockholder Matters. The foregoing
summary of the Put Rights is not intended to be complete and it is subject to,
and qualified in its entirety by reference to, the terms of the Indenture for
the Notes due 1996 and 1999 which has been filed as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1989 and incorporated
herein by reference.
LYONDELL-CITGO Unsecured Revolving Credit Facility- Effective July 1, 1993, LCR
entered into a 364 day unsecured $100 million revolving credit facility with a
group of banks with Continental Bank, N.A., as agent. Under terms of the credit
facility, LCR may borrow with interest based on prime, LIBOR or CD rates at
LCR's option or have letters of credit issued on its behalf. The credit
facility may be extended at the request of LCR upon consent of the bank group.
The credit facility contains covenants that limit LCR's ability to modify
certain significant contracts, dispose of assets or merge or consolidate with
other entities. At December 31, 1993, no amounts were outstanding under this
credit facility.
Company Unsecured Revolving Credit Facility- During December, 1993, the Company
finalized a five year, $400 million unsecured revolving credit facility
(Facility) which replaced its existing $300 million credit facility which was
due to expire in July, 1994. At December 31, 1993, no amounts were outstanding
under the Facility. At the present time the Company views the Facility as a
back-up source of liquidity. The Company does not believe that the covenants or
the other terms of the Facility described below are reasonably likely to
materially affect or restrict the future operation of the Company's business or
its ability to pay dividends on its common stock.
Under the terms of the Facility, the interest rate for borrowings is based on
Euro-Dollar or CD rates, at the Company's option, and also is dependent upon the
Facility utilization rate and the Company's debt ratings. The Facility contains
restrictive covenants regarding the incurrence of additional debt, the
maintenance of certain fixed charge coverage and leverage ratios and the making
of contributions to LCR, as well as the payment of dividends to the extent that
the Company's net income after January 1, 1994 generally does not exceed, over
time, dividends declared or paid after that date.
The Facility's debt incurrence covenant restricts the incurrence by the Company
of additional debt, including debt under the Facility, unless, immediately after
giving effect to the additional borrowing, the ratio of earnings before
depreciation, amortization, interest and income taxes, to interest expense
exceeds the limits set forth in the Facility. However, the debt incurrence
covenant does not become applicable until the debt incurred by the Company after
December 31, 1993 exceeds $75 million.
In addition to other customary events of default, the Facility provides that an
event of default will occur (i) if the Company fails to pay when due (whether by
scheduled maturity, acceleration or otherwise) an aggregate amount of
indebtedness or interest thereon (other than with respect to loans under the
Facility) in excess of $15 million, or (ii) if the Company is determined (upon
exhaustion of all appeals and expiration of all cure periods) to be in default
of a material obligation under the LCR Regulations. The forgoing summary of the
Facility is not intended to be complete and it is subject to, and qualified in
its entirety by reference to, the terms of the Facility which has been filed as
an exhibit to this Annual Report on Form 10-K and incorporated herein by this
reference.
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For a further discussion of the Company's long-term debt and financing
arrangements, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- FINANCIAL CONDITION" and Note 11 of "NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS".
ENVIRONMENTAL MATTERS
The Company's production facilities are generally required to have permits and
licenses regulating air emissions, discharges to water and generation, storage,
treatment and disposal of hazardous wastes. Companies that are permitted to
treat, store or dispose of hazardous waste and maintain underground storage
tanks pursuant to the Resource Conservation and Recovery Act (RCRA) also are
required to meet certain financial responsibility requirements. The Company
believes that it has all permits and licenses generally necessary to conduct its
business or, where necessary, is applying for additional, amended or modified
permits, and that it meets applicable financial responsibility requirements.
The Company's policy is to be in compliance with all applicable environmental
laws. The Company is committed to Responsible Care(R), a chemical industry
initiative to enhance the industry's responsible management of chemicals. The
Company (together with the industry in which it operates) is subject to
extensive federal, state and local environmental laws and regulations concerning
emissions to the air, discharges onto land or waters and the generation,
handling, storage, transportation, treatment and disposal of waste materials.
Some of these laws and regulations are subject to varying and conflicting
interpretations. In addition, the Company cannot accurately predict future
developments, such as increasingly strict requirements of environmental laws,
inspection and enforcement policies and compliance costs therefrom, which might
affect the handling, manufacture, use, emission or disposal of products, other
materials or hazardous and non-hazardous waste. For example, a revised testing
procedure under RCRA, the toxicity characteristic leachate procedure (TCLP),
resulted in the reclassification of some wastes at the Company's facilities
which has required changes in the Company's waste management practices. These
changes have caused the Company to make expenditures in 1993 and will cause the
Company to make substantial additional expenditures in 1994. Some risk of
environmental costs and liabilities is inherent in particular operations and
products of the Company, as it is with other companies engaged in similar
businesses, and there is no assurance that material costs and liabilities will
not be incurred. In general, however, with respect to the capital expenditures
and risks described above, the Company does not expect that it will be affected
differentially from the rest of the domestic petrochemical and refining
industry.
In some cases, compliance with environmental, health and safety laws and
regulations can only be achieved by capital expenditures. In the years ended
December 31, 1992 and 1993, the Company spent approximately $57 million and $38
million, respectively, for environmentally related capital expenditures at
existing facilities. For 1994 and 1995, the Company currently estimates that
environmentally related capital expenditures at existing facilities (including
LCR's) will be approximately $51 million and $50 million, respectively. The
timing and amount of these expenditures are subject to the regulatory and other
uncertainties described above as well as obtaining of the necessary permits and
approvals. The Company's 1994 capital budget includes the following
environmentally related projects: (1) work on installation of a wet gas scrubber
that will reduce sulfur dioxide and particulate emissions from the Refinery's
fluid catalytic cracking unit; (2) TCLP-related projects at the Refinery,
including closure of some surface impoundments, source reductions and rerouting
of streams; (3) completion of a number of projects to reduce benzene emissions
in compliance with federal regulations; (4) a marine vapor recovery project at
the Refinery; and (5) compliance costs at the Channelview Complex and the
Refinery related to nitrogen oxide emissions from combustion sources. Additional
projects may be required as a result of various enforcement orders that the
Company is negotiating. For periods beyond 1995, additional environmentally
related capital expenditures will be required, although the Company cannot
accurately predict the levels of such expenditures at this time.
The Refinery contains on-site solid-waste landfills which were used in the past
to dispose of waste generated at these facilities. It is anticipated that
corrective actions will be necessary to comply with federal and state
requirements with respect to this facility. In addition, the Company negotiated
an order with the Texas Water Commission, now the Texas Natural Resource
Conservation Commission (TNRCC), for assessment and remediation of groundwater
and soil contamination at the Refinery. The Company has reserved an amount
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(without regard to potential insurance recoveries or other third party
reimbursements) it believes to be sufficient to cover current estimates of the
cost for remedial measures at its manufacturing facilities based upon its
interpretation of current environmental standards. Based on the establishment
of such reserves, and the status of discussions with regulatory agencies
described in the preceding paragraph, and although the reserves are subject to
increase, the Company does not anticipate any material adverse effect upon its
earnings, operations or competitive position as a result of compliance with the
laws and regulations described in this or the preceding paragraphs. See also
Item 3 -- "Claims Relating To Waste Disposal Sites".
Item 3. Legal Proceedings
General
In connection with the transfer of assets and liabilities from ARCO to Lyondell,
Lyondell agreed to assume certain liabilities arising out of the operation of
the Company's integrated petrochemical and petroleum processing business prior
to July 1, 1988. At that time, the Company and ARCO entered into an agreement
(Cross-Indemnity Agreement) whereby the Company agreed to defend and indemnify
ARCO against certain uninsured claims and liabilities which ARCO may incur
relating to the operation of the business of the Company prior to July 1, 1988,
including liabilities which may arise out of certain of the legal proceedings
described in this Item 3. See Item 13 -- "Certain Relationships and Related
Transactions". Prior to November 20, 1990, ARCO's insurance carriers had
assumed the defense of most of the lawsuits described in this Item 3. Since
that date, ARCO's insurance carriers have refused to advance defense costs in
those lawsuits relating to certain of the waste disposal sites. See "Claims
Relating To Waste Disposal Sites - ARCO Insurance Litigation".
In addition to the proceedings specifically described in this Item 3, ARCO, the
Company and its subsidiaries are defendants in other suits, some of which are
not covered by insurance. Many of these additional suits involve smaller
amounts than the matters described herein, or make no specific claim for relief.
Although final determination of legal liability and the resulting financial
impact with respect to the litigation described in this Item 3, as well as the
other litigation affecting the Company, cannot be ascertained with any degree of
certainty, the Company does not believe that any ultimate uninsured liability
resulting from the legal proceedings in which it currently is involved (directly
or indirectly) will individually, or in the aggregate, have a material adverse
effect on the business or financial condition of the Company. See Note 18 of
"NOTES TO CONSOLIDATED FINANCIAL STATEMENTS".
Although Lyondell is involved in numerous and varied legal proceedings, a
significant portion of its litigation arises in three contexts: (1) claims for
personal injury or death allegedly arising out of exposure to the Company's
products; (2) claims for personal injury or death, and/or property damage
allegedly arising out of the generation and disposal of chemical wastes at
Superfund and other waste disposal sites; and (3) claims for personal injury
and/or property damage and air and noise pollution allegedly arising out of the
operation of the Company's facilities. The following sections of this Item 3
describe these types of pending proceedings. Lyondell (either directly or
through ARCO as its indemnitee) is the real party at interest in these
proceedings.
Claims Related To Company Products
ARCO and the Company are involved in numerous suits arising in whole or in part
from the operation of the Company's, including LCR, petrochemical and petroleum
processing businesses and the assets related thereto in which the plaintiffs
allege damages arising from exposure to allegedly toxic chemical products, such
as benzene and butadiene. Plaintiffs in these cases usually worked at a
manufacturing facility as employees of one of Lyondell's customers, were
employees of the Company's contractors, or were employees of companies involved
in the transportation of the Company's products to its customers. These suits
allege toxic effects of exposure to chemicals sold in the ordinary course of
business to third parties by various industrial concerns, including ARCO or the
Company, or allege toxic chemical exposures at the Company's manufacturing
facilities. Issues common to these cases include: (1) whether the plaintiff can
identify a specific product to which he was allegedly exposed; (2) whether the
Company supplied the identified product to which plaintiff claims he was
exposed; (3) whether the plaintiff has a medical condition which, based upon
competent scientific and medical evidence, is causally related to the identified
product; (4) whether, and under what conditions, the plaintiff was exposed to
the
14
<PAGE>
identified product; and (5) if the plaintiff was exposed, whether the
Company has any legal defenses to the plaintiff's claims and whether there are
other parties or defendants to whom the Company can turn for contribution or
indemnification. The Company believes that it has always followed a policy of
not only complying with all mandated standards related to product warnings and
exposure levels but also of complying with Company specific standards that were
more strict than those imposed by the law. As a result, the Company believes
that it has a basis to avail itself of legal defenses against claims regarding
its products due to exposures by employees and by claims of exposures from third
parties to whom the Company sold its products.
The vast majority of chemical exposure cases name a large number of industrial
concerns, in addition to the Company, as defendants and are at various stages of
discovery. Although the Company does not believe that the pending chemical
exposure cases will have a material adverse effect on its business or financial
condition, it is difficult to determine the potential outcome of this type of
case. The majority of the plaintiffs in chemical exposure legal proceedings
request relief in the form of unspecified monetary damages. Furthermore, when
specific amounts are requested they often bear no objective relation to the
merits of the case. Notwithstanding the foregoing, it is possible that if one
or more of the presently pending chemical exposure cases were resolved against
ARCO or the Company, the resulting damage award could be material to the Company
without giving effect to contribution or indemnification obligations of co-
defendants or others, or to the effect of any insurance coverage that may be
available to offset the effects of any such award.
Claims Relating To Waste Disposal Sites
Wastes generated from products produced by facilities transferred from ARCO and
now owned by the Company or LCR have, from time to time, been disposed of at
third-party landfills. Two of these facilities, known as the "French Ltd." and
the "Brio" Sites, both of which are located near Houston, Texas, have been
classified as "Superfund" sites under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA). The Environmental Protection
Agency (EPA) has named many potentially responsible parties (PRPs) at each site
from whom wastes were allegedly received. Based on the current law, the Company
does not believe that its obligation to ARCO related to ARCO's share of clean-up
costs at either of these sites will result in a liability that will have,
individually or in the aggregate, a material adverse effect on the business or
financial condition of the Company. It is possible, however, that the Company
may be involved in future CERCLA and comparable state law investigations and
clean-ups. The current presidential administration recently proposed a plan to
significantly revise the Superfund law which is scheduled for reauthorization
this year. Because the proposal is so recent and because it is expected to
generate strong reactions from business, insurance companies, lenders,
municipalities and environmentalists, the Company is not able to predict whether
the administration's plan will be enacted or to determine with specificity what
the impact would be on the Company.
French Ltd. Site Remediation -- At the French Ltd. site, ARCO and the other PRPs
have entered into a settlement agreement relating to the allocation of clean-up
costs. The EPA approved the clean-up plan and a Consent Decree was entered in
the Federal District Court for the Southern District of Texas in the first
quarter of 1990. An amendment to the Consent Decree relating to natural
resource damage has been negotiated and submitted to the court for approval.
The total costs associated with the Consent Decree are currently estimated to be
approximately $90 million. The Company believes that its share of clean-up
costs (as allocated pursuant to the Cross-Indemnity Agreement) will be no more
than five percent of total costs recovered without giving effect to any
insurance coverage which may be available to offset these costs.
French Ltd. Site Litigation -- Approximately 2,500 plaintiffs have made claims
related to wastes in the French Ltd. Superfund site. In each of these cases,
ARCO is one of many defendants. These suits generally allege that unspecified
chemical waste sent to the site by the defendants caused a decrease in property
value, a decrease in plaintiffs' ability to enjoy their property, and
unspecified adverse effects on plaintiffs' health. Although some of the
lawsuits request relief in the form of unspecified monetary damages, the
aggregate amount of actual damages sought in those cases where damages are
specified exceeds $5 billion. The aggregate amount of punitive damages sought
in those cases where damages are specified exceeds $20 billion. In December,
1992, after mediation, ARCO, along with several other defendants, entered into a
preliminary agreement to settle claims of approximately 2,200 plaintiffs. The
remaining claims are in pretrial discovery. The Company's obligation to
reimburse ARCO for defense costs and settlements related to French Ltd. has not
been determined.
15
<PAGE>
Brio Site Remediation -- At the Brio site, a definitive agreement allocating
these remedial costs among ARCO and other PRPs has been reached. The EPA
approved the plan and a Consent Decree between the Department of Justice and a
group of PRPs (including ARCO on behalf of its former divisions and
subsidiaries) was entered in Federal District Court for the Southern District of
Texas, in April, 1991 and remediation work is ongoing. In 1991, various parties
filed an appeal to the entering of the Consent Decree after the denial of their
motions to intervene in the proceedings. This appeal was denied in December,
1991. The total clean-up cost is currently estimated to be approximately $60
million. The Company believes that its share of the clean-up costs (as
allocated pursuant to the Cross-Indemnity Agreement) will be no more than one
percent of total costs without giving effect to any insurance coverage which may
be available to offset these costs.
Brio Site Litigation -- There currently are eight separate pending legal
proceedings filed against ARCO or its affiliates and numerous others in
connection with the Brio Superfund site. In these proceedings, there are
approximately 600 plaintiffs, many of whom are suing in their capacity as next
friend of minor children. In each of these cases, ARCO is one of many
defendants. Plaintiffs allege personal injury as a result of exposure to
various substances that were disposed of or stored at the Brio site. These
suits generally allege that defendants were negligent in sending chemical
substances to the site and also contain allegations of nuisance and strict
liability. The suits involve: a school district alleging damages as a result of
the closing of Weber Elementary; employees of the various entities who operated
the refining and reprocessing facilities at Brio; and other plaintiffs. All of
the lawsuits request relief in the form of unspecified compensatory and
exemplary damages. These suits are in pretrial discovery.
ARCO (or its affiliate) is the named defendant in the above proceedings. Under
the provisions of the Cross-Indemnity Agreement, Lyondell is not obligated to
indemnify ARCO for costs arising out of this litigation for which ARCO is
insured. Although ARCO is currently litigating the nature and extent of its
coverage with its insurance carriers (see "ARCO Insurance Litigation"), Lyondell
believes that the ultimate resolution of the above described lawsuits, ARCO's
insurance litigation and related issues will not result in any material
obligation on the part of Lyondell to ARCO with respect to the Brio and the
French Ltd. Superfund Sites.
Other Waste Disposal Site Litigation -- The Company and ARCO are named
defendants in three of four presently pending lawsuits filed on behalf of 73
plaintiffs in the state district court in Galveston County, Texas involving the
alleged release of toxic and hazardous substances from the Hall's Bayou Ranch.
LCR sends and, prior to July 1, 1993, Lyondell and its predecessor sent surface
water runoff and process waste water from the Refinery to Gulf Coast Waste
Disposal Authority (GCWDA) and a portion of the solids output from GCWDA is sent
for storage to the Hall's Bayou Ranch site. Plaintiffs claim personal injury,
diminution of property value and loss of use and enjoyment of the property.
They are seeking $7 billion in actual damages and $28 billion in punitive
damages. In March 1993, the Company and ARCO entered a preliminary settlement
agreement to resolve these proceedings with all plaintiffs. The proposed
settlement is not expected to have a material adverse effect on the Company's
financial position.
ARCO Insurance Litigation -- On November 21, 1990, ARCO filed suit against
certain of its insurers with respect to insurance policies in effect at times
during past years. This litigation involves claims for reimbursement of defense
costs and environmental expenses incurred by ARCO in connection with ARCO's
activities at sites and locations throughout the United States. ARCO's insurers
had been participating in the defense of the Company and ARCO for the Mont
Belvieu proceedings (see "Claims Related To Company Operations -- Mont Belvieu
Litigation") as well as the litigation involving the French Ltd. and the Brio
Superfund sites; however, subsequent to the filing of ARCO's lawsuit, the
insurers have refused to advance defense costs for these proceedings (and
certain other proceedings relating to the Company's products) until the coverage
dispute has been resolved. ARCO is currently paying the defense costs in these
proceedings, as well as other waste disposal site litigation, pending the
resolution of the coverage dispute. It has not been determined whether or not
the Company has an obligation to reimburse ARCO for defense costs related to the
coverage dispute.
Claims Related To Company Operations
Mont Belvieu Litigation -- Several organizations and groups of citizens who own
property in the vicinity of Mont Belvieu, Texas, have instituted suits for
monetary damages and injunctive relief against ARCO and others who own
underground storage and transportation facilities in the city of Mont Belvieu.
In September, 1980, Warren Petroleum Company (Warren) experienced a leak in one
of its underground hydrocarbon storage wells in Mont Belvieu. On March 18,
1983, suit was brought by 34 plaintiffs, naming
16
<PAGE>
Warren, ARCO and other companies with operations in Mont Belvieu as
defendants. These plaintiffs claimed property damage, and, in some instances,
personal injuries allegedly resulting from storage operations in Mont Belvieu.
Later, 83 additional plaintiffs joined the suit. Because of the number of
plaintiffs, the court divided this lawsuit into three separate lawsuits. In
February, 1986, ARCO was granted a directed verdict as to all of the claims of
the plaintiffs in the first of the three lawsuits to be tried which had the
effect of dismissing all the pending claims without the ability to refile.
Thereafter, the plaintiffs in the two remaining cases dropped their claims
against ARCO. ARCO remains in these two cases as a result of cross claims for
contribution filed by other defendants. These suits have not been set for
trial.
In 1986, a number of companies that operated facilities in Mont Belvieu,
including ARCO, instituted a program to make offers to purchase certain
properties in Mont Belvieu. The purpose of the purchase program was to give
persons within a certain area the opportunity to move, if they so desired. A
number of residents and litigants participated in the program.
The implementation of the purchase program described above led to the filing of
a new set of lawsuits. There are two separate legal proceedings which have
resulted from eight lawsuits filed against ARCO, the Company, and a number of
other companies that operate facilities in Mont Belvieu. These claims are made
by persons outside of the area designated by the purchase program and are
pending in state and federal court. The lawsuits name ARCO and the Company as
well as every other company that participated in the purchase program as
defendants. In six of the cases, which involve a total of 94 plaintiffs, the
city of Mont Belvieu also is named as a defendant. These plaintiffs claim that
industry operations, together with incidents that occurred at certain
facilities, and the publicity surrounding those incidents, destroyed the value
of their property. The plaintiffs also assert that they were discriminated
against by the purchase program and that their civil rights were violated since
they did not receive an offer to buy their property. The plaintiffs further
claim that the purchase violated antitrust provisions of state law, and that the
defendants were negligent in their operations and trespassed onto plaintiffs'
properties.
In December, 1991, the trial court in the lawsuit pending in state district
court entered a take nothing summary judgment in favor of ARCO, the Company and
other companies who were named as defendants in that lawsuit. The plaintiff
sought injunctive relief, recovery of more than $9 million in actual damages and
more than $28 million in punitive damages in this case. The plaintiff appealed
the adverse ruling. In July, 1992, the state court of appeals in Houston
reversed and remanded the case for retrial in a different county based on its
interpretation of proper venue. In September, 1993, a summary judgment in the
state district court in the new county was granted in favor of all defendants in
this matter. An appeal is pending.
All other Mont Belvieu cases were consolidated in the Federal District Court in
the Southern District of Texas. In addition to unspecified damages, the
aggregate amount of actual damages sought from all defendants in all of these
Mont Belvieu cases exceeds $241 million. The aggregate amount of punitive
damages sought exceeds $675 million. These lawsuits went to trial on December
1, 1992. On January 11, 1993, after the plaintiffs concluded their offer of
evidence, the trial court granted the defendants' motion for directed verdict
which dismissed plaintiffs' claims without the ability to refile. An appeal is
pending.
ARCO is paying all defense costs in all of the Mont Belvieu litigation and the
Company does not expect that a claim will be made under the Cross-Indemnity
Agreement.
Channelview Nuisance Litigation -- In 1992 and 1993, the Company, together with
two other corporate defendants, was named as a defendant in two separate
lawsuits that were filed in two state district courts in Harris County, Texas.
In the first suit, the 15 plaintiffs allege that one or all of the named
defendants' facilities emit loud noises, bright lights and noxious fumes in
proximity to the plaintiffs' homes. The 15 plaintiffs in the second lawsuit
make these same allegations. Some of these latter plaintiffs also allege a
diminished quality of the water in their water wells. The two lawsuits have
been consolidated. The plaintiffs are claiming, among other things, diminution
in property value, interference with the use and enjoyment of their property and
personal injuries. The consolidated lawsuits seek unspecified actual damages in
excess of $5 million and punitive damages in excess of $20 million.
17
<PAGE>
Arceneaux Litigation -- In November, 1993, multiple lawsuits were filed in state
district court on behalf of approximately 70,000 plaintiffs residing or doing
business in the vicinity of the lower San Jacinto River against hundreds of
named businesses, including the Company, owning or operating facilities situated
in the vicinity of the Houston Ship Channel alleging, among other things,
pollution to the San Jacinto River watershed below the Ship Channel and
requesting damages in the aggregate in excess of $1.5 trillion. In January,
1994, one of the suits against a single defendant was non-suited and the three
remaining suits were dismissed on the defendants' motion without the ability to
refile.
Other Matters
In April, 1993 the City of Houston, Texas (joining the Texas Air Control Board
as a necessary party) filed suit in the state district court of Harris County,
Texas against the Company, alleging violations of the Texas Clean Air Act and
the Texas Administrative Code and seeking maximum civil penalties and
appropriate injunctive relief. In July, 1993 the City of Houston filed an
amended and restated petition which added as causes of action certain
allegations made by the Texas Air Control Board, now the TNRCC, following its
April, 1993 state inspection plan (SIP) inspection. The Company filed a general
denial to all allegations of the lawsuit in July, 1993 and is engaged in
settlement negotiations with the City and the State. In the fourth quarter of
1992, the Refinery underwent an EPA multi-media inspection and an Occupational
Safety and Health Administration (OSHA) Process Quality Verification Audit. The
OSHA inspection of the Refinery was resolved in an informal settlement agreement
in April, 1993. At this time, the EPA has not formally notified the Company of
the enforcement action to be taken, if any.
In addition to the matters reported herein, from time to time the Company
receives notices from federal, state or local governmental entities of alleged
violations of environmental laws and regulations pertaining to, among other
things, the disposal, emission and storage of chemical and petroleum substances,
including hazardous wastes. Although the Company has not been the subject of
significant penalties to date, such alleged violations may become the subject of
enforcement actions or other legal proceedings and may (individually or in the
aggregate) involve monetary sanctions of $100,000 or more (exclusive of interest
and costs).
18
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the executive officers of Registrant as of March 1, 1994.
Name, Age and Present Business Experience During Past
Position with Lyondell Five Years and Period Served as Officer(s)
- ---------------------- ------------------------------------------
John R. Beard, 41................. Mr. Beard became Vice President Quality,
Vice President, Supply and Planning on July 1, 1993.
Quality, Supply and Planning Mr. Beard was appointed Vice President,
Planning and Evaluations in May, 1992.
He served as the Site Manager of Lyondell's
Houston Refinery from 1988 until April,
1992. From 1985 until 1988, he served in
management assignments in evaluations,
marketing and manufacturing. Prior to 1985,
he served in various management positions
for ARCO Products Company and the ARCO
Chemical Division. He originally joined
ARCO in 1974.
Bob G. Gower, 56.................. Mr. Gower was elected Chief Executive Officer
Chief Executive Officer, of the Company on October 24, 1988 and
President and Director Director and President of the Company on
June 27, 1988. He has been President of
Lyondell and its predecessor, the Lyondell
Division, since formation of the Lyondell
Division in April, 1985. Mr. Gower was a
Senior Vice President of ARCO from June, 1984
until his resignation as an officer of ARCO
in January, 1989. Prior to 1984, he served in
various capacities with the then ARCO
Chemical Division. He originally joined ARCO
in 1963.
Robert H. Ise, 59................. Mr. Ise was appointed Vice President,
Vice President, Marketing, Supply and Evaluations of
Lyondell Petrochemical Company LYONDELL-CITGO Refining Company Ltd. on
Vice President, July 1, 1993. He previously served Lyondell
Marketing, Supply and Evaluations as Vice President, Marketing and Sales,
LYONDELL-CITGO Refining Polymers and Petroleum Products from April,
Company Ltd. 1992 until June, 1993 and continues to
serve as a Vice President of Lyondell. He
served as Vice President, Marketing and
Sales, Petroleum Products, from December,
1988 until April, 1992. He served as Vice
President of Industrial Products Marketing
of the Lyondell Division from June, 1987 to
December, 1988. From May, 1985 to June,
1987 he served as Director, Industrial
Products Marketing for the Lyondell
Division. Prior thereto, he served in
various marketing capacities for the ARCO
Products Division. He originally joined
ARCO in 1959.
Richard W. Park, 54............... Mr. Park was elected Vice President, Human
Vice President, Resources on June 27, 1988. He previously
Human Resources served as Vice President of Employee
Relations of the Lyondell Division since
February, 1987. From 1985 to 1987 he served
as Manager of Personnel for the then ARCO
Chemical Division's Specialty Chemicals and
International Units. Prior to 1985 he held
other employee relations positions with
divisions of ARCO. He originally joined
ARCO in 1965.
19
<PAGE>
Name, Age and Present Business Experience During Past
Position with Lyondell Five Years and Period Served as Officer(s)
- ---------------------- ------------------------------------------
Jeffrey R. Pendergraft, 45........ Mr. Pendergraft was named Senior Vice
Senior Vice President, President on May 6, 1993. Mr. Pendergraft
Secretary and General Counsel was elected Vice President and General
Counsel on June 27, 1988 and Secretary on
October 24, 1988. From September, 1985 to
June, 1988, he served as General Attorney
of the Lyondell Division. Prior to
September, 1985, he served as an attorney
for various operating divisions and
corporate units of ARCO at increasing
levels of responsibility. He originally
joined ARCO in 1972.
W. Norman Phillips, Jr., 39....... Mr. Phillips was elected Vice President,
Vice President, Channelview Operations on May 6, 1993. From
Channelview Operations May 22, 1992 until May 6, 1993, he served
as Site Manager of Channelview Operations.
He previously served as Manager, Planning
from August, 1991 until May, 1992. Prior to
August, 1991, he served in various
positions in manufacturing and marketing
for ARCO and Lyondell, including Sales
Manager in the Petroleum Products Marketing
Department from September, 1987 until
August, 1991. He originally joined ARCO in
1977.
Joseph M. Putz, 53................ Mr. Putz was elected Vice President and
Vice President Controller on October 24, 1988. Previously
and Controller he was Vice President, Control and
Administration of Lyondell, and its
predecessor, the Lyondell Division, from
June, 1987 to October, 1988. From 1986 to
1987 he served as Director, Internal
Control of ARCO. From 1985 to 1986 he
served as Manager of Special Projects for
ARCO. Prior to 1985, he held various
financial positions with divisions of ARCO.
He originally joined ARCO in 1965.
Dan F. Smith, 47.................. Mr. Smith was elected a Director of the
Executive Vice President and Company on October 24, 1988. He was elected
Chief Operating Officer Executive Vice President and Chief
Operating Officer on May 6, 1993. He served
as Vice President Corporate Planning of
ARCO from October, 1991 until May, 1993. He
previously served as Executive Vice
President and Chief Financial Officer of
the Company from October, 1988 to October,
1991 and as Senior Vice President of
Manufacturing of Lyondell, and its
predecessor, the Lyondell Division, from
June, 1986 to October 1988. From August,
1985 to June, 1986, Mr. Smith served as
Vice President of Manufacturing for the
Lyondell Division. He joined the Lyondell
division in April, 1985 as Vice President,
Control and Administration. Prior to 1985,
he served in various financial, planning
and manufacturing positions with ARCO. He
originally joined ARCO in 1968.
20
<PAGE>
Name, Age and Present Business Experience During Past
Position with Lyondell Five Years and Period Served as Officer(s)
---------------------- ------------------------------------------
Debra L. Starnes, 41.............. Ms. Starnes was appointed Vice President,
Vice President, Petrochemicals Business Management and
Petrochemicals Business Management Marketing on July 1, 1993. She previously
and Marketing served as Vice President, Petrochemicals
Business Management from May 22, 1992 to
July, 1993. She served as Vice President,
Corporate Planning from September, 1991
until May, 1992. From January, 1989 to
September, 1991, she served as Director,
Planning. Prior to 1989, she held various
manufacturing, marketing and planning
positions with ARCO and Lyondell. She
originally joined ARCO in 1975.
Russell S. Young, 45.............. Mr. Young was elected Senior Vice President,
Senior Vice President, Chief Financial Officer and Treasurer on
Chief Financial Officer May 7, 1992. He previously served as Vice
and Treasurer President and Treasurer from November, 1988
until May, 1992. Mr. Young served as
Controller of the ARCO Products Division
from September, 1986 to January, 1989. From
July, 1984 to September, 1986 he served as
Assistant Treasurer of ARCO. Prior thereto
he served in corporate finance positions for
ARCO. He originally joined ARCO in 1980.
(a) The By-Laws of the Company provide that each officer shall hold office
until the officer's successor is elected or appointed and qualified or
until the officer's death, resignation or removal by the Board of
Directors.
21
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists of 250,000,000
shares of common stock, par value $1 per share. The following summary
description of the capital stock of the Company is qualified in its entirety by
reference to the Certificate of Incorporation and By-Laws of the Company, copies
of which are filed as exhibits to the Company's Registration Statement on Form
S-1 (No. 33-25407) and incorporated herein by reference.
Common Stock
The Company is currently authorized to issue 250,000,000 shares of common stock,
of which 80,000,000 shares of common stock are outstanding at the date hereof.
Holders of common stock (Stockholders) are entitled (i) to receive such
dividends as may from time to time be declared by the Board of Directors of the
Company; (ii) to one vote per share on all matters on which the Stockholders are
entitled to vote; (iii) to act by written consent in lieu of voting at a meeting
of stockholders; and (iv) to share ratably in all assets of the Company
available for distribution to the Stockholders, in the event of liquidation,
dissolution or winding up of the Company. For additional information regarding
the Company's dividend policy, see Item 5 of this Annual Report on Form 10-K.
The holders of a majority of the shares of Common Stock represented at a meeting
can elect all of the directors. See Item 12 -- "Security Ownership of Certain
Beneficial Owners and Management" which is included herein.
Shares of common stock are not liable to further calls or assessments by the
Company for any liabilities of the Company that may be imposed on its
stockholders under the laws of the State of Delaware, the state of incorporation
of the Company. There are no preemptive rights for the common stock in the
Certificate of Incorporation.
The Transfer Agent, Registrar and Dividend Disbursing Agent for the common stock
is The Bank of New York.
22
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The common stock is listed on the New York Stock Exchange. ARCO has advised the
Company that, as of March 1, 1994, ARCO owned 39,921,400 shares of the common
stock, which represented 49.9 percent of the outstanding shares.
The reported high and low sale prices of the common stock on the New York Stock
Exchange (New York Stock Exchange Composite Tape) for each quarter from January
1, 1992 through December 31, 1993, inclusive, were:
<TABLE>
<CAPTION>
Period High Low
------ ---- ---
<S> <C> <C>
1992
First Quarter 25-3/4 22-1/8
Second Quarter 25-7/8 21-1/8
Third Quarter 25-5/8 21-3/8
Fourth Quarter 25-1/2 23-1/8
1993
First Quarter 29-1/2 23-3/4
Second Quarter 26-5/8 19
Third Quarter 21-5/8 16-3/4
Fourth Quarter 21-1/2 18-3/8
</TABLE>
On March 1, 1994 the closing price of the common stock was $22-3/4 and there
were 2,976 record holders of the common stock.
On January 21, 1994 the Board of Directors declared a quarterly dividend in the
amount of $0.225 per share payable on March 15, 1994 to stockholders of record
on February 18, 1994. During the last two years, Lyondell has declared per share
quarterly cash dividends (which were paid in the subsequent quarter) as follows:
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1992................. $0.45 $0.45 $0.45 $ 0.45
1993................. $0.45 $0.225* $0.225 $0.225
</TABLE>
* On July 23, 1993, the Board of Directors decreased the amount of the
regular quarterly dividend from $0.45 to $0.225 per share.
The declaration and payment of dividends is at the discretion of the Board of
Directors of the Company. The future declaration and payment of dividends and
the amount thereof will be dependent upon the Company's results of operations,
financial condition, cash position and requirements, investment opportunities,
future prospects and other factors deemed relevant by the Board of Directors.
Subject to these considerations and to the legal considerations discussed in the
following paragraph, the Company currently intends to distribute to its
stockholders cash dividends on its common stock at a quarterly rate of $0.225
per share.
In order to declare and pay dividends in the future, the Company's Board of
Directors will have to make the determination that for purposes of the General
Corporation Law of the State of Delaware (Delaware Law) there is a sufficient
amount of surplus (the amount by which its assets exceed its liabilities and
capital) at that time or sufficient net profits. In determining the amount of
surplus of the Company for purposes of Delaware Law, the Company's assets,
including the stock of any of its subsidiaries, may be valued by the Board of
Directors at their
23
<PAGE>
current market value. If prior to or as a result of any future dividend the
Company had a negative stockholders' equity, the Company's Board of Directors
would have to make the determination that, based upon its familiarity with the
Company's business, prospects and financial condition, the Company's recent
earnings history and forecast, an appraisal of the Company's assets and
discussions with the Company's executive officers, legal department and
accountants, the dividend was a permitted dividend under Delaware Law.
As detailed on page 12 herein, certain of the Company's debt instruments contain
provisions that generally provide that the holders of such debt may, under
certain limited circumstances, require the Company to repurchase the debt (Put
Rights). In addition to the occurrences described on page 12 herein, the Put
Rights may be triggered by the making of certain unearned distributions to
stockholders, other than regular dividends, that are followed by a specified
decline in public ratings on such debt. Regular dividends are those quarterly
cash dividends determined in good faith by the Company's Board of Directors
(whose determination is conclusive) to be appropriate in light of the Company's
results of operations and capable of being sustained.
The determinations described in the paragraphs above were made prior to the
declaration of $0.225 per share dividend to be made on March 15, 1994.
The Company's $400 million Facility also could limit the Company's ability to
pay dividends under certain circumstances. See "Items 1 and 2 -- Finance
Matters".
During 1993, the Company paid $108 million in dividends. Total dividends paid
during the year exceeded cumulative earnings and profits, as computed for
federal income tax purposes. Subject to final determination by the Internal
Revenue Service, 100 percent of each of the 1993 quarterly dividend payments was
considered a return of capital.
The operation of certain of the Company's employee benefit plans may result in
the issuance of common stock upon the exercise of options granted to employees
of the Company, including its officers. Although the terms of these plans
provide that additional shares may be issued to satisfy the Company's
obligations under the options, the Company from time to time may cause common
stock to be repurchased in the market in order to satisfy these obligations.
24
<PAGE>
Item 6. Selected Financial Data
The following table sets forth selected financial information for the Company:
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------------
Millions of dollars, except per share amounts 1993 1992 1991 1990 1989
- --------------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales and other operating revenues..................... $3,850 $4,809 $5,735 $6,499 $5,361
Income before cumulative effect of accounting
changes............................................... 4 26 222 356 374
Net income (1)......................................... 26 16 222 356 374
Earnings per share before cumulative effect of
accounting changes.................................... .06 .32 2.78 4.45 4.67
Earnings per share..................................... .33 .20 2.78 4.45 4.67
Distributions to ARCO (2).............................. -- -- -- -- 500
Dividends per share.................................... 1.35 1.80 1.75 4.10 1.20
Total assets........................................... 1,231 1,215 1,479 1,372 1,267
Capitalized lease obligations, less current portion.... -- -- 156 187 214
Long-term debt, less current portion................... 717 725 554 471 500
</TABLE>
(1) The 1993 increase in net income from the cumulative effect of the
accounting change for turnarounds was $22 million, or $0.27 per share. See
Note 4 to Notes to Consolidated Financial Statements. The 1992 reduction
in net income from the cumulative effect of the accounting change for
postretirement benefits other than pensions was $18 million, or $.22 per
share. See Notes 4 and 16 of Notes to Consolidated Financial Statements.
The 1992 increase in net income from the cumulative effect of the
accounting change for income taxes was $8 million, or $.10 per share. See
Notes 4 and 17 of Notes to Consolidated Financial Statements.
(2) Distributions to ARCO were made prior to the initial public offering of the
Company's common stock on January 25, 1989.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
As discussed in Note 3 of Notes to Consolidated Financial Statements, on July 1,
1993, the Company and CITGO Petroleum Corporation (CITGO) announced the
commencement of operations of LYONDELL-CITGO Refining Company Ltd. (LCR), a new
entity owned by subsidiaries of the Company and CITGO. LCR owns and operates
the refining business, formerly owned by the Company, including the full-
conversion refinery (Refinery). LCR is undertaking a major upgrade project at
the Refinery to enable the facility to process substantial additional volumes of
very heavy crude oil. CITGO will provide a major portion of the funds for the
upgrade project as well as the funding of certain capital projects.
On July 1, 1993, LCR entered into a long-term crude oil supply contract (Crude
Supply Contract) with LAGOVEN, S.A., an affiliate of CITGO. In addition, under
terms of a long-term product sales agreement (Products Agreement), CITGO will
purchase a substantial portion of the refined products produced at the Refinery.
Both LAGOVEN and CITGO are subsidiaries of Petroleos de Venezuela, S.A., the
national oil company of Venezuela.
The Company believes that the principal benefit from its participation in LCR
will be stabilized earnings and cash flow from the refining business. During
1993, the Refinery increased the volumes of heavy Venezuelan crude oil processed
and it is anticipated that the Refinery will continue to achieve increased
benefits from processing heavy Venezuelan crude oil as it achieves improved
operating efficiency.
Prior to July 1, 1993, the petrochemical and refining operations of the Company
were considered to be a single segment due to the integrated nature of their
operations. However, these operations are now considered to be
25
<PAGE>
separate segments due to the formation of LCR and the related separate
management and operations of that entity. See Note 19 - Segment Information, of
Notes to Consolidated Financial Statements.
The Petrochemical segment consists of olefins, including ethylene, propylene,
butadiene, butylenes and specialty products; polyolefins, including
polypropylene and low density polyethylene; aromatics produced at the
Channelview Petrochemical Complex, including benzene and toluene; methanol and
refinery blending stocks.
The Refining segment consists of refined petroleum products, including gasoline,
heating oil and jet fuel; aromatics produced at the Refinery, including benzene,
toluene, paraxylene and orthoxylene; lubricants; olefins feedstocks and crude
oil resales.
The following table sets forth sales volumes for the Company's major products,
excluding intersegment sales volumes, for the periods indicated. Sales volumes
include production, purchases of products for resale, propylene production from
the product flexibility unit and draws from inventory.
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Selected petrochemical products (millions):
Ethylene, propylene and polymers (pounds).............................. 5,366 5,785 6,000
Other olefins (pounds)................................................. 1,150 1,158 1,112
Methanol (gallons)..................................................... 225 212 224
Aromatics (gallons).................................................... 125 112 108
Refinery products (thousand barrels per day):
Gasoline............................................................... 120 125 131
Heating oil (no. 2 distillate)......................................... 62 60 74
Jet fuel............................................................... 30 38 33
Aromatics.............................................................. 10 11 11
Other refinery products................................................ 41 43 39
----- ----- -----
Total refinery products volumes...................................... 263 277 288
===== ===== =====
</TABLE>
The following table sets forth the Company's sales and other revenues, excluding
intersegment sales, for the periods indicated:
26
<PAGE>
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------
Millions of dollars 1993 1992 1991
- ------------------- ---- ---- ----
<S> <C> <C> <C>
Petrochemical products:
Ethylene, propylene and polymers....................................... $ 808 $ 939 $1,135
Other olefins.......................................................... 169 177 171
Methanol............................................................... 89 77 100
Aromatics.............................................................. 120 121 130
Other petrochemical products and other revenues........................ 140 95 130
------ ------ ------
Total petrochemical products sales.................................. 1,326 1,409 1,666
------ ------ ------
Refinery products:
Gasoline............................................................... 950 1,123 1,289
Heating oil (no. 2 distillate)......................................... 481 510 667
Jet fuel............................................................... 245 342 316
Aromatics.............................................................. 167 193 195
Other refinery products and other revenues............................. 280 339 294
------ ------ ------
Total refinery products sales....................................... 2,123 2,507 2,761
------ ------ ------
Crude oil resales (*).................................................... 401 893 1,308
------ ------ ------
Total............................................................... $3,850 $4,809 $5,735
====== ====== ======
</TABLE>
(*) Crude oil resales consist of revenues from the resale of previously
purchased crude oil and from locational exchanges of crude oil that are
settled on a cash basis. Crude oil exchanges and resales facilitate the
operation of the Company's petroleum processing business by allowing the
Company to optimize the crude oil feedstock mix in response to market
conditions and refinery maintenance turnarounds and also to reduce
transportation costs.
RESULTS OF OPERATIONS
Overview
Net income for 1993 was $26 million or $.33 per share compared with $16 million
or $.20 per share in 1992 and $222 million or $2.78 per share in 1991. Earnings
for 1993 included a net $13 million after-tax benefit associated with a change
in accounting for major maintenance turnarounds consisting of a $22 million
favorable adjustment for the cumulative effect related to prior periods,
partially offset by a $9 million charge to current operations. Earnings for
1992 reflect a net after-tax charge of $10 million for the cumulative effect
related to prior periods of adopting Financial Accounting Standards Board
mandated accounting standards for postretirement benefits and income taxes.
Excluding the effect of these accounting changes, the earnings decline was
primarily due to lower ethylene sales volumes and lower polyolefins margins,
partially offset by higher refined products margins. The decrease in 1992
versus 1991 resulted primarily from lower refining and ethylene margins as well
as higher maintenance expenses for scheduled and unscheduled downtime at the
Refinery.
The 1993 results included after-tax charges of $11 million consisting of the
cancellation of a capital project, an increase in the environmental reserve and
a workforce reduction and realignment and an additional charge of $3 million for
an adjustment to deferred income taxes associated with an increase in the
federal income tax rate. These charges were partially offset by a benefit of $7
million due to a contract adjustment and LIFO inventory profits. Net income in
1992 included a benefit of $3 million due to an insurance recovery. This
compares to a benefit of $25 million in 1991 primarily associated with insurance
and litigation settlements and LIFO inventory profits.
Refining Segment
Revenues Sales and other operating revenues, including intersegment sales, were
$2.8 billion in 1993 compared to $3.7 billion in 1992 and $4.5 billion in 1991.
The 1993 decrease of $973 million compared to 1992 was due to lower crude oil
resale volumes, lower sales prices for refined products and lower resale volumes
of purchased
27
<PAGE>
light products. Crude oil resale volumes were lower due to reduced
logistical purchases required to meet refinery feedstock requirements which were
impacted by higher Venezuelan crude oil volumes purchased under the Crude Supply
Contract. Refined products sales prices were lower as additional industry
supply exceeded demand growth due to additions of oxygenates, primarily MTBE, to
meet stricter environmental standards, as well as new industry conversion
capacity. The purchase and resale activity for light refined products conducted
for logistic and other reasons was curtailed during the current period because,
effective with the beginning of LCR operations on July 1, 1993, a majority of
the refined products produced at the Refinery are now sold to CITGO under the
Products Agreement.
The 1992 decrease in sales and other operating revenues of $790 million versus
1991 was primarily due to lower crude oil resales and to lower sales prices and
volumes for refined products. The price premium that existed for refined
products during 1991 that was caused by the 1990-1991 Gulf War dissipated in
1992 resulting in lower prices. Refined products sales volumes were lower
primarily due to lower production resulting from scheduled and unscheduled
downtime of major units.
Cost of Sales Cost of sales was $2.6 billion in 1993, compared to $3.6 billion
in 1992 and $4.2 billion in 1991. The 1993 decrease compared to 1992 of $1,010
million was principally due to lower quantities of crude oil purchased, lower
light refined products purchased and lower crude oil prices. Crude oil
purchases were lower due to the reduced logistical purchases. Purchases of
light refined products were lower primarily due to lower purchases for resale
activity. Lower crude oil prices were due to generally lower industry-wide
crude oil prices and to the processing of higher volumes of lower priced, heavy
Venezuelan crude oil purchased under the Crude Supply Contract.
The 1992 decrease compared to 1991 of $605 million was principally due to lower
crude oil purchases that were resold and to lower refining feedstock costs.
Refining feedstock costs were lower primarily due to lower production resulting
from the scheduled and unscheduled downtime and a reduction in crude oil runs
due to unfavorable margins. Partially offsetting this decrease were higher
maintenance expenses related to the scheduled and unscheduled downtime. Cost of
sales was reduced in 1991 by $8 million relating to LIFO inventory profits.
Selling, General and Administrative Expenses Selling, general and
administrative expenses were $48 million in 1993, compared to $43 million in
1992 and $42 million in 1991. The increase in 1993 compared to 1992 of $5
million resulted primarily from higher personnel and realignment expenses
associated with ongoing operations of LCR starting on July 1, 1993.
Operating Income Operating income amounted to $81 million in 1993, compared to
$49 million in 1992 and $235 million in 1991. The $32 million increase in 1993
compared to 1992 was primarily due to improved refined products margins,
partially offset by higher selling, general and administrative expenses.
Refined products margins were higher due to processing higher volumes of heavy,
low cost Venezuelan crude oil purchased under the Crude Supply Contract.
The decrease in operating income of $186 million in 1992 compared to 1991
resulted primarily from lower refined products margins and to higher maintenance
expenses. Refined products margins were lower primarily because decreasing
product prices more than offset reductions in crude oil costs. Product prices
were lower due to the dissipation during 1992 of the Gulf War related price
premium created in 1990 and 1991. Higher maintenance expenses and the reduced
ability to process higher margin heavy crude oils which resulted from the
scheduled and unscheduled downtime of major units during 1992 contributed to
lower operating profits. Also contributing to the decrease in operating income
during 1992 compared to 1991 was a net reduction in benefits of $11 million from
insurance settlements and lower LIFO inventory profits of $8 million.
Petrochemical Segment
Revenues Sales and other operating revenues, including intersegment sales, were
$1.5 billion in 1993 compared to $1.7 billion in 1992 and $2.0 billion in 1991.
The 1993 decrease of $169 million compared to 1992 was primarily due to lower
olefins and polyolefins sales volumes and prices caused by continued weak demand
associated with poor worldwide industry conditions and higher industry
production due to reduced maintenance downtime during 1993.
28
<PAGE>
The 1992 decrease in sales and other operating revenues of $284 million versus
1991 was primarily due to lower sales prices for olefins and methanol. Olefins
sales prices were negatively affected by the continued weak worldwide economy
and by additional industry production capability due to capacity additions.
Cost of Sales Cost of sales was $1.4 billion in 1993 compared to $1.5 billion
in 1992 and $1.7 billion in 1991. The 1993 decrease of $124 million compared
to 1992 and the 1992 decrease of $175 million compared to 1991 were principally
due to lower olefins feedstock costs due to the curtailment of production
resulting from the poor economic conditions and to a lesser extent to lower
feedstock prices.
Cost of sales was reduced in 1993 and 1992 by $5 million and $2 million,
respectively, and was increased $2 million in 1991 relating to LIFO inventory
adjustments.
Operating Income Operating income amounted to $57 million in 1993 compared to
$102 million in 1992 and $213 million in 1991. The decrease of $45 million in
operating income in 1993 compared to 1992 was primarily due to lower ethylene
sales volumes and lower polyolefins margins. Ethylene sales volumes and
polyolefins margins were lower primarily due to poor industry and economic
conditions.
The decrease of $111 million in operating income in 1992 compared to 1991 was
primarily due to lower ethylene and methanol margins. Ethylene margins were
negatively affected by the continued weak worldwide economy and by industry
capacity additions. Methanol sales prices were lower due to the dissipation
during 1992 of the Gulf War related price premium created during 1990 and 1991.
Contributing to the decrease in operating income was the absence of a $12
million one-time gain recorded in 1991 for proceeds received from an out-of-
period settlement of litigation.
Unallocated and Headquarters
Selling, General and Administrative General and administrative expenses were
$45 million in 1993, $47 million in 1992 and $49 million in 1991. The reduction
of $2 million in general and administrative expenses in 1993 compared to 1992
and in 1992 compared to 1991 primarily resulted from lower personnel related
costs.
Interest Expense and Interest Income Interest expense was $74 million in 1993
compared to $79 million in 1992 and $74 million in 1991. The $5 million
reduction in interest expense in 1993 compared to 1992 was primarily caused by a
reduction of outstanding debt due to the prepayment of amounts due under
capitalized leases during April, 1992. The $5 million increase in 1992 compared
to 1991 resulted from higher average debt outstanding in 1992 which more than
offset lower interest rates.
Interest income was $2 million in 1993 compared to $10 million in 1992 and $14
million in 1991. The $8 million decrease in 1993 versus 1992 was primarily due
to lower amounts of cash available for investment. The $4 million decrease in
1992 versus 1991 was primarily due to lower interest rates and to a lesser
extent to lower amounts of cash available for investment.
Minority Interest in LYONDELL-CITGO Refining Company Ltd. Minority interest was
$5 million in 1993 representing CITGO's allocation of LCR's income.
Income Tax The effective income tax rate during 1993 from continuing operations
was 73.1 percent compared to 27.3 percent for 1992 and 34.6 percent for 1991.
The difference for 1993, between the effective tax rate and the federal
statutory rate was primarily due to a charge to state deferred taxes related to
Texas franchise taxes and the unfavorable impact on federal deferred taxes of
the increase in the federal tax rate. The difference for 1992 was primarily due
to a state income tax adjustment, tax exempt income related to company owned
life insurance and tax exempt interest.
29
<PAGE>
FINANCIAL CONDITION
Investing Activities Cash flows associated with investing activities during
1993 included capital expenditures of $60 million, excluding $9 million related
to the Refinery upgrade project, of which $38 million was for environmentally
related projects at the Refinery and the Channelview Complex. During 1992,
capital expenditures were $97 million, of which $57 million was for
environmentally related projects. The 1994 capital expenditures budget,
excluding the Refinery upgrade project, has been set at $90 million. The budget
provides $60 million for refinery projects, $26 million of which are to be
funded by Lyondell according to the terms of the agreement with LCR and $34
million to be funded from the restricted cash balance which was created by
CITGO's 1993 contributions to LCR. The remaining $30 million is for
petrochemical projects at the Channelview Complex. In addition to the capital
expenditures budget, $150 million of spending, funded by CITGO, is planned for
the Refinery upgrade project designed to increase the Refinery's ability to
process larger volumes of very heavy Venezuelan crude oil.
As of December 31, 1993, $73 million of cash and $6 million of short-term
investments were restricted for use in LCR capital projects, including the
Refinery upgrade project and other expenditures as determined by the LCR owners.
Financing Activities Cash flows associated with financing activities during
1993 included $108 million of dividend payments, $29 million for scheduled
repayments of Medium-Term Notes and $4 million of net proceeds from short-term
debt.
In December 1993, the Company completed a five-year, $400 million revolving
credit facility with a group of banks, representing an increase in amount and
term compared to the Company's previous $300 million bank credit facility, which
was scheduled to terminate in July, 1994. Borrowings under the new credit
facility bear interest based on Euro-Dollar, CD or Prime rates, at the Company's
option. The facility is available for working capital and general corporate
purposes as needed. This credit facility contains covenants relating to dividend
payments, debt incurrence, liens, disposition of assets, mergers and
consolidations, fixed charge and leverage ratios and certain payments to LCR.
At December 31, 1993, no amounts were outstanding under this credit facility.
See Note 11 of Notes to Consolidated Financial Statements.
Effective July 1, 1993, LCR entered into a 364 day unsecured $100 million
revolving credit facility with a group of banks. Under terms of the credit
facility, LCR may borrow with interest based on prime, LIBOR or CD rates at
LCR's option or have letters of credit issued on its behalf. The facility is
available for working capital and general corporate purposes as needed. At
December 31, 1993, no amounts were outstanding under this credit facility. See
Note 11 of Notes to Consolidated Financial Statements.
On January 21, 1994, the Board of Directors declared a quarterly dividend in the
amount of $.225 per share of common stock, payable March 15, 1994 to
stockholders of record on February 18, 1994.
During 1993, all of the $108 million of dividend payments exceeded cumulative
earnings and profits in 1993, as computed for federal income tax purposes
subject to final determination by the Internal Revenue Service, and will be
considered a return of capital to all stockholders. See Note 13 of Notes to
Consolidated Financial Statements.
Environmental Matters
Various environmental laws and regulations impose substantial requirements upon
the operations of the Company. The Company's policy is to be in compliance with
such laws and regulations, which include, among others, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as
amended, the Resource Conservation and Recovery Act (RCRA) and the Clean Air Act
and Clean Air Act Amendments of 1990. ARCO, along with many other companies,
has been named a potentially responsible party (PRP) under CERCLA in connection
with the past disposal of waste at third party waste sites. The Company may have
an obligation to reimburse ARCO for a portion of the remediation costs for two
of those sites pursuant to the Cross-Indemnity Agreement.
30
<PAGE>
The Company reserves for contingencies, including those based upon unasserted
claims, that are probable and reasonably estimable. In connection with
environmental matters, the Company established reserves based upon known facts
and circumstances. Based on current environmental laws and regulations, the
Company believes that it has adequately reserved for the matters described above
and, based upon such reserves, does not anticipate any material adverse effect
upon its earnings, operations or competitive position, although the resolution
in any reporting period of one or more of these matters could have a material
impact on the Company's results of operations for that period.
The environmental reserve on December 31, 1993 was $24 million. The
environmental reserve includes $0.5 million of estimated advances to ARCO for
remediation costs associated with CERCLA waste disposal sites and $23.5 million
of estimated remediation costs related to waste disposal sites located within
the Company's facilities associated with RCRA. The Company spent $627,000,
$593,000 and $1 million in 1993, 1992 and 1991, respectively, relating to CERCLA
matters. The Company also spent $2 million, $158,000 and $224,000 in 1993, 1992
and 1991, respectively, in conjunction with RCRA matters. The Company estimates
it will incur approximately $7 million of costs in conjunction with CERCLA and
RCRA matters in 1994 which is included in the December 31, 1993 environmental
reserve.
Current Business Outlook
The year 1993 was difficult for the petrochemical and refining industries which
are sensitive to economic cycles. Downward pressure on petrochemical sales
prices continued during 1993 due to significant increases in manufacturing
capacity, which has occurred since early 1991, coupled with weak worldwide
demand growth. Profitability and cash flows for the petrochemical and refining
businesses are affected by market conditions, feedstock cost volatility, capital
expenditures required to meet increasing environmental standards, repair and
maintenance costs, and downtime of production units due to turnarounds.
Turnarounds on major units can have significant financial impacts due to the
repair and maintenance costs incurred as well as loss of production, ultimately
resulting in lower profitability. Turnarounds on certain of the Company's major
production units are scheduled for 1994; however, the timing of such turnarounds
can be accelerated or delayed because of numerous factors, many of which are
beyond the Company's control.
In view of the above factors, the Company, during 1993, took actions to improve
near-term earnings and cash flows and to position the Company for better results
as the business environment improves. Those actions included the completion of
the refining venture with CITGO, a significant reduction in capital expenditures
from the budgeted amount, implementation of a cost reduction program which the
Company expects will reduce overhead costs by approximately $30 to $50 million
on an annual basis and the reduction of regular quarterly dividends from $.45
per share to $.225 per share beginning with the dividend paid in the third
quarter of 1993. The Company's Board of Directors' decision to reduce the
dividend reflects the Company's belief that payment of quarterly dividends at
the previous level was no longer appropriate in light of current business
conditions. The actions taken to conserve cash, including the dividend
reduction, were consistent with the Company's objective of maximizing total
return to stockholders. The Company believes that its ability to maintain
suitable debt ratings, to fund a capital program appropriate to its asset base
and to position the Company to benefit from an upturn in the business cycle are
critical factors in maintaining and increasing future stockholder value.
Progress was made during 1993 in achieving the cost reduction targets, which are
reflected primarily within the operating incomes of the Refining and
Petrochemical segments. Continued efforts are planned during 1994 to fully
achieve these savings.
Although future industry conditions cannot be known with certainty, the Company
believes that the business climate necessary for improved profitability within
its petrochemical segment has begun to stabilize. U.S. ethylene demand grew
approximately three percent during 1993 and was particularly strong in the
fourth quarter. The rapid increase in world capacity in recent years, which
caused a contraction of U.S. exports, has slowed. Domestically, new capacity
over the next two years is expected to be relatively in balance with demand
growth and there are no additional capacity expansions currently announced for
the U. S. after 1995.
The Company significantly improved the performance and outlook for its refining
business in 1993 with the completion of the refining venture with CITGO. This
agreement has stabilized refining margins and improved
31
<PAGE>
cash flows. The refining segment began to see the economic benefits from the
venture in 1993 and results should further improve through increased utilization
of heavy Venezuelan crude oil and recent efficiency improvements.
Although the future economic environment cannot be known with certainty, the
Company believes that the cash flow management, cost reduction and other steps
recently taken have positioned it to capitalize on the anticipated improvement
in the business environment. Further, the Company believes that business
conditions will be such that cash balances, cash generated from operating
activities and existing lines of credit will be adequate to meet future cash
requirements for scheduled debt repayments, necessary capital expenditures and
to sustain for the reasonably foreseeable future the revised regular quarterly
dividend. However, the Company continually evaluates its cash requirements and
allocates cash in order to maximize stockholder returns.
---------------------
Management cautions against projecting any future results based on present or
prior earnings levels because of the cyclical nature of the refining and
petrochemical industries and uncertainties associated with the United States and
worldwide economies and United States governmental regulatory actions.
32
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Financial Statement Schedules
<TABLE>
<CAPTION>
Schedule
Number Page
- -------- ----
<C> <S> <C>
Report of Independent Accountants................................................ 34
Financial Statements
Consolidated Statement of Income and Accumulated Deficit..................... 35
Consolidated Balance Sheet................................................... 36
Consolidated Statement of Cash Flows......................................... 37
Notes to Consolidated Financial Statements................................... 38
Supporting Financial Statement Schedules Covered by the Foregoing Report of
Independent Accountants:
V Property, Plant and Equipment.................................................... 74
VI Accumulated Depreciation and Amortization of Property, Plant and
Equipment...................................................................... 75
IX Short-Term Borrowings............................................................ 76
X Supplementary Income Statement Information....................................... 77
</TABLE>
Financial statement schedules other than those listed above have been omitted
because they are either not applicable or the required information is shown in
the financial statements or related notes.
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Lyondell Petrochemical Company
We have audited the accompanying consolidated balance sheet of Lyondell
Petrochemical Company as of December 31, 1993 and 1992, and the related
consolidated statements of income and accumulated deficit and cash flows for
each of the three years in the period ended December 31, 1993, and the related
financial statement schedules. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Lyondell Petrochemical Company as of December 31, 1993 and 1992, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
As discussed in Note 4 to the consolidated financial statements, during
1993 the Company changed its method of accounting for the cost of repairs and
maintenance incurred in connection with turnarounds of major units at its
manufacturing facilities, and in 1992, the Company changed its method of
accounting for income taxes and for postretirement benefits other than
pensions.
COOPERS & LYBRAND
Houston, Texas
February 11, 1994
34
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
CONSOLIDATED STATEMENT OF INCOME AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
For the year ended December 31
----------------------------------------
Millions of dollars except per share amounts 1993 1992 1991
- -------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Sales and other operating revenues:
Unrelated parties $ 3,572 $ 4,480 $ 5,209
Related parties 278 329 526
---------- ---------- ----------
3,850 4,809 5,735
Operating costs and expenses:
Cost of sales:
Unrelated parties 3,359 4,283 4,801
Related parties 268 295 409
Selling, general and administrative expenses 130 127 126
---------- ---------- ----------
3,757 4,705 5,336
---------- ---------- ----------
Operating income 93 104 399
Interest expense (74) (79) (74)
Interest income 2 10 14
Minority interest in LYONDELL-CITGO Refining Company Ltd. (5) --- ---
---------- ---------- ----------
Income before income taxes and
cumulative effect of accounting changes 16 35 339
Provision for income taxes 12 9 117
---------- ---------- ----------
Income before cumulative effect of accounting changes 4 26 222
Cumulative effect on prior years of accounting changes, net of tax 22 (10) ---
---------- ---------- ----------
Net income $ 26 $ 16 $ 222
========== ========== ==========
Earnings (loss) per share:
Income before cumulative effect of accounting changes $ .06 $ .32 $ 2.78
Cumulative effect on prior years of accounting changes .27 (.12) ---
---------- ---------- ----------
Net income $ .33 $ .20 $ 2.78
========== ========== ==========
Pro forma amounts, assuming retroactive application
of new accounting method for turnarounds:
Income before cumulative effect of accounting changes $ 31 $ 216
========== ==========
Income per share before cumulative effect of accounting changes $ .39 $ 2.70
========== ==========
Net income $ 4 $ 22 $ 216
========== ========== ==========
Net income per share $ .06 $ .27 $ 2.70
========== ========== ==========
Accumulated deficit at beginning of year $ (244) $ (116) $ (200)
Net income 26 16 222
Cash dividends (108) (144) (140)
Other --- --- 2
---------- ---------- ----------
Accumulated deficit at end of year $ (326) $ (244) $ (116)
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
35
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
----------------------------
Millions of dollars 1993 1992
- ------------------- ---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 40 $ 108
Restricted cash (Note 3) 73 ---
Short-term investments 6 13
Accounts receivable:
Trade 179 227
Related parties 25 26
Inventories 191 180
Prepaid expenses and other current assets 9 14
---------- ----------
Total current assets 523 568
---------- ----------
Fixed assets:
Property, plant and equipment 2,545 2,470
Less accumulated depreciation and amortization 1,890 1,847
---------- ----------
655 623
Deferred charges and other assets 53 24
---------- ----------
Total assets $ 1,231 $ 1,215
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable:
Trade $ 203 $ 234
Related parties 4 9
Notes payable 4 ---
Current maturities of long-term debt 8 29
Other accrued liabilities 80 73
---------- ----------
Total current liabilities 299 345
---------- ----------
Long-term debt 717 725
Other liabilities and deferred credits 78 72
Deferred income taxes 101 79
Commitments and contingencies (Note 18)
Minority interest 124 ---
Stockholders' equity (deficit):
Common stock, $1 par value, 250,000,000 shares
authorized, 80,000,000 issued and outstanding 80 80
Additional paid-in capital 158 158
Accumulated deficit (326) (244)
---------- ----------
Total stockholders' deficit (88) (6)
---------- ----------
Total liabilities and stockholders' deficit $ 1,231 $ 1,215
========== ==========
</TABLE>
See notes to consolidated financial statements.
36
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended December 31
-------------------------------------------------------
Millions of dollars 1993 1992 1991
- ------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 26 $ 16 $ 222
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting changes, net of tax (22) 10 ---
Depreciation and amortization 58 39 39
Deferred taxes 7 2 18
Net change in accounts receivable, inventories
and accounts payable (11) 54 (1)
Net change in other working capital accounts 16 (20) 3
Minority interest 5 --- ---
Other 5 7 (11)
---------------- ---------------- ---------------
Net cash provided by operating activities 84 108 270
---------------- ---------------- ---------------
Cash flows from investing activities:
Minority owner contribution 116 --- ---
Additions to fixed assets (69) (97) (43)
Purchases of short-term investments (9) --- (104)
Proceeds from sales of short-term investments 16 88 3
---------------- ---------------- ---------------
Net cash provided by (used in) investing activities 54 (9) (144)
---------------- ---------------- ---------------
Cash flows from financing activities:
Proceeds from short-term debt 16 --- ---
Repayments of short-term debt (12) --- ---
Proceeds from long-term debt --- 200 150
Repayments of long-term debt (29) (67) (29)
Repayments of capitalized lease obligations --- (186) (28)
Dividends paid (108) (144) (140)
---------------- ---------------- ---------------
Net cash used in financing activities (133) (197) (47)
---------------- ---------------- ---------------
Increase (decrease) in cash, restricted cash and cash equivalents 5 (98) 79
Cash and cash equivalents at beginning of period 108 206 127
---------------- ---------------- ---------------
Cash, restricted cash and cash equivalents at end of period $ 113 $ 108 $ 206
================ ================ ===============
</TABLE>
See notes to consolidated financial statements.
37
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Formation of the Company and Operations
In 1985, Atlantic Richfield Company (ARCO) established the Lyondell
Petrochemical Company as a division of ARCO (Lyondell Division). Lyondell
Petrochemical Corporation, a wholly-owned subsidiary of ARCO, was incorporated
in the state of Delaware in 1985 and subsequently changed its name to Lyondell
Petrochemical Company (Company). Effective July 1, 1988, ARCO transferred
substantially all the assets and liabilities relating to the integrated
petrochemical and petroleum processing business of the Lyondell Division to the
Company. In addition, certain pipeline assets were transferred to the Company.
For financial reporting purposes, the transfer of these assets and liabilities
was recorded at the historical net book value of $127 million as of July 1,
1988.
On January 25, 1989, ARCO completed an initial public offering of 43,000,000
shares of the Company's 80,000,000 shares of common stock owned by ARCO. The
Company received none of the proceeds from the sale. As of December 31, 1993,
ARCO owned 39,921,400 shares, which represents 49.9 percent of the outstanding
common stock.
The Company and LYONDELL-CITGO Refining Company Ltd. (LCR) operate in two
business segments: petrochemicals and refining. The Company generally sells its
petrochemical products to customers for use primarily in the manufacture of
other chemicals and products, which in turn are used in the production of a wide
variety of consumer and end-use products. LCR sells its principal refined
products primarily to CITGO Petroleum Corporation (CITGO) and to a lesser
extent, other marketers of petroleum products. See Note 3.
2. Summary of Significant Accounting Policies
Basis of Presentation - The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant transactions
between the entities of the Company have been eliminated from the consolidated
financial statements. Certain amounts from prior years have been reclassified
to conform to current year presentation.
Cash, Cash Equivalents and Short-Term Investments - Cash equivalents consist of
highly liquid debt instruments such as certificates of deposit, commercial paper
and money market accounts purchased with an original maturity date of three
months or less. Short-term investments consist of similar investments maturing
in more than three months from purchase. The Company's policy is to invest cash
in conservative, highly rated instruments and limit the amount of credit
exposure to any one institution. The Company performs periodic evaluations of
the relative credit standing of these financial institutions which are
considered in the Company's investment strategy. Cash equivalents and short-
term investments are stated at cost which approximates market value because of
the short maturity of these instruments.
The Company has no requirements for compensating balances in a specific amount
at a specific point in time. The Company does maintain compensating balances
for some of its banking services and products. Such balances are maintained on
an average basis and are solely at the Company's discretion, so that effectively
on any given date, none of the Company's cash is restricted with the exception
of cash held for use in connection with LCR capital projects and other
expenditures as determined by the LCR owners (see Note 3).
38
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies - (continued)
Accounts Receivable - The Company sells its products primarily to companies in
the petrochemical and refining industries. The Company performs ongoing credit
evaluations of its customers' financial condition and in certain circumstances
requires letters of credit from them. The Company's allowance for doubtful
accounts receivable, which is reflected in the consolidated balance sheet as a
reduction in accounts receivable, totaled $2 million at December 31, 1993 and
1992.
Inventories - Inventories are stated at the lower of cost or market. Cost is
determined on the last-in, first-out (LIFO) basis except for materials and
supplies, which are valued at average cost.
Fixed Assets - Fixed assets are recorded at cost. Depreciation of fixed assets
is computed using the straight-line method over the estimated useful lives of
the related assets as follows:
Manufacturing facilities and equipment - 5 to 30 years
Leased assets and improvements - 5 to 20 years
Upon retirement or sale, the Company removes the cost of the assets and the
related accumulated depreciation from the accounts and reflects any resulting
gains or losses in income.
Environmental Remediation Costs - Expenditures related to investigation and
remediation of contaminated sites which include operating facilities and waste
disposal sites, are accrued when it is probable that a liability has been
incurred and the amount of that liability can reasonably be estimated. These
costs are expensed or capitalized in accordance with generally accepted
accounting principles.
Futures Contracts - The Company executes futures contracts primarily to hedge
fluctuations in product prices and feedstock costs. Changes in the market value
of hedging contracts are reported as an adjustment to cost of sales upon
completion of the hedged transaction.
Exchanges - Crude oil and finished product exchange transactions, which are of a
homogeneous nature of commodities in the same line of business, that do not
involve the payment or receipt of cash, are not accounted for as purchases and
sales. Any resulting volumetric exchange balances are accounted for as
inventory in accordance with the normal LIFO valuation policy. Exchanges that
are settled through payment and receipt of cash are accounted for as purchases
and sales.
Income Taxes - Deferred taxes result from temporary differences in the
recognition of revenues and expenses for tax and financial reporting purposes
and are calculated, effective in 1992 with the adoption of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes",
based upon cumulative book/tax differences in the balance sheet.
3. Formation of LYONDELL-CITGO Refining Company Ltd.
On July 1, 1993, the Company and CITGO announced the commencement of operations
of LCR, a new entity formed and owned by the Company and CITGO in order to own
and operate the Company's refining business, including the full-conversion
Houston refinery (Refinery). LCR is undertaking a major upgrade project at the
Refinery to enable the facility to process substantial additional volumes of
very heavy crude oil.
LCR is a limited liability company organized under the laws of the state of
Texas. The Company owns its interest in LCR through a wholly-owned subsidiary,
Lyondell Refining Company. CITGO holds its interest through CITGO Refining
Investment Company, a wholly-owned subsidiary of CITGO. CITGO has committed to
reinvest its share of operating cash flow during the upgrade project, while the
Company has unrestricted access to its share of operating cash flow from LCR.
39
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Formation of LYONDELL-CITGO Refining Company Ltd. - (continued)
Under the terms of the transaction, CITGO will provide a major portion of the
funds for the upgrade project, as well as certain funds for general refinery
capital projects. Project engineering for the upgrade is currently underway and
at the present time, LCR management anticipates the cost over the next three to
four years to be approximately $800 million.
Funding for the upgrade project will occur in three phases. The first phase,
the initial $300 million, will be funded by CITGO. The second phase will be
funded by an LCR borrowing of $200 million. The third phase, which is expected
to occur toward the end of the upgrade project, will be a combination of LCR
borrowing and contributions from CITGO and the Company. Prior to completion of
the upgrade project, the financing costs for the upgrade project loans will be
funded by CITGO. The timing of the third phase and the level of contributions
from the Company and CITGO will be dependent upon the total cost of the upgrade
project. It is currently anticipated that the Company will contribute, in the
form of a subordinated loan, 25 percent of the cost of the upgrade project in
excess of $500 million ($75 million if the cost of the upgrade project equals
$800 million).
On July 1, 1993, the Company contributed its refining assets (including the lube
oil blending and packaging plant in Birmingport, Alabama) and refining working
capital to LCR and retained an approximate 95 percent interest in LCR. CITGO
contributed $50 million for future capital projects of LCR and in exchange
received an approximate five percent interest in LCR. CITGO also made an
additional $50 million contribution for future capital projects of LCR on
December 31, 1993. At December 31, 1993, CITGO had an approximate 10 percent
interest in LCR. In addition to the funding related to the upgrade project
described in the prior paragraph, CITGO has one additional contribution
commitment of $30 million to be made upon completion of the upgrade project and
it has an option to make an additional equity contribution sufficient to
increase its interest to 50 percent.
On July 1, 1993, LCR entered into a long-term crude oil supply agreement with
LAGOVEN, S.A., an affiliate of CITGO. In addition, under the terms of a long-
term product sales agreement, CITGO will purchase a majority of the refined
products produced at the Refinery. Both LAGOVEN and CITGO are subsidiaries of
Petroleos de Venezuela, S.A., the national oil company of Venezuela.
Also effective July 1, 1993, the parties entered into multiple agreements for
feedstock and product sales between LCR and the Company. These agreements
generally are aimed at preserving much of the synergy that previously existed
between the Company's refining and petrochemical businesses. LCR and the
Company also have entered into a tolling agreement, pursuant to which alkylate
and MTBE will be produced at the Channelview Complex for LCR, and various
administrative services agreements.
With respect to liabilities associated with LCR, the Company generally has
retained liability for events that occurred prior to July 1, 1993 and certain
on-going environmental projects at the Refinery. LCR generally is responsible
for liabilities associated with events occurring after June 30, 1993 and on-
going environmental compliance inherent to the operation of the Refinery.
At December 31, 1993, $73 million of cash and $6 million of short-term
investments were restricted for use in connection with LCR capital projects,
including the Refinery upgrade project and other expenditures as determined by
the LCR owners.
40
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Accounting Changes
In the first quarter of 1993, effective January 1, 1993, the Company changed its
method of accounting for the cost of repairs and maintenance incurred in
connection with turnarounds of major units at its manufacturing facilities.
Under the new method, turnaround costs exceeding $5 million are deferred and
amortized on a straight-line basis until the next planned turnaround, generally
four to six years. In prior years, all turnaround costs were expensed as
incurred. The Company believes that the new method of accounting is preferable
in that it provides for a better matching of turnaround costs with future
product revenues. The cumulative effect of this accounting change for years
prior to 1993 resulted in a benefit of $33 million ($22 million or $.27 per
share after income taxes), and was included in first quarter income. The change
resulted in $9 million after-tax (or $.11 per share) of additional amortization
expenses during the year ended December 31, 1993.
In the fourth quarter of 1992, the Company adopted, effective January 1, 1992,
the provisions of SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions", requiring the accrual of postretirement benefits.
The applicable postretirement benefits include medical and life benefit plans.
In prior years, expenses for these plans were recognized on a pay-as-you-go
basis. The change resulted in a decrease of 1992 net income before cumulative
effect of accounting changes of approximately $3 million (or $.04 per share).
The unfavorable effect of this accounting change through December 31, 1991
amounted to $28 million before taxes or $18 million (or $.22 per share) net of
tax and was charged against 1992 income.
In the fourth quarter of 1992, the Company adopted, effective January 1, 1992,
the provisions of SFAS No. 109, "Accounting for Income Taxes". The Statement
requires, among other things, a change from the deferred to the liability method
of computing deferred income taxes. The favorable cumulative effect of this
accounting change on years prior to 1992 was an $8 million (or $.10 per share)
reduction in the Company's deferred tax liability and was included in 1992
income. The favorable effect of the change on 1992 net income, excluding the
cumulative effect upon adoption, was $2 million (or $.02 per share).
Effective January 1, 1992, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits". The standard requires companies to
accrue the cost of postemployment (prior to retirement) benefits either during
the years that the employee renders the necessary service or at the date of the
event giving rise to the benefit, depending upon whether certain conditions are
met. The effect of adoption did not have a material impact on 1992 net income.
5. Related Party Transactions
Related party transactions with ARCO are summarized as follows:
<TABLE>
<CAPTION>
Millions of dollars 1993 1992 1991
------------------- ---- ---- ----
<S> <C> <C> <C>
Costs
Crude oil purchases $ 53 $140 $299
Product purchases 3 9 13
Transportation fees 27 24 24
Other, net 2 2 2
---- ---- ----
Total $ 85 $175 $338
==== ==== ====
Sales of crude oil and products $ 15 $ 33 $171
==== ==== ====
</TABLE>
In addition, sales to an affiliate, ARCO Chemical Company, consisting of
benzene, ethylene, propylene, butylene, methanol and other products and
services, were $263 million, $296 million and $355 million for the years ended
December 31, 1993, 1992 and 1991, respectively.
41
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Supplemental Cash Flow Information
Supplemental cash flow information is summarized as follows:
<TABLE>
<CAPTION>
Millions of dollars 1993 1992 1991
------------------- ---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 76 $ 77 $ 72
Income taxes $ 7 $ 23 $ 98
</TABLE>
As of December 31, 1993, fixed assets included $16 million of non-cash additions
of which $14 million related to accounts payable accruals.
7. Inventories
The categories of inventory and their book values at December 31, 1993 and 1992,
were as follows:
<TABLE>
<CAPTION>
Millions of dollars 1993 1992
------------------- ---- ----
<S> <C> <C>
Crude oil $ 68 $ 51
Refined products 29 26
Petrochemicals 57 68
Materials and supplies 37 35
---- ----
$191 $180
==== ====
</TABLE>
For the years ended December 31, 1993, 1992 and 1991, the Company reduced cost
of sales by approximately $6 million, $1 million and $6 million, respectively,
associated with the reduction in LIFO inventories. The excess of the current
cost of inventories over book value was approximately $56 million and $135
million at December 31, 1993 and 1992, respectively.
8. Fixed Assets
The components of fixed assets at December 31, 1993 and 1992, were as follows:
<TABLE>
<CAPTION>
Millions of dollars 1993 1992
------------------- ---- ----
<S> <C> <C>
Manufacturing facilities
and equipment $ 2,516 $ 2,441
Land 26 26
Leased assets and improvements 3 3
------- ------
$ 2,545 $2,470
======= ======
</TABLE>
9. Deferred Charges and Other Assets
Deferred charges and other assets at December 31, 1993 and 1992, was
comprised of the following:
<TABLE>
<CAPTION>
Millions of dollars 1993 1992
------------------- ---- ----
<S> <C> <C>
Deferred turnaround costs (Note 4) $ 18 $ --
Company owned life insurance 17 12
Other 18 12
----- ----
$ 53 $ 24
===== ====
</TABLE>
42
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Other Accrued Liabilities
Other accrued liabilities at December 31, 1993 and 1992, were as follows:
<TABLE>
<CAPTION>
Millions of dollars 1993 1992
------------------- ---- ----
<S> <C> <C>
Income taxes $ -- $ 5
Accrued taxes other than income 29 26
Accrued interest 11 11
Accrued payroll 20 19
Other 20 12
---- ----
$ 80 $ 73
==== ====
</TABLE>
11. Long-Term Debt and Financing Arrangements
Long-term debt at December 31, 1993 and 1992, was comprised of the following:
<TABLE>
<CAPTION>
Millions of dollars 1993 1992
------------------- ----- -----
<S> <C> <C>
9.95% Notes due in 1996 $ 150 $ 150
10.00% Notes due in 1999 150 150
8.25% Notes due in 1997 100 100
9.125% Notes due in 2002 100 100
Medium-Term Notes 225 254
--- ---
725 754
Less current portion 8 29
----- -----
Total long-term debt $ 717 $ 725
===== =====
</TABLE>
Aggregate maturities of long-term debt during the five years subsequent to
December 31, 1993 are as follows: 1994-$8 million; 1995-$10 million; 1996-$150
million; 1997-$112 million; 1998-$32 million.
Effective July 1, 1993, LCR entered into a 364 day unsecured revolving credit
facility with a group of banks with Continental Bank, N.A., as agent. Under
terms of the credit facility, LCR may borrow a maximum of $100 million in the
form of cash or letters of credit with interest based on prime, LIBOR or CD
rates at LCR's option. The credit facility may be extended at the request of
LCR upon consent of the bank group. The credit facility contains covenants that
limit LCR's ability to modify certain significant contracts, dispose of assets
or merge or consolidate with other entities. At December 31, 1993, no amounts
were outstanding under this credit facility.
During December, 1993, the Company finalized a five year, $400 million unsecured
revolving credit facility (Credit Facility) which replaced its existing $300
million credit facility which was due to expire in July, 1994. In connection
with the Credit Facility, the Company paid administrative, arrangement and
commitment fees totaling $3.2 million. At December 31, 1993, no amounts were
outstanding under the Credit Facility.
Under the terms of the Credit Facility, the interest rate is based on Euro-
Dollar or CD rates, at the Company's option, and also is dependent upon the
Credit Facility utilization rate and the Company's debt ratings. The Credit
Facility contains restrictive covenants regarding the incurrence of additional
debt, the maintenance of certain fixed charge coverage and leverage ratios and
the making of contributions to LCR, as well as the payment of dividends to the
extent that the Company's net income after January 1, 1994 generally does not
exceed, over time, dividends declared or paid after that date.
The Credit Facility's debt incurrence covenant restricts the incurrence by the
Company of additional debt, including debt under the Credit Facility, unless,
immediately after giving effect to the additional borrowing, the ratio of
earnings before depreciation, amortization, interest and income taxes, to
interest expense exceeds the limits set forth in the Credit Facility. However,
the debt incurrence covenant does not become applicable until the debt incurred
by the Company after December 31, 1993 exceeds $75 million.
43
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Long-Term Debt and Financing Arrangements- (continued)
During March, 1992, the Company completed the placement of $200 million of Notes
consisting of $100 million of 8.25 percent Notes due 1997 and $100 million of
9.125 percent Notes due 2002. A majority of the proceeds was used in April,
1992 to prepay amounts due under capitalized leases relating to the olefins
plants, which allowed the Company to terminate the leases and acquire ownership
of the plants.
The Company's Medium-Term Notes mature at various dates from 1994 to 2005 and
have a weighted average interest rate at December 31, 1993 and 1992 of 9.85
percent.
The Notes due 1996 and 1999, and the Medium-Term Notes contain provisions that
would allow the holders to require the Company to repurchase the debt upon the
occurrence of certain events together with specified declines in public ratings
on the Notes due 1996 and 1999. Certain events include acquisitions by persons
other than ARCO or the Company of more than 20 percent of the Company's common
stock, any merger or transfer of substantially all of the Company's assets, in
connection with which the Company's common stock is changed into or exchanged
for cash, securities or other property and payment of certain "special"
dividends.
At December 31, 1993, the Company had letters of credit outstanding totaling
$33.8 million.
Based on the borrowing rates currently available to the Company for debt with
terms and average maturities similar to the Company's debt portfolio, the fair
value of long-term debt is $776 million.
12. Earnings Per Share
Earnings per share were computed based on the weighted average number of shares
outstanding of 80,000,000 for the years ended December 31, 1993, 1992 and 1991.
13. Stockholders' Equity (Deficit)
Dividends - During 1993, the Company paid a regular dividend to stockholders in
the amount of $.45 per share during the first and second quarters and a regular
dividend to stockholders in the amount of $.225 per share during each of the
remaining two quarters. During 1992, the Company paid regular quarterly
dividends of $.45 per share. During 1991, the Company paid a regular dividend
to stockholders in the amount of $.40 per share during the first quarter and
$.45 per share during each of the remaining three quarters.
Return of Capital - During 1993, the Company paid $108 million in dividends.
Total dividends paid during the year exceeded cumulative earnings and profits,
as computed for federal income tax purposes. Subject to final determination by
the Internal Revenue Service, 100 percent of each of the 1993 quarterly dividend
payments was considered a return of capital.
Stock Options - The Company's Executive Long-Term Incentive Plan (LTI Plan),
became effective November 7, 1988. The LTI Plan provides, among other things,
for the granting to officers and other key management employees of non-qualified
stock options for the purchase of up to 1,295,000 shares of the Company's common
stock. The number of options exercisable each year is equal to 25 percent of
the number granted after each year of continuous service starting one year from
the date of grant. The LTI Plan provides that the option price per share will
not be less than 100 percent of the fair market value of the stock on the
effective date of the grant. As of December 31, 1993, options covering 761,732
shares were outstanding under the LTI Plan of which 283,056 were exercisable at
a weighted average price of $22.10 per share.
44
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
13. Stockholders' Equity (Deficit) - (continued)
<TABLE>
<CAPTION>
Option Price
Number of Average
Shares Per Share Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1991 373,560 $ 21.42 $ 8,002,196
Granted 222,290 23.00 5,112,670
Exercised (12,115) 18.67 (226,205)
Canceled (7,433) 22.84 (169,768)
---------- ------------
Balance, December 31, 1992 576,302 22.07 $ 12,718,893
---------- ------------
Granted 259,490 26.00 6,746,740
Exercised (1,808) 21.01 (37,984)
Canceled (72,252) 22.29 (1,610,782)
---------- ------------
Balance, December 31, 1993 761,732 23.39 $ 17,816,867
========== ============
</TABLE>
The Company's Incentive Stock Option Plan (ISO Plan) became effective January
12, 1989. The ISO Plan is a qualified plan which provides for the granting of
stock options for the purchase of up to 550,000 shares of the Company's common
stock. All employees of the Company who are not on the executive payroll are
eligible to participate in the ISO Plan, subject to certain restrictions.
Various restrictions apply as to when and to the number of stock options that
may be exercised during any year. In no event, however, may a stock option be
exercised prior to the first anniversary of the date the stock option was
granted. As of December 31, 1993, options covering 476,665 shares were
outstanding at an average exercise price of $29.35 per share. These options
were held by 2,053 eligible employees. At December 31, 1993, no stock options
were exercisable. The following summarizes stock option activity for the ISO
Plan:
<TABLE>
<CAPTION>
Option Price
Number Average
of Shares Per Share Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1991 528,614 $ 29.06 $ 15,362,755
Granted 8,729 30.00 261,870
Exercised (5,614) 19.44 (109,136)
Canceled (27,710) 26.80 (742,649)
---------- ------------
Balance, December 31, 1992 504,019 29.31 $ 14,772,840
---------- ------------
Granted -- -- --
Exercised -- -- --
Canceled (27,354) 28.59 (782,034)
---------- ------------
Balance, December 31, 1993 476,665 29.35 $ 13,990,806
========== ============
</TABLE>
45
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
14. Leases
At December 31, 1993, future minimum rental payments for operating leases with
noncancelable lease terms in excess of one year were as follows:
<TABLE>
<CAPTION>
Millions of dollars Amount
------------------- ------
<S> <C>
1994 $ 36
1995 30
1996 22
1997 20
1998 19
Thereafter 17
-----
Total minimum lease payments $ 144
=====
</TABLE>
46
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
14. Leases-(Continued)
Operating lease net rental expenses for 1993, 1992 and 1991 were $43 million,
$35 million and $33 million, respectively.
15. Retirement Plans
All Lyondell and LCR employees are covered by defined benefit pension plans.
Retirement benefits are based on years of service and the employee's
compensation primarily during the last three years of service. The funding
policy for these plans is to make periodic contributions as required by
applicable regulations. Lyondell and LCR accrue pension costs based on an
actuarial valuation and fund the plans through contributions to separate trust
funds that are kept apart from Lyondell or LCR's funds. Lyondell and LCR also
have unfunded supplemental nonqualified retirement plans which provide pension
benefits for certain employees in excess of the qualified plans' limits.
The following table sets forth the funded status of Lyondell and LCR's
retirement plans and the amounts recognized in the Company's consolidated
balance sheet at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
------------------------ ------------------------
Plans with Plans with Plans with Plans with
assets in ABO in assets in ABO in
excess of excess of excess of excess of
ABO assets ABO assets
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Millions of dollars
- -------------------
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 53 $ 21 $ 46 $ 2
========== ========== ========== ==========
Accumulated benefit obligation
(ABO) $ 54 $ 25 $ 49 $ 2
========== ========== ========== ==========
Projected benefit obligation $ 84 $ 42 $ 78 $
Plan assets at fair value,
primarily stocks and bonds 62 18 69 --
---------- ---------- ---------- ----------
Projected benefit obligation in
excess of plan assets (22) (24) (9) (4)
Unrecognized net loss 22 14 10 1
Prior service cost not yet
recognized in pension cost (2) 3 (1) --
Remaining unrecognized net asset (4) -- (5) 1
---------- ---------- ---------- ----------
Net pension liability $ (6) $ (7) $ (5) $ (2)
========== ========== ========== ==========
</TABLE>
The Company's net pension cost for 1993, 1992 and 1991 included the following
components:
<TABLE>
<CAPTION>
Millions of dollars 1993 1992 1991
------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost-benefits
earned during the period $ 5 $ 4 $ 4
Interest cost on projected
benefit obligations 8 6 5
Actual (gain) loss on plan
assets (14) (4) (10)
Net amortization and deferral 7 (2) 5
---- ---- ----
Net periodic pension cost $ 6 $ 4 $ 4
==== ==== ====
</TABLE>
47
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. RETIREMENT PLANS - (CONTINUED)
The assumptions used as of December 31, 1993, 1992 and 1991, in determining the
pension costs and pension liability shown above were as follows:
<TABLE>
<CAPTION>
PERCENT 1993 1992 1991
------- ---- ---- ----
<S> <C> <C> <C>
Discount rate 7.25 8.75 8.95
Rate of salary progression 5.00 5.00 5.00
Long-term rate of return on assets 9.50 9.50 9.50
</TABLE>
Lyondell and LCR also maintain voluntary defined contribution Capital
Accumulation and Savings plans for eligible employees. Under provisions of the
plans, Lyondell and LCR contribute an amount equal to 150 percent of employee
contributions up to a maximum Lyondell or LCR contribution of 6 percent of the
employee's base salary for the Capital Accumulation plans and 200 percent of
employee contributions up to a maximum Lyondell or LCR contribution of 2 percent
of the employee's base salary for the Savings plans. Lyondell and LCR
contributions to these plans totaled $8 million in 1993, $7 million in 1992 and
$7 million in 1991.
16. Postretirement Benefits Other Than Pensions
Lyondell and LCR sponsor unfunded defined benefit postretirement plans other
than pensions that cover both salaried and non-salaried employees which provide
medical and life insurance benefits. The postretirement health care plans are
contributory while the life insurance plans are non-contributory. Currently,
Lyondell and LCR pay approximately 80 percent of the cost of the health care
plans, but reserve the right to modify the cost-sharing provisions at any time.
The following table sets forth the plans' separate postretirement benefit
liabilities as of December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
------------------ ------------------
MILLIONS OF DOLLARS MEDICAL LIFE MEDICAL LIFE
- ------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ (2) $ (1) $ (2)
Fully eligible active plan
participants (5) (1) (3) $ (1)
Other active plan
participants (37) (6) (23) (4)
------- ------- ------- -------
(44) (8) (28) (5)
Unrecognized net loss 12 2 -- --
------- ------- ------- -------
Accrued postretirement
benefit liability $ (32) $ (6) $ (28) $ (5)
======= ======= ======= =======
</TABLE>
Net periodic postretirement benefit costs for 1993 and 1992 included the
following components:
<TABLE>
<CAPTION>
1993 1992
----------------- -----------------
MILLIONS OF DOLLARS MEDICAL LIFE MEDICAL LIFE
- ------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Service cost - benefits
attributed to service during
the period $ 2 $ 2
Interest cost on accumulated
postretirement benefit
obligation 3 $ 1 2 $ 1
------- ------- ------- -------
Net periodic postretirement
benefit cost $ 5 $ 1 $ 4 $ 1
======= ======= ======= =======
</TABLE>
48
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - (continued)
For measurement purposes, the assumed annual rate of increase in the per capita
cost of covered health care benefits was 13 percent for 1993-1996, 9 percent for
1997-2001, and 6 percent thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit liability as of December 31,
1993 by $10 million and the net periodic postretirement benefit cost for the
year then ended by $1 million.
The accumulated postretirement benefit obligation was calculated utilizing a
weighted-average discount rate of 7.25 percent and 8.75 percent at December 31,
1993 and 1992, respectively, and an average rate of salary progression of 5
percent in each year. Lyondell and LCR's current policy is to fund the
postretirement health care and life insurance plans on a pay-as-you-go basis.
17. INCOME TAXES
Effective January 1, 1992, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by SFAS
No. 109, "Accounting for Income Taxes" (see Note 4). As permitted under the new
standard, prior years' financial statements have not been restated.
During 1993, the Company increased its provision for deferred income taxes by $3
million due to an increase in the federal corporate income tax rate from 34
percent to 35 percent effective January 1, 1993. Significant components of the
Company's provision for income taxes attributable to continuing operations
follows:
<TABLE>
<CAPTION>
LIABILITY METHOD DEFERRED METHOD
----------------- ---------------
MILLIONS OF DOLLARS 1993 1992 1991
- ------------------- ---- ---- ----
<S> <C> <C> <C>
Current
Federal $ 5 $ 6 $ 89
State - 1 10
---- ---- ----
Total current 5 7 99
Deferred
Federal 2 4 17
State 5 (2) 1
---- ---- ----
Total deferred 7 2 18
---- ---- ----
$ 12 $ 9 $117
==== ==== ====
</TABLE>
Prior to the change in accounting methods, the components of the Company's
provision for deferred income taxes for the year ended December 31, 1991 were as
follows (millions of dollars):
<TABLE>
<S> <C>
Depreciation and amortization $ 19
Other (1)
----
$ 18
====
</TABLE>
49
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
17. INCOME TAXES - (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of December 31, 1993 and
1992 are as follows:
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS 1993 1992
------------------- ---- ----
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $126 $106
Change in accounting method for
turnarounds 6 --
LIFO inventory 8 3
---- ----
Total deferred tax
liabilities 140 109
---- ----
Deferred tax assets:
OPEB obligation 13 12
Environmental and other long-
term liabilities 12 10
Alternative minimum tax credit
receivable 7 2
Other 11 6
---- ----
Total deferred tax assets 43 30
---- ----
Net deferred tax liabilities $ 97 $ 79
==== ====
</TABLE>
Pretax income from continuing operations for the years ended December 31, 1993,
1992 and 1991 was taxed under domestic jurisdictions only.
The reconciliation of income tax attributable to continuing operations computed
at the U.S. federal statutory tax rates to the Company's effective tax rates
follows:
<TABLE>
<CAPTION>
LIABILITY METHOD DEFERRED METHOD
-------------------- ---------------
DESCRIPTION 1993 1992 1991
----------- ------ ------ ------
<S> <C> <C> <C>
U.S. statutory income tax rates 35.0% 34.0% 34.0%
State income taxes, net of federal 19.3 (1.5) 2.3
Company owned life insurance 3.8 (2.1) --
Deferred tax liability rate change 15.6 -- --
Other, net (0.6) (3.1) (1.7)
----- ----- -----
Effective income tax rate 73.1% 27.3% 34.6%
===== ===== =====
</TABLE>
18. COMMITMENTS AND CONTINGENCIES
The Company has various purchase commitments for materials, supplies and
services incident to the ordinary conduct of business. In the aggregate, such
commitments are not at prices in excess of current market.
In connection with the transfer of assets and liabilities from ARCO to the
Company, the Company agreed to assume certain liabilities arising out of the
operation of the Company's integrated petrochemical and petroleum processing
business prior to July 1, 1988. In connection with the transfer of such
liabilities, the Company and ARCO entered into an agreement (Cross-Indemnity
Agreement) whereby the Company has agreed to defend and indemnify ARCO against
certain uninsured claims and liabilities which ARCO may incur relating to the
operation of the business of the Company prior to July 1, 1988, including
certain liabilities which may arise out of pending and future lawsuits.
50
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
18. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
ARCO indemnified the Company under the Cross-Indemnity Agreement with respect to
other claims or liabilities and other matters of litigation not related to the
assets or business included in the consolidated financial statements. ARCO has
also indemnified the Company for all federal taxes which might be assessed upon
audit of the operations of the Company included in the consolidated financial
statements prior to January 12, 1989, and for all state and local taxes for the
period prior to July 1, 1988.
In addition to lawsuits for which the Company has indemnified ARCO, the Company
is also subject to various lawsuits and proceedings. Subject to the uncertainty
inherent in all litigation, management believes the resolution of these
proceedings will not have a material adverse effect upon the Company's
operations.
The Company's policy is to be in compliance with all applicable environmental
laws. The Company is subject to extensive environmental laws and regulations
concerning emissions to the air, discharges to surface and subsurface waters and
the generation, handling, storage, transportation, treatment and disposal of
waste materials. Some of these laws and regulations are subject to varying and
conflicting interpretations. In addition, the Company cannot accurately predict
future developments, such as increasingly strict requirements of environmental
laws, inspection and enforcement policies and compliance costs therefrom which
might affect the handling, manufacture, use, emission or disposal of products,
other materials or hazardous and non-hazardous waste.
Subject to the terms of the Cross-Indemnity Agreement, the Company is currently
contributing funds to the cleanup of two waste sites (French Ltd. and Brio,
both of which are located near Houston, Texas) under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) as amended and
the Superfund Amendments and Reauthorization Act of 1986. The Company is also
subject to certain assessment and remedial actions at the Refinery under the
Resource Conservation and Recovery Act (RCRA). In addition, the Company has
negotiated an order with the Texas Water Commission, now the Texas Natural
Resource Conservation Commission (TNRCC), for assessment and remediation of
groundwater and soil contamination at the Refinery.
The Company has accrued $24 million related to future CERCLA, RCRA and TNRCC
assessment and remediation costs, of which $7 million is included in current
liabilities while the remaining amounts are expected to be incurred over the
next three to seven years. However, it is possible that new information about
the sites for which the reserve has been established, or future developments
such as involvement in other CERCLA, RCRA, TNRCC or other comparable state law
investigations could require the Company to reassess its potential exposure
related to environmental matters.
In the opinion of management, any liability arising from these matters will not
have a material adverse effect on the consolidated financial condition of the
Company, although the resolution in any reporting period of one or more of these
matters could have a material impact on the Company's results of operations for
that period.
19. SEGMENT INFORMATION
As discussed in Note 3, the refining operations of the Company were contributed
to LCR effective July 1, 1993. Prior to July 1, 1993, the petrochemical and
refining operations of the Company were considered to be a single segment due to
the integrated nature of their operations. However, these operations are now
considered to be separate segments due to the formation of LCR and the related
separate management and operations of that entity.
The Petrochemical segment consists of olefins, including ethylene, propylene,
butadiene, butylenes and specialty products; polyolefins, including
polypropylene and low density polyethylene; aromatics produced at the
Channelview Complex, including benzene and toluene; methanol and refinery
blending stocks.
51
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
19. SEGMENT INFORMATION - (CONTINUED)
The refining segment is primarily composed of the LCR venture (see Note 3) and
consists of refined petroleum products, including gasoline, heating oil and jet
fuel; aromatics produced at the Refinery, including benzene, toluene, paraxylene
and orthoxylene; lubricants; olefins feedstocks and crude oil resales. Crude
oil resales consist of revenues from the resale of previously purchased crude
oil and from locational exchanges of crude oil that are settled on a cash basis.
Crude oil exchanges and resales facilitate the operation of the Company's
petroleum processing business by allowing the Company to optimize the crude oil
feedstock mix in response to market conditions and refinery maintenance
turnarounds and also to reduce transportation costs. Crude oil resales amounted
to $401 million, $893 million and $1,308 million for years ended December 31,
1993, 1992 and 1991, respectively.
Consolidated sales to CITGO totaled $864 million in 1993, $282 million in 1992
and $181 million in 1991. No other customer accounted for 10 percent or more of
consolidated sales.
Summarized below is the segment data for the Company which includes certain pro
forma adjustments necessary to present the petrochemical and refining operations
as individual segments for periods prior to the formation of LCR. These
adjustments relate principally to allocations of costs and expenses between the
two segments and are based on current operating agreements between the Company
and LCR. Intersegment sales between petrochemical and refining segments include
olefins feedstocks produced at the Refinery and gasoline and fuel oil blending
stocks produced at the Channelview Complex and were made at prices based on
current market values.
52
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
19. SEGMENT INFORMATION - (CONTINUED)
<TABLE>
<CAPTION>
Petrochemical Refining
MILLIONS OF DOLLARS Segment Segment Unallocated Eliminations Consolidated
------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1993
----
Sales and other
operating revenues:
Customers $ 1,326 $ 2,524 $ 3,850
Intersegment 180 237 $ (417) --
------------- ------------- -------------- -------------
1,506 2,761 (417) 3,850
------------- ------------- -------------- -------------
Cost of sales 1,412 2,632 (417) 3,627
Selling, general and administrative
expenses 37 48 $ 45 -- 130
------------- ------------- ------------- -------------- -------------
Operating income $ 57 81 $ (45) $ -- $ 93
============= ============= ============= ============== =============
Depreciation and amortization
expense $ 44 $ 13 $ 1 $ 58
============= ============= ============= =============
Capital expenditures $ 14 $ 54 $ 1 $ 69
============= ============= ============= =============
Identifiable assets $ 688 $ 514 $ 68 $ (39) $ 1,231
============= ============= ============= ============== =============
1992
----
Sales and other
operating revenues:
Customers $ 1,409 $ 3,400 $ 4,809
Intersegment 266 334 $ (600) --
------------- ------------- -------------- -------------
1,675 3,734 (600) 4,809
------------- ------------- -------------- -------------
Cost of sales 1,536 3,642 (600) 4,578
Selling, general and
administrative expenses 37 43 $ 47 -- 127
------------- ------------- ------------- -------------- -------------
Operating income $ 102 $ 49 $ (47) $ -- 104
============= ============= ============= ============== =============
Depreciation and
amortization expense $ 33 $ 5 $ 1 $ 39
============= ============= ============= =============
Capital expenditures $ 43 $ 53 $ 1 $ 97
============= ============= ============= =============
Identifiable assets $ 716 $ 346 $ 153 $ 1,215
============= ============= ============= =============
1991
----
Sales and other
operating revenues:
Customers $ 1,666 $ 4,069 $ 5,735
Intersegment 293 455 $ (748) --
------------- ------------- -------------- -------------
1,959 4,524 (748) 5,735
------------- ------------- -------------- -------------
Cost of sales 1,711 4,247 (748) 5,210
Selling, general and
administrative expenses 35 42 $ 49 -- 126
------------- ------------- ------------- -------------- -------------
Operating income $ 213 $ 235 $ (49) $ -- $ 399
============= ============= ============= ============== =============
Depreciation and
amortization expense $ 34 $ 4 $ 1 $ 39
============= ============= ============= =============
Capital expenditures $ 21 $ 21 $ 1 $ 43
============= ============= ============= =============
Identifiable assets $ 754 $ 390 $ 335 $ 1,479
============= ============= ============= =============
</TABLE>
53
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
20. Unaudited Quarterly Results
<TABLE>
<CAPTION>
Quarter ended
------------------------------------------------------------
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Millions of dollars except per share amounts
- --------------------------------------------
1993 (*)
- ----
Sales and other operating revenues $ 1,065 $ 1,080 $ 885 $ 820
Operating income 7 5 38 43
Income (loss) before income taxes
and cumulative effect of accounting
changes (10) (14) 18 22
Income (loss) before cumulative
effect of accounting changes (8) (11) 9 14
Cumulative effect of accounting changes,
net of tax 22 -- -- --
Net income (loss) 14 (11) 9 14
Earnings (loss) per share before
cumulative effect of accounting changes (.09) (.14) .12 .17
Earnings (loss) per share .18 (.14) .12 .17
1992 (*)
- ----
Sales and other operating revenues $ 1,029 $ 1,221 $ 1,336 $ 1,223
Operating income (loss) (5) 33 33 43
Income (loss) before income taxes and
cumulative effect of accounting changes (22) 15 17 25
Income (loss) before cumulative effect of
accounting changes (14) 10 12 18
Cumulative effect of accounting changes,
net of tax (10) -- -- --
Net income (loss) (24) 10 12 18
Earnings (loss) per share before
cumulative effect of accounting changes (.17) .13 .15 .22
Earnings (loss) per share (.29) .13 .15 .22
</TABLE>
(*) The 1992 quarterly results have been restated to reflect the adoption during
the fourth quarter of 1992, of accounting changes which were effective
January 1, 1992. In addition, the first two quarters of 1993 and all four
quarters of 1992 include certain pro forma adjustments necessary to present
the petrochemical and refining operations as individual segments for periods
prior to the formation of LCR effective July 1, 1993.
54
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the directors of the Registrant as of March 1, 1994. The
executive officers of the Registrant are listed on page 19 herein.
Mike R. Bowlin, 51............ Mr. Bowlin was elected a Director of the
Chairman of the Board Company on July 23, 1993 and Chairman of the
Board on August 13, 1993. He has been
President and Chief Operating Officer of ARCO
since June 1, 1993 and a director of ARCO since
June, 1992. He was an Executive Vice President
of ARCO from June, 1992 to May, 1993. He was a
Senior Vice President of ARCO from August, 1985
to June, 1992 and President of ARCO
International Oil and Gas Company from
November, 1987 to June, 1992. He was Senior
Vice President of International Oil and Gas
Acquisitions from July, 1987 to November, 1987.
He was President of ARCO Coal Company from
August, 1985 to July, 1987. He was a Vice
President of ARCO from October, 1984 to July,
1985. From April, 1981 to December, 1984, he
was Vice President of ARCO Oil and Gas Company.
He has been an officer of ARCO since October,
1984. He originally joined ARCO in 1969.
William T. Butler, 61....... Dr. Butler was elected a Director of the
Company on December 21, 1988, effective as of
January 25, 1989. He has held his current
position as President and Chief Executive
Officer of Baylor College of Medicine
(education and research) since 1979. He is
also a director of First City Bancorporation of
Texas, Inc., C. R. Bard, Inc. and
Browning-Ferris Industries Inc.
Allan L. Comstock, 50........ Mr. Comstock was elected a Director of the
Company on July 23, 1993. He has been a Vice
President and Controller of ARCO since June,
1993. He was a Vice President of ARCO Chemical
from October, 1989 through May, 1993. From
November, 1985 to September, 1989 he was
General Auditor of ARCO. He originally joined
ARCO in 1969.
Terry G. Dallas, 43.......... Mr. Dallas was elected a Director of the
Company on July 23, 1993. He has been a Vice
President of ARCO since June, 1993 and
Treasurer of ARCO since January 24, 1994. He
was Vice President, Corporate Planning of ARCO
from June, 1993 to January, 1994. He served as
Assistant Treasurer for ARCO Corporate Finance
from 1990 to 1993. He was Vice President of
Finance, Control and Planning for ARCO British,
Ltd. from 1988 to 1990 and Manager of
International Acquisitions for ARCO
International Oil and Gas Company from 1986 to
1988. He originally joined ARCO in 1979.
55
<PAGE>
Bob G. Gower, 56............. Mr. Gower was elected Chief Executive Officer
President and Chief of the Company on October 24, 1988 and a
Executive Officer Director and President of the Company on June
27, 1988. He has been President of Lyondell and
its predecessor, the Lyondell Division, since
the formation of the Lyondell Division in
April, 1985. Mr. Gower was a Senior Vice
President of ARCO from June, 1984 until his
resignation as an officer of ARCO in January,
1989. Prior to 1984 he served in various
capacities with the then ARCO Chemical
Division. He originally joined ARCO in 1963.
Mr. Gower is also a director of Texas Commerce
Bank-Houston and Keystone International Inc.
Stephen F. Hinchliffe, Jr. 60. Mr. Hinchliffe was elected a Director of the
Company on March 1, 1991. Since 1988, he has
held his current position of Chairman of the
Board and Chief Executive Officer of BHH
Management, Inc., the managing partner of
Leisure Group, Inc. Previously, he served as
Chairman of the Board of Leisure Group, Inc.
(a manufacturer of consumer products), which he
founded in 1964.
Dudley C. Mecum II, 59....... Mr. Mecum was elected a Director of the
Company on November 28, 1988, effective as of
January 25, 1989. He has held his current
position as a partner with G. L. Ohrstrom &
Company (merchant banking) since August, 1989.
Previously he was Chairman of Mecum Associates,
Inc. (management consulting) from December,
1987 to August, 1989. He served as Group Vice
President and director of Combustion
Engineering Inc. from 1985 to December, 1987,
and as a managing partner of the New York
region of Peat, Marwick, Mitchell & Co. from
1979 to 1985. He is also a director of The
Travelers, Inc., Dyncorp, VICORP Restaurants,
Inc., Fingerhut Companies, Inc. and Roper
Industries, Inc.
William C. Rusnack, 49...... Mr. Rusnack was elected a Director of the
Company on October 24, 1988. He has been a
Senior Vice President of ARCO since July 1990
and President of ARCO Products Company since
June, 1993. He was President of ARCO
Transportation Company from July, 1990 to May,
1993. He was Vice President, Corporate
Planning, of ARCO from July, 1987 to July,
1990. He was Senior Vice President, Marketing
and Employee Relations, of the ARCO Oil and Gas
Division from August, 1985 to July, 1987 and
Vice President, Manufacturing, of the ARCO
Products Division from July, 1984 to August,
1985. From June 1983 to July, 1984 he was Vice
President, Planning and Control, of the ARCO
Products Division. He originally joined ARCO
in 1966. Mr. Rusnack is also a director of
BWIP Holding, Inc.
56
<PAGE>
Dan F. Smith, 47.............. Mr. Smith was elected a Director of the
Executive Vice President Company on October 24, 1988. He was elected
and Chief Operating Officer Executive Vice President and Chief Operating
Officer on May 6, 1993. He served as Vice
President Corporate Planning of ARCO from
October, 1991 until May, 1993. He previously
served as Executive Vice President and Chief
Financial Officer of the Company from October,
1988 to October, 1991 and as Senior Vice
President of Manufacturing of Lyondell, and its
predecessor, the Lyondell Division, from June,
1986 to October, 1988. From August, 1985 to
June, 1986 Mr. Smith served as Vice President
of Manufacturing for the Lyondell Division. He
joined the Lyondell Division in April, 1985 as
Vice President, Control and Administration.
Prior to 1985, he served in various financial,
planning and manufacturing positions with ARCO.
He originally joined ARCO in 1968.
Paul R. Staley, 64........... Mr. Staley was elected a Director of the
Company on November 28, 1988, effective as of
January 25, 1989. He has held his current
position as Chairman of the Executive
Committee of the Board of Directors of P. Q.
Corporation (an industry supplier of
silicates) since January, 1991. He held the
positions of President and Chief Executive
Officer of P.Q. Corporation from 1973 and
1981, respectively, until January, 1991.
William E. Wade, Jr., 51..... Mr. Wade was elected a director of the Company
on August 13, 1993. He has been Executive Vice
President of ARCO since June 1, 1993 and a
director of ARCO since June 1, 1993. He was a
Senior Vice President of ARCO from May, 1987 to
May, 1993 and President of ARCO Oil and Gas
Company from October, 1990 to May, 1993. He
was President of ARCO Alaska, Inc. from July,
1987 to July, 1990. He was a Vice President of
ARCO from 1985 to May, 1987. From 1981 to
1985, he was Vice President of ARCO Exploration
Company. He has been an officer of ARCO since
1985. He originally joined ARCO in 1968.
57
<PAGE>
ITEM 11. Executive Compensation
EXECUTIVE COMPENSATION
The following table sets forth information as to the Chief Executive Officer and
the next four most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------------------
SPECIAL OTHER ANNUAL
ANNUAL BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(a) ($)(b)
- --------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Bob G. Gower....................... 1993 555,099 220,000 240,000 74,499
President, 1992 527,215 -0- (a) 36,149
Chief Executive Officer 1991 511,781 340,000 -0-
Dan F. Smith (f)................... 1993 247,651 120,000 100,000 4,115
Executive Vice 1992 (f) -0- (a) (f)
President, 1991 207,168 -0- -0-
Chief Operating Officer
Jeffrey R. Pendergraft............. 1993 221,934 60,000 37,500 9,754
Senior Vice President, 1992 213,277 -0- (a) 3,307
General Counsel & 1991 207,951 85,000 -0-
Secretary
Russell S. Young................... 1993 206,338 60,000 37,500 17,347
Senior Vice President, 1992 186,722 -0- (a) 6,988
Chief Financial Officer, 1991 175,829 65,000 -0-
Treasurer
Robert H. Ise (h).................. 1993 204,481 45,000 15,000 12,316
Vice President and 1992 193,519 -0- (a) 9,532
Vice President 1991 188,085 85,000 -0-
LYONDELL-CITGO
Refining Company Ltd.
<CAPTION>
LONG-TERM COMPENSATION
----------------------------
AWARDS PAYOUTS
---------- ------------
LTIP ALL OTHER
OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION (#)(c) ($)(c) ($)(d)(e)
- --------------------------- ---------- ------------ ------------
<S> <C> <C> <C>
Bob G. Gower................... 56,500 964,452 59,262
President, 42,200 829,116 57,553
Chief Executive Officer 37,000 957,719
Dan F. Smith (f)............... (f) (f) 934,449(g)
Executive Vice (f) 423,987 (f)
President, 14,400 298,117
Chief Operating Officer
Jeffrey R. Pendergraft......... 17,200 216,480 26,030
Senior Vice President, 11,700 186,629 22,086
General Counsel & 8,200 129,374
Secretary
Russell S. Young............... 14,500 180,698 28,489
Senior Vice President, 8,200 155,341 19,513
Chief Financial Officer, 6,400 134,537
Treasurer
Robert H. Ise (h).............. 19,000 201,433 26,571
Vice President and 12,900 173,167 25,270
Vice President 8,200 124,328
LYONDELL-CITGO
Refining Company Ltd.
</TABLE>
- -----------
In accordance with the transition provisions applicable to the revised proxy
rules covering disclosure of executive compensation adopted under the Securities
Exchange Act of 1934 (the "Proxy Rules"), amounts of other annual compensation
and all other compensation are excluded for the Company's 1991 fiscal year.
(a) Special bonuses were paid in 1993 in recognition of the executive officers'
and other key employees' significant contributions during 1992 and 1993 to
the successful completion of the Company's refining venture with CITGO
Petroleum Corporation and Lagoven S.A.
(b) Includes imputed income in respect of the Long-Term Disability Plan, tax
gross-ups in respect of financial counseling reimbursements and in respect
of other miscellaneous items, and the amount of incremental interest accrued
under the Executive Deferral Plan that exceeds 120 percent of a specified
IRS rate. "Tax gross-ups" refers to the additional reimbursement paid to a
recipient to cover the federal income tax obligations associated with the
underlying benefit, including an additional amount, based on maximum
applicable income tax rates.
(c) Amounts shown in the LTIP Payouts column represent payment of performance
units (including associated dividend share credits) awarded under the
Company's Executive Long-Term Incentive Plan (the "LTIP"). The LTIP
provides for the granting of stock options and the right to receive
performance units under certain circumstances and a cash payment in respect
of dividend share credits as described in this footnote. Dividend
58
<PAGE>
share credits are allocated to an optionee's account whenever dividends are
declared on shares of common stock. The number of dividend share credits to
be allocated on each record date to an optionee's account is computed by
multiplying the dividend rate per share of Common Stock by the sum of (i)
the number of shares subject to outstanding options, (ii) the number of
performance units and (iii) the number of dividend share credits then
credited to the optionee's account and dividing the resulting figure by the
fair market value of a share of Common Stock ("FMV") on such dividend record
date. As future dividends are declared, the participant will receive
dividend share credits not only on the number of shares covered by
unexercised options and the number of performance units but also on the
number of dividend share credits in the participant's account. The dividend
crediting mechanism will continue to operate in this manner (i) with respect
to options, until the participant exercises such options or the options
expire, and (ii) with respect to performance units, until payment is made
(or not made, as the case may be) in respect of performance units. Dividend
share credits do not represent earned compensation and have no definite
value, if any, until the date on which the options or performance units, as
applicable, in respect of which such credits have been allocated, are
exercised or paid. See footnote (b) to the Aggregated Option Exercises and
Fiscal Year-End Option Values Table. Dividend share credits are canceled
upon an optionee's termination of employment under certain specified
circumstances. In addition to the dollar amounts shown in the LTIP Payouts
column, the number of dividend share credits accrued to the accounts of the
named executives during 1993 and 1992, respectively, is as follows: Mr.
Gower: 13,819 and 13,200; Mr. Smith: 2,405 and 4,399; Mr. Pendergraft:
3,414 and 2,885; Mr. Young: 2,625 and 2,311; and Mr. Ise: 3,384 and 2,900.
(d) Includes contributions to the Executive Supplementary Savings Plan,
incremental executive medical plan premiums, financial counseling
reimbursements and certain amounts in respect of the Executive Life
Insurance Plan, as follows:
<TABLE>
<CAPTION>
YEAR MR. GOWER MR. SMITH MR. PENDERGRAFT MR. YOUNG MR. ISE
---- --------- --------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Executive Supplementary Savings Plan 1993 $ 44,408 $ 19,812 $ 17,754 $ 16,507 $ 16,358
1992 $ 42,177 $ _0_ $ 17,062 $ 14,938 $ 15,481
Incremental Medical Plan Premiums... 1993 $ 4,301 $ 2,867 $ 4,301 $ 4,301 $ 4,301
1992 $ 4,104 $ _0_ $ 4,104 $ 4,104 $ 4,104
Financial Counseling Reimbursement.. 1993 $ 7,735 $ _0_ $ 3,975 $ 7,235 $ 4,645
1992 $ 8,885 $ _0_ $ 920 $ 100 $ 4,646
Executive Life Insurance Plan....... 1993 $ 2,818 $ 1,770 $ _0_ $ 446 $ 1,267
1992 $ 2,387 $ _0_ $ _0_ $ 371 $ 1,039
</TABLE>
(e) In 1993 a revised methodology was adopted to calculate certain amounts in
respect of the Executive Life Insurance Plan; accordingly, 1992 amounts have
been restated to reflect this methodology. The effect of this restatement
is not material to the overall figure previously reported.
(f) Mr. Smith was elected Executive Vice President and Chief Operating Officer
on May 6, 1993. The salary figure for 1993 is the amount paid to Mr. Smith
for his service from that date. Prior to that he served as Vice President
Corporate Planning of ARCO from October, 1991. He previously served as
Executive Vice President and Chief Financial Officer of the Company from
October, 1988 to October, 1991. The salary figure for 1991 is the amount
paid to Mr. Smith for that portion of the year he was employed by the
Company.
(g) Includes relocation expenses in connection with his relocation to
Houston of $540,000 for the loss from the sale of a home. Mr. Smith also
received $370,000 as a tax gross-up in connection with that loss, which is
included in this column.
(h) Mr. Ise served as Vice President, Marketing and Sales, Polymers and
Petroleum Products through June 30, 1993. Effective as of July 1, 1993, Mr.
Ise began providing services as a loaned executive as a Vice President of
LYONDELL-CITGO Refining Company Ltd., a limited liability company in which
the Company currently owns an approximate 90% interest and CITGO Petroleum
Corporation owns an approximate 10% interest. LYONDELL-CITGO Refining
Company Ltd. reimburses the Company for the cost of salary and other
compensation paid to Mr. Ise. Mr. Ise continues to serve as a Vice President
of Lyondell.
59
<PAGE>
EXECUTIVE LONG-TERM INCENTIVE PLAN
The LTIP provides for the granting of stock options, the right to receive
performance units under certain circumstances and a cash payment in respect of
dividend share credits. The following table describes the grants to the named
executive officers of stock options and certain other information with respect
to the exercise of stock options. No performance units were granted in 1993.
Additional information with respect to payouts of performance units under the
LTIP is contained in the Summary Compensation Table.
OPTIONS
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding stock options granted
to the named executive officers during 1993. The values assigned to each
reported option are shown using the Black-Scholes option pricing model. In
assessing these values it should be kept in mind that no matter what
theoretical value is placed on a stock option on the date of grant, its
ultimate value will be dependent on the market value of the company's stock at
a future date.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(a)
---------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE OR BASE GRANT DATE PRESENT
NAME OPTIONS GRANTED(#) FISCAL YEAR PRICE ($/SH) EXPIRATION DATE VALUE ($)(b)
---- ------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Mr. Gower........ 56,500 22 $26.00 March 5, 2003 $819,815
Mr. Smith(c)..... 0 -- -- -- --
Mr. Pendergraft.. 17,200 6.7 26.00 March 5, 2003 249,572
Mr. Young........ 14,500 5.6 26.00 March 5, 2003 210,395
Mr. Ise.......... 19,000 7.4 26.00 March 5, 2003 275,690
</TABLE>
- -----------
(a) The ten-year options were granted on March 5, 1993 pursuant to the LTIP
at an exercise price equal to the FMV on the date of grant. The options
become exercisable in four equal annual installments beginning March, 1994.
Options and the dividend share credits associated with such options are
canceled upon an optionee's termination of employment under certain
specified circumstances. Stock options also carry eligibility for dividend
share credits as described in footnote (c) to the Summary Compensation
Table.
(b) The values shown reflect a variation of the Black-Scholes pricing model.
The pricing model used by the Company includes the following assumptions:
options are exercised at the end of the 10-year term; no premium for risk is
assigned; the dividend yield is assumed to be the current yield on the date
of grant; and a long-term (200 days) historical volatility rate is applied.
The values relate solely to stock options (and not performance units) and do
not take into account risk factors such as nontransferability and limits on
exercisability. The values do take into account the fact that dividend
share credits are allocated to an optionee's account whenever dividends are
declared on shares of common stock.
(c) Mr. Smith was not an executive officer when options were granted in
1993. See footnote (f) to the Summary Compensation Table.
60
<PAGE>
The following table shows the number of shares of Common Stock represented
by outstanding stock options held by each of the named executive officers as of
December 31, 1993. Also reported are the values for "in-the-money" options which
represent the positive spread between the exercise price of any such existing
stock options and the year end price of common stock.
AGGREGATED OPTION EXERCISES IN 1993
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
UNDERLYING OPTIONS AT YEAR-END (#)(a) AT YEAR-END ($)(a)(b)
OPTIONS ----------------------------- -----------------------------
NAME EXERCISED (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Gower........ -0- -0- 78,212 106,650 $99,986 $ 18,500
Mr. Smith........ -0- -0- 16,766 7,200 15,354 7,200
Mr. Pendergraft.. -0- -0- 16,110 30,075 22,442 4,100
Mr. Young........ -0- -0- 12,879 24,400 18,467 3,200
Mr. Ise.......... -0- -0- 15,854 32,775 21,119 4,100
</TABLE>
- ----------
(a) The FMV of Lyondell Common Stock on December 31, 1993 was $21.25
(b) Each option carries with it the right to dividend share credits, as
described in footnote (c) to the Summary Compensation Table. Set forth
below is a calculation of the value of accrued dividend share credits,
assuming exercise at December 31, 1993, of the in-the-money options. These
hypothetical values have been calculated for illustration purposes only.
<TABLE>
<CAPTION>
EXERCISABLE UNEXERCISABLE
------------- -------------
<S> <C> <C>
Mr. Gower........ $413,802 $82,370
Mr. Smith........ $ 65,217 $32,057
Mr. Pendergraft.. $ 92,859 $18,255
Mr. Young........ $ 76,344 $14,248
Mr. Ise.......... $ 87,477 $18,255
</TABLE>
61
<PAGE>
ANNUAL PENSION BENEFITS
The following table shows estimated annual pension benefits payable to the
Company's employees, including executive officers of the Company, upon
retirement on January 1, 1994 at age 65 under the provisions of the Lyondell
Retirement Plan and the Executive Supplementary Retirement Plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE FINAL EARNINGS
(BASE SALARY PLUS ANNUAL
INCENTIVE PLAN AWARDS)--
HIGHEST THREE CONSECUTIVE APPROXIMATE ANNUAL BENEFIT FOR YEARS
YEARS OUT OF LAST TEN YEARS OF MEMBERSHIP SERVICE INDICATED(a)(b)(c)
- --------------------------- ----------------------------------------------------
15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$1,100,000 253,025 337,367 421,709 506,050 590,392
1,000,000 229,925 306,567 383,209 459,850 536,492
900,000 206,825 275,767 344,709 413,650 482,592
800,000 183,725 244,967 306,209 367,450 428,692
700,000 160,625 214,167 267,709 321,250 374,792
600,000 137,525 183,367 229,209 275,050 320,892
500,000 114,425 152,567 190,709 228,850 266,992
400,000 91,325 121,767 152,209 182,650 213,092
300,000 68,225 90,967 113,709 136,450 159,192
200,000 45,125 60,167 75,209 90,250 105,292
</TABLE>
- ---------
(a) The amounts shown in the above table are necessarily based upon certain
assumptions, including retirement of the employee on January 1, 1994 and
payment of the benefit under the basic form of allowance provided under the
Lyondell Retirement Plan (payment for the life of the employee only with a
guaranteed minimum payment period of 60 months). The amounts will change if
the payment is made under any other form of allowance permitted by the
Lyondell Retirement Plan, or if an employee's retirement occurs after
January 1, 1994, since the "annual covered compensation level" of such
employee (one of the factors used in computing the annual retirement
benefits) may change during the employee's subsequent years of membership
service. The benefits shown are not subject to deduction for Social
Security benefits or other offset amounts. The plans, however, provide a
higher level of benefits for the portion of compensation above the
compensation levels on which Social Security benefits are based.
(b) As of December 31, 1993, the credited years of service (rounded to the
nearest whole number) under the Lyondell Retirement Plan for the named
executive officers are: Mr. Gower, 30; Mr. Smith, 17; Mr. Pendergraft, 21;
Mr. Young, 13; and Mr. Ise, 34.
(c) All employees' (including executive officers') years of service with
ARCO prior to the creation of Lyondell have been credited under the
Company's retirement plans.
62
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The Company's principal stockholder, ARCO, is one of the nation's leading
integrated oil companies and maintains its headquarters at 515 South Flower
Street, Los Angeles, California 90071. At March 1, 1994 ARCO owned 39,921,400
shares of Lyondell's Common Stock, which represent 49.9 percent of the
outstanding stock. ARCO has consistently maintained an ownership position of
just under 50 percent of Lyondell's Common Stock from the date of the Company's
public offering of stock; however, there is no assurance that ARCO will maintain
such ownership position in the future.
ARCO officers and directors do not constitute a majority of the Board of
Directors; however, ARCO officers and directors hold five of eleven
directorships. Beginning in 1989, the Company was not included as a
consolidated subsidiary in ARCO's financial statements; however, for certain
securities laws purposes, ARCO could be deemed to be a "control" person or an
"affiliate" of Lyondell.
The table below sets forth certain information as of December 31, 1993 (the most
recent date as of which the Company has information) regarding the beneficial
ownership of the Common Stock by persons other than ARCO known by the Company to
own beneficially more than five percent of its outstanding shares of Common
Stock.
<TABLE>
<CAPTION>
Percentage
Number of Of Shares
Name Shares Outstanding
---- --------- -----------
<S> <C> <C>
Wellington Management Company(a).............. 5,356,300 6.70%
75 State Street, Boston, Massachusetts 02109
</TABLE>
- ----------
(a) Wellington Management Company ("WMC") (together with its wholly-owned
subsidiary, Wellington Trust Company, National Association) may be deemed a
beneficial owner of the 5,356,300 shares by virtue of the direct or indirect
investment and/or voting discretion they possess pursuant to the provisions
of investment advisory agreements with clients. WMC has shared dispositive
power over the 5,356,300 shares of Common Stock, including the 5,083,900
shares beneficially owned by Vanguard/Windsor Fund Inc., an investment
advisory client of WMC.
63
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of Common Stock owned
beneficially as of March 1, 1994 by each director, each of the executive
officers named on the Summary Compensation Table and by all current directors
and officers as a group. As of March 1, 1994, the percentage of shares of
Common Stock beneficially owned by any director, named executive officers or by
all directors and officers as a group, did not exceed one percent of the issued
and outstanding Common Stock. Unless otherwise noted, each individual has sole
voting and investment power.
<TABLE>
<CAPTION>
Shares of Common Stock
owned beneficially as of
March 1, 1994(a)(b)
------------------------
<S> <C>
Mike R. Bowlin...................................... 2,000
William T. Butler................................... 3,001
Allan L. Comstock................................... 0
Terry G. Dallas..................................... 0
Bob G. Gower........................................ 166,717
Stephen F. Hinchliffe, Jr........................... 2,250(c)
Robert H. Ise....................................... 27,776
Dudley C. Mecum II.................................. 700
Jeffrey R. Pendergraft.............................. 25,521
William C. Rusnack.................................. 301
Dan F. Smith........................................ 27,590
Paul R. Staley...................................... 400
William E. Wade, Jr................................. 1,000
Russell S. Young.................................... 33,774(d)
All directors and officers as a group (19 Persons).. 375,521(e)
</TABLE>
(a) Includes shares held by the trustees under the Lyondell Capital
Accumulation Plan and the Lyondell Savings Investment Plan for the accounts
of participants as of December 31, 1993.
(b) The amounts shown include shares that may be acquired within 60 days
following March 1, 1994 through the exercise of stock options, as follows:
Mr. Gower, 112,137; Mr. Smith, 20,366; Mr. Pendergraft, 23,285; Mr. Young,
20,704; Mr. Ise, 25,879 and all directors and officers as a group, including
those just named, 272,984.
(c) Does not include 1,000 shares held by a trust of which Mr. Hinchliffe
is a trustee, as to which shares he disclaims beneficial ownership.
(d) Does not include 1,100 shares owned by Mr. Young's spouse, as to which
shares he disclaims beneficial ownership.
(e) Does not include 5,059 shares owned by spouses and a trust, as to which
shares beneficial ownership is disclaimed.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than eleven percent
of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission ("SEC") and the New York Stock Exchange
initial reports of ownership and reports of changes in ownership of Common Stock
of the Company. Officers, directors and greater than ten-percent shareholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations that such reports
accurately reflect all reportable transactions and holdings, during the fiscal
year ended December 31, 1993 all Section 16(a) filing requirements applicable to
its officers, directors and greater than ten-percent beneficial owners were
complied with.
64
<PAGE>
ITEM 13. Certain Relationships and Related Transactions
TRANSACTIONS BETWEEN THE COMPANY AND ARCO
In connection with the transfer of assets and liabilities to Lyondell, the
Company and ARCO entered into a number of agreements for the purpose of defining
their ongoing relationships. In addition, in July 1987 the Lyondell Division
and ARCO Chemical Company ("ARCO Chemical"), then a wholly owned subsidiary of
ARCO, entered into a number of agreements in connection with the organization of
ARCO Chemical. None of these agreements was the result of arm's-length
negotiations between independent parties. It was the intention of the Company,
ARCO and ARCO Chemical that such agreements and the transactions provided for
therein, taken as a whole, accommodate the parties' interests in a manner that
was fair to the parties, while continuing certain mutually beneficial joint
arrangements. The Audit Committee of the Board of Directors of the Company,
none of the members of which are affiliated with the Company (including LCR),
ARCO or ARCO Chemical has determined that such agreements, taken as a whole,
were fair to the Company and its stockholders. Because of the complexity of the
various relationships between the Company, ARCO and its direct and indirect
subsidiaries, including ARCO Chemical (together, "ARCO Affiliates"), however,
there can be no assurance that each of such agreements, or the transactions
provided for therein, has been effected on terms at least as favorable to the
Company as could have been obtained from unaffiliated third parties.
The terms and provisions of many of those initial agreements have been
modified subsequently or supplemented and additional or modified agreements,
arrangements and transactions have been and will continue to be entered into
by the Company and ARCO Affiliates. Any such future agreements, arrangements
and transactions will be determined through negotiation between the Company
and ARCO Affiliates and it is possible that conflicts of interest will be
involved. Future contractual relations among the Company and ARCO Affiliates
will be subject to certain provisions of the Company's Certificate of
Incorporation. See "Certificate of Incorporation Provisions Relating to
Corporate Conflicts of Interest." In addition, the Audit Committee of the
Board of Directors has adopted a set of guidelines for the review of all
agreements entered into between the Company and ARCO Affiliates. These
guidelines include a provision that, at least annually, the Audit Committee
will review such agreements, or the transactions provided for therein, to
assure that such agreements are, in its opinion, fair to the Company and its
stockholders.
For the year ended December 31, 1993, Lyondell (including LCR) paid ARCO
Affiliates an aggregate of approximately $80 million. For the year ended
December 31, 1993, Lyondell recorded revenues of approximately $278 million from
sales to ARCO Affiliates, of which $263 million represented sales to ARCO
Chemical.
THE FOLLOWING IS A SUMMARY OF CERTAIN AGREEMENTS, ARRANGEMENTS AND
TRANSACTIONS AMONG THE COMPANY AND ARCO AFFILIATES EFFECTIVE DURING THE PAST
FISCAL YEAR, AS WELL AS CERTAIN AGREEMENTS, ARRANGEMENTS AND TRANSACTIONS THAT
ARE CURRENTLY PROPOSED.
TECHNOLOGY TRANSFERS AND LICENSES
Effective July 1, 1988, ARCO assigned to the Company numerous domestic and
foreign trademarks and certain U.S. and foreign patents and granted the Company
a nonexclusive license to use other trademarks which contain the word "ARCO," to
use ARCO's spark symbol as a logo and to use ARCO's color striping scheme, which
license was royalty-free for a period of four years. The Company paid ARCO
approximately $80,000 under the terms of this license in 1993.
In connection with the transfer of assets and liabilities relating to the
Lyondell Division from ARCO to the Company, the Company and ARCO, effective July
1, 1988, entered into (i) a License Agreement pursuant to which ARCO licensed to
the Company on a nonexclusive, royalty-free basis certain rights (including
Lyondell's right to sublicense to third parties, in some cases without
accounting to ARCO) to ARCO's technology and intellectual property related to
certain operations or assets of the Company, (ii) a technology assignment
agreement pursuant to which legal title to certain other technology and
intellectual property useful in the Company's business (including, without
limitation, technology relating to olefins, including product flexibility) was
transferred to the Company; provided, however, that except for technology
relating to the product flexibility unit, ARCO retained a nonexclusive license
to use the technology and property rights in ARCO's other operations, and (iii)
an immunity from suit agreement in respect of the Company's right to practice
all remaining technology
65
<PAGE>
in the possession of the Company prior to July 1, 1988. During 1990, the Company
and ARCO entered into a series of amendments to these agreements designed to
clarify the parties' rights under the original technology transfer. In addition,
Lyondell and ARCO executed a patent maintenance agreement pursuant to which ARCO
agreed to maintain certain patents licensed to Lyondell. Lyondell and ARCO also
entered into a letter agreement granting Lyondell the right to obtain additional
licensing rights.
CROSS-INDEMNITY AGREEMENT
In connection with the transfer by ARCO of substantially all of the assets
and liabilities of its Lyondell Division to the Company, the Company and ARCO
executed a Cross-Indemnification Agreement (the "Cross-Indemnity Agreement"). In
the Cross-Indemnity Agreement, the Company agreed generally to indemnify ARCO
against substantially all fixed and contingent liabilities relating to the
integrated petrochemical and petroleum processing business and certain assets of
the Lyondell Division. The liabilities assumed by the Company include the
following, to the extent not covered by ARCO's insurance: (a) all liabilities
and obligations of the Company and its combined subsidiaries, as of July 1,
1988; (b) all liabilities and obligations under contracts and commitments
relating to the business of the Lyondell Division and certain assets relating
thereto; (c) employment and collective bargaining agreements affecting the
Company's employees; (d) specified pending litigation and other proceedings; (e)
federal, state, foreign and local income taxes to the extent provided in the
Cross-Indemnity Agreement; (f) liabilities for other taxes associated with the
Lyondell Division's business and certain assets relating thereto; (g)
liabilities for any past, present or future violations of federal, state or
other laws (including environmental laws), rules, regulations or other
requirements of any governmental authority in connection with the business of
the Lyondell Division and certain assets relating thereto; (h) existing or
future liabilities for claims based on breach of contract, breach of warranty,
personal or other injury or other torts relating to such integrated
petrochemical and petroleum processing businesses and certain assets relating
thereto; and (i) any other liabilities relating to the assets transferred to the
Company or its subsidiaries. ARCO has indemnified the Company with respect to
other claims or liabilities and other matters of litigation not related to the
assets or business transferred by ARCO to the Company.
The Cross-Indemnity Agreement includes procedures for notice and payment of
indemnification claims and provides that a party entitled to indemnification for
a claim or suit brought by a third party may require the other party to assume
the defense of such claim. The Cross-Indemnity Agreement also includes a
defense cost-sharing agreement, whereby the Company will bear its allocated
defense costs for certain lawsuits.
DISPUTE RESOLUTION AGREEMENT
In April 1993, the Company, ARCO and ARCO Chemical entered into a Dispute
Resolution Agreement that mandates a procedure for negotiation and binding
arbitration of significant commercial disputes among any two or more of the
parties.
SERVICES AGREEMENTS
The Company and ARCO entered into an agreement effective January 1, 1991 and
amended as of February, 1992 (the "Administrative Services Agreement") under
which ARCO agreed to continue to provide various transitional services to the
Company that ARCO had been providing pursuant to previous administrative service
agreements. The services which ARCO agreed to provide the Company in the
Administrative Services Agreement included employee benefits administration
services, payroll, telecommunications and certain computer-related services.
The Administrative Services Agreement terminates no later than December 31, 1997
although it may be terminated in its entirety earlier than such date upon the
terminating party providing the other party with at least one year's prior
notice, and a party may elect to terminate some of the services it is receiving
upon 30 days prior notice to the other party. The Administrative Services
Agreement provides for an annual renegotiation of fees. ARCO earned a fee of
approximately $2 million during 1993 for all of the services which it provided
under the Administrative Services Agreement.
Effective January 1, 1991, the Company and ARCO entered into an agreement
(the "Insurance Termination Agreement") which terminated the insurance coverage
previously provided by ARCO and established procedures for the resolution of
pending and future claims that are or will be covered under ARCO's policies in
effect prior to January 1, 1991.
66
<PAGE>
OTHER AGREEMENTS BETWEEN THE COMPANY AND ARCO
Lyondell has purchased and LCR continues to purchase certain of its crude
oil requirements from ARCO Oil and Gas ("AOGC") under short-term arrangements at
prices based on market values at the time of delivery. LCR also purchases crude
oil from AOGC from time to time on the spot market at then-current spot market
prices. The Company and LCR also purchased natural gas and natural gas liquids
from AOGC during 1993 on the spot market at then-current spot market prices.
The Company (including LCR) also sold products to ARCO Affiliates, including
crude oil resales and sales of heating oil and lube oil at market-based prices.
The Company has entered into several contracts with ARCO Pipe Line Company
(ARCO Pipe Line) pursuant to which the Company (i) leased certain pipelines and
pipeline segments from ARCO Pipe Line at annual rental rates which include
recovery of operating costs, return on capital investment and inflation
escalators (ii) acquired the services of ARCO Pipe Line to operate various
groups of pipelines owned by the Company, (iii) entered into a throughput and
deficiency commitment for volumes at tariff rates for transportation of crude
oil and other products. Certain of these contracts that relate to the refining
business were assigned to LCR as of July 1, 1993. The Company and LCR paid ARCO
Pipe Line approximately $20 million during 1993 for rental fees and services
under these contracts. ARCO Pipe Line and LCR have agreed to use jointly a
control room owned by LCR and located at the Houston Refinery. ARCO Pipe Line
also owns various easements and licenses for its pipelines and related equipment
located on the property of the Company or LCR and has performed services
relating to the pipeline systems. The Company (including LCR) also ships
products over common carrier pipelines owned and operated by ARCO Pipe Line
pursuant to filed tariffs on the same basis as other non-affiliated customers.
AGREEMENTS BETWEEN THE COMPANY AND ARCO CHEMICAL COMPANY
Lyondell provides to ARCO Chemical a large portion of the feedstocks
purchased by ARCO Chemical for its manufacturing facilities located at
Channelview, Texas. Pricing arrangements under these contracts are generally
representative of prevailing market prices. Lyondell also provides certain
nominal plant services at the aforementioned plants. ARCO Chemical in turn
provides certain feedstocks and supplies to Lyondell at market-based prices.
The Company processes MTBE (using one of the Company's two MTBE units) for
ARCO Chemical, and ARCO Chemical markets this product for its own account. The
term of this agreement extends through June 30, 1997. ARCO Chemical purchases
certain base feedstocks for this processing agreement from Lyondell at market
based prices. A processing fee is paid by ARCO Chemical to Lyondell to cover
variable and fixed operating costs, as well as capital costs. In addition, the
Company has agreed to sell to ARCO Chemical MTBE produced at the Company's
second MTBE unit that is in excess of the Company's requirements at market-based
prices.
CERTIFICATE OF INCORPORATION PROVISIONS RELATING TO CORPORATE CONFLICTS OF
INTEREST
In order to address certain potential conflicts of interest between the
Company and ARCO (for purposes of this section the term "ARCO" also includes
ARCO's successors and any corporation, partnership or other entity in which ARCO
owns fifty percent or more of the voting securities or other interest), the
Company's Certificate of Incorporation contains provisions regulating and
defining the conduct of certain affairs of the Company as they may involve ARCO
and its officers and directors, and the powers, rights, duties and liabilities
of the Company and its officers, directors and stockholders in connection
therewith. In general, these provisions recognize that from time to time the
Company and ARCO may engage in the same or similar activities or lines of
business and have an interest in the same areas of corporate opportunities. The
Certificate of Incorporation provides that ARCO has no duty to refrain from (1)
engaging in business activities or lines of business that are the same as or
similar to those of the Company, (2) doing business with any customer of the
Company or (3) employing any officer or employee of the Company. The Certificate
of Incorporation provides that ARCO is not under any duty to present any
corporate opportunity to the Company which may be a corporate opportunity for
both ARCO and the Company, and that ARCO will not be liable to the Company or
its stockholders for breach of any fiduciary duty as a stockholder of the
Company by reason of the fact that ARCO pursues or acquires such corporate
opportunity for itself, directs such corporate opportunity to another person or
does not present the corporate opportunity to the
67
<PAGE>
Company. ARCO currently owns interests in certain chemical companies and
refiners (other than the Company) and has advised the Company that it may
continue to acquire additional interests in chemical companies and refiners.
The Certificate of Incorporation provides that directors and officers of the
Company will not be liable to the Company or its stockholders for breach of any
fiduciary duty if they comply with the following provisions of the Certificate
of Incorporation. When a corporate opportunity is offered in writing to an
officer or an officer and a director of the Company who is also an officer or an
officer and a director of ARCO, solely in his or her designated capacity with
one of the two companies, such opportunity shall be first presented to whichever
company was so designated. No person is currently in this category. Otherwise,
(i) a corporate opportunity offered to any person who is an officer or officer
and director of the Company and who is also a director of ARCO, shall be first
presented to the Company, (ii) a corporate opportunity offered to a person who
is a director of the Company and who is also an officer or officer and director
of ARCO shall be first presented to ARCO, (iii) in all other cases, a corporate
opportunity offered to any person who is an officer and/or a director of both
the Company and ARCO shall be first presented to the Company. Mr. Bowlin, Mr.
Comstock, Mr. Dallas, Mr. Rusnack and Mr. Wade are in category (ii) and no
persons currently are in categories (i) and (iii).
Another section of the Certificate of Incorporation provides that no
contract, agreement, arrangement or transaction between the Company and ARCO or
between the Company and a director or officer of the Company or of ARCO would be
void or voidable for the reason that ARCO or any director or officer of the
Company or of ARCO are parties thereto or because any such director or officer
were present or participated in the meeting of the Board of Directors which
authorized the contract if the material facts about the contract, agreement,
arrangement or transaction were disclosed or known to the Board of Directors or
the stockholders and the Board of Directors in good faith authorizes the
contract by a vote of a majority of the disinterested directors or the majority
of stockholders approves such contract, agreement, arrangement or transaction.
The foregoing Certificate of Incorporation provisions describe the
obligations of officers and directors of the Company with respect to
presentation of corporate opportunities, but do not limit the ability of the
Company or of ARCO to consider and act upon such opportunities whether or not
such provisions have been followed.
CERTAIN OTHER TRANSACTIONS
During the 1993 fiscal year, Dan F. Smith, a director and the Company's
Executive Vice President and Chief Operating Officer, was indebted to the
Company in the amount of $349,000. This interest-free loan, which was repaid
within seven months and was not outstanding at the end of the year, was made in
connection with his relocation to Houston.
68
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1 and 2 -- Consolidated Financial Statements and Financial Statement
Schedules: these documents are listed in the Index to Consolidated
Financial Statements and Financial Statement Schedules.
Exhibits:
3.1 -- Restated Certificate of Incorporation of the Registrant filed
with the State of Delaware on November 2, 1988.*
3.2 -- By-Laws of the Registrant.*
4.1 -- Indenture, dated as of May 31, 1989, as supplemented by a First
Supplemental Indenture dated as of May 31, 1989, between the
Registrant and Texas Commerce Bank National Association, as
Trustee.**
4.2 -- Indenture, dated as of March 10, 1992, as supplemented by a
First Supplemental Indenture dated as of March 10, 1992,
between the Registrant and Continental Bank, National Association,
as Trustee.*****
4.3 -- Specimen certificate.*
4.4 -- Form of Medium-Term Note.**
10.1 -- Lyondell Petrochemical Company Amended & Restated Annual
Incentive Plan.
10.2 -- Lyondell Petrochemical Company Executive Supplementary Savings
Plan.**
10.3 -- Lyondell Petrochemical Company Executive Long-Term Incentive
Plan as amended and restated as of October 19, 1990.***
10.4 -- Lyondell Petrochemical Company Supplementary Executive
Retirement Plan, effective October 1, 1990.***
10.5 -- Lyondell Petrochemical Company Executive Medical Insurance Plan -
Summary Plan Description.***
10.6 -- Lyondell Petrochemical Company Executive Deferral Plan,
effective October 1, 1990.****
10.7 -- Lyondell Petrochemical Company Executive Long-Term Disability
Plan, effective October 1, 1990.*****
10.8 -- Lyondell Petrochemical Company Executive Life Insurance Plan,
effective October 1, 1990.*****
10.9 -- Lyondell Petrochemical Company Elective Deferral Plan for
Outside Directors.****
10.10 -- Lyondell Petrochemical Company Retirement Plan for Outside
Directors, as amended and restated.****
10.11 -- Lyondell Petrochemical Company Supplemental Executive Benefit
Plans Trust Agreement.****
10.12 -- Form of Registrant's Indemnity Agreement with Officers and
Directors.*
10.13 -- Asset Purchase Agreement (conformed without exhibits), dated as
of December 19, 1989, between the Registrant and Rexene Products
Company.**
10.14 -- Conveyance (conformed without exhibits), dated as of July 1, 1988
between the Registrant and ARCO.*
10.15(a) -- Cross-Indemnification Agreement, dated as of July 1, 1988,
between the Registrant and ARCO and Amendment No. 1 to the Cross-
Indemnification Agreement effective as of July 1, 1988.*
10.15(b) -- Dispute Resolution Agreement, dated as of April, 1993, between
the Registrant, ARCO and ARCO Chemical Company.
10.16(a) -- Administrative Services Agreement, dated as of January 1, 1991,
between the Registrant and ARCO.****
10.16(b) -- Letter Agreement regarding Administrative Services Agreement,
between the Registrant and ARCO dated as of February 26,
1992.*****
10.17 -- Agreements Implementing Transfer of Pipeline Rights from ARCO
Pipe Line Company to Registrant.*
10.18(a) -- Amended and Restated Limited Liability Company Regulations of
LYONDELL-CITGO Refining Company Ltd. dated as of July 1,
1993.******
69
<PAGE>
10.18(b) -- Contribution Agreement between Lyondell Petrochemical Company
and LYONDELL-CITGO Refining Company Ltd. dated as of July 1,
1993.******
10.18(c) -- Crude oil Supply Agreement between LYONDELL-CITGO Refining
Company Ltd. and Lagoven, S.A. dated as of May 5, 1993******
10.19(a) -- Immunity From Suit Agreement, effective July 1, 1988, between
ARCO and the Registrant.*
10.19(b) -- Amendment to Immunity From Suit Agreement, effective July 1,
1988, between ARCO and the Registrant.***
10.20(a) -- License Agreement, effective July 1, 1988, between ARCO and the
Registrant.*
10.20(b) -- License Agreement Amendment, effective July 1, 1988, between
ARCO and the Registrant.***
10.21(a) -- Technology Agreement, effective as of July 1, 1988, between ARCO
and the Registrant, as amended.**
10.21(b) -- Technology Agreement Amendment dated September 14, 1990,
effective July 1, 1988 between ARCO and the Registrant.***
10.22 -- Assignment of Common Law Trademark(s), dated October 3, 1988,
between ARCO and the Registrant.*
10.23 -- Assignment of U.S. Trademark(s), dated October 3, 1988, between
ARCO and the Registrant.*
10.24 -- Crystalline Polymers License and Block Copolymer License dated
February 14, 1990 between Phillips Petroleum Co. and the
Registrant.**
10.25(a) -- Assignment of Foreign Trademarks, dated October 3, 1988, as
amended February 14, 1988, between ARCO and the Registrant.**
10.25(b) -- Assignment of Foreign Trademarks, dated October 24, 1990,
between ARCO and the Registrant.***
10.26 -- Assignment of Patents and Patent Applications, dated December 27,
1988, between ARCO and the Registrant.**
10.27 -- Assignment of Technology Agreement, dated July 1, 1988, as
amended, between ARCO and the Registrant.**
10.28 -- Trademark License Agreement, dated October 7, 1988 between, ARCO
and the Registrant.**
10.29 -- Trademark License Agreement Amendment, dated October 7, 1991,
between ARCO and the Registrant.****
10.30 -- Symbol Agreement dated July 1, 1988 between ARCO and the
Registrant.**
10.31 -- Joint Pipeline Use Agreement, dated July 1, 1987, between ARCO
Chemical Company and the Registrant.*
10.32 -- MTBE Purchase, Transportation & Storage Agreement, dated July 1,
1987, between ARCO Chemical Company and the Registrant.*
10.33(a) -- Isobutylene Purchase and MTBE Tolling Agreement, dated July 1,
1987 and amended May 2, 1988, between the Registrant and ARCO
Chemical Company.*
10.33(b) -- Amendment No. 1 to Isobutylene Purchase and MTBE Tolling
Agreement.*****
10.34 -- LYONDELL-CITGO Refining Company Ltd. $100,000,000 Credit
Agreement dated as of July 1, 1993.
10.35 -- Lyondell Petrochemical Company $400,000,000 Credit Agreement
dated as of December 6, 1993
22 -- Subsidiaries of the Registrant.
24 -- Consent of Coopers & Lybrand.
25 -- Powers of Attorney
* Filed as an exhibit to Registrant's Registration Statement on Form S-1
(No. 33-25407) and incorporated herein by reference.
** Filed as an exhibit to Registrant's Annual Report on Form 10-K Report for
the year ended December 31, 1989 and incorporated herein by reference.
*** Filed as an exhibit to Registrant's Annual Report on Form 10-K Report for
the year ended December 31, 1990 and incorporated herein by reference.
**** Filed as an exhibit to Registrant's Annual Report on Form 10-K Report for
the year ended December, 31, 1991 and incorporated herein by reference.
***** Filed as an exhibit to Registrant's Annual Report on Form 10-K Report for
the year ended December 31, 1992 and incorporated herein by reference.
****** Filed as an exhibit to Registrant's Form 8-K dated as of July 1, 1993 and
incorporated herein by reference.
70
<PAGE>
(b) Consolidated Financial Statements and Financial Statement Schedules
(1) Consolidated Financial Statements
Consolidated Financial Statements and Financial Statement Schedules
filed as part of this Annual Report on Form 10-K are listed in the
Index to Consolidated Financial Statements and Financial Statement
Schedules on page 34.
(2) Financial Statement Schedules
For years ended 1993, 1992, and 1991.
V. -- Property, Plant and Equipment.
VI. -- Accumulated Depreciation and Amortization of Property, Plant
and Equipment.
IX. -- Short-Term Borrowings
X. -- Supplementary Income Statement Information
All other schedules are omitted because they are not applicable or the required
information is contained in the Financial Statements or notes thereto.
Copies of exhibits will be furnished upon prepayment of 25 cents per page.
Requests should be addressed to the Secretary.
(c) Reports on Form 8-K:
No Current Reports on Form 8-K were filed during the quarter ended December 31,
1993 or thereafter through March 16, 1994.
71
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
LYONDELL PETROCHEMICAL COMPANY
By: BOB G. GOWER
-------------------------------------------
Bob G. Gower
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
MIKE R. BOWLIN * Chairman of the Board and March 16, 1994
----------------------------- Director
(Mike R. Bowlin)
BOB G. GOWER President, Chief Executive Officer March 16, 1994
----------------------------- and Director
(Bob G. Gower, Principal Executive Officer)
WILLIAM T. BUTLER* Director March 16, 1994
-----------------------------
(William T. Butler)
ALLAN L. COMSTOCK* Director March 16, 1994
-----------------------------
(Allan L. Comstock)
TERRY G. DALLAS* Director March 16, 1994
-----------------------------
(Terry G. Dallas)
STEPHEN F. HINCHLIFFE, JR.* Director March 16, 1994
-----------------------------
(Stephen F. Hinchliffe, Jr.)
DUDLEY C. MECUM II* Director March 16, 1994
-----------------------------
(Dudley C. Mecum II)
WILLIAM C. RUSNACK* Director March 16, 1994
-----------------------------
(William C. Rusnack)
DAN F. SMITH Director March 16, 1994
-----------------------------
(Dan F. Smith)
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
PAUL R. STALEY* Director March 16, 1994
-------------------------------
(Paul R. Staley)
WILLIAM E. WADE, JR.* Director March 16, 1994
-------------------------------
(William E. Wade, Jr.)
RUSSELL S. YOUNG Senior Vice President, Chief March 16, 1994
------------------------------- Financial Officer and Treasurer
(Russell S. Young, Principal Financial Officer)
JOSEPH M. PUTZ Vice President and Controller March 16, 1994
-------------------------------
(Joseph M. Putz, Principal Accounting Officer)
*By: BOB G. GOWER March 16, 1994
-------------------------------
(Bob G. Gower, as Attorney-in-fact)
</TABLE>
73
<PAGE>
SCHEDULE V
LYONDELL PETROCHEMICAL COMPANY
PROPERTY, PLANT AND EQUIPMENT
MILLIONS OF DOLLARS
<TABLE>
<CAPTION>
(Column A) (Column B) (Column C) (Column D) (Column E) (Column F)
Balance at Other Balance at
Beginning Additions Retirements Changes End
Year Classification of Period at Cost or Sales Add (Deduct) of Period
-------------- --------- ------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
1993 Manufacturing facilities
and equipment $2,441 $ 85 $ 1 $ (9) $2,516
Land 26 -- -- -- 26
Leased assets and
improvements 3 -- -- -- 3
------- ------ ------ ------ ------
$2,470 $ 85 $ 1 $ (9) $2,545
======= ====== ====== ====== ======
1992 Manufacturing facilities
and equipment $1,838 $ 97 $ 2 $ 508 $2,441
Land 26 -- -- -- 26
Leased assets and
improvements 512 -- -- (509) 3
------- ------ ------ ------ ------
$2,376 $ 97 $ 2 $ (1) $2,470
======= ====== ====== ====== ======
1991 Manufacturing facilities
and equipment $1,799 $ 42 $ 2 $ (1) $1,838
Land 25 1 -- -- 26
Leased assets and
improvements 512 -- -- -- 512
------- ------ ------ ------ ------
$2,336 $ 43 $ 2 $ (1) $2,376
======= ====== ====== ====== ======
</TABLE>
74
<PAGE>
SCHEDULE VI
LYONDELL PETROCHEMICAL COMPANY
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
MILLIONS OF DOLLARS
<TABLE>
<CAPTION>
(Column A) (Column B) (Column C) (Column D) (Column E) (Column F)
Balance at Additions Other Balance at
Beginning Charged to Retirements Changes End
Year Classification of Period P&L or Sales Add (Deduct) of Period
- ---- -------------- --------- ------- -------- ------------ ---------
<C> <S> <C> <C> <C> <C> <C>
1993 Manufacturing facilities
and equipment $1,844 $ 44 $ 1 $ -- $1,887
Leased assets and
improvements 3 -- -- -- 3
------- ------ ------ ------ ------
$1,847 $ 44 $ 1 $ -- $1,890
======= ====== ====== ====== ======
1992 Manufacturing facilities
and equipment $1,314 $ 40 $ 1 $ 491 $1,844
Leased assets and
improvements 493 -- -- (490) 3
------- ------ ------ ------ ------
$1,807 $ 40 $ 1 $ 1 $1,847
======= ====== ====== ====== ======
1991 Manufacturing facilities
and equipment $1,276 $ 40 $ 2 $ -- $1,314
Leased assets and
improvements 492 1 -- -- 493
------- ------ ------ ------ ------
$1,768 $ 41 $ 2 $ -- $1,807
======= ====== ====== ====== ======
</TABLE>
75
<PAGE>
SCHEDULE IX
LYONDELL PETROCHEMICAL COMPANY
SHORT-TERM BORROWINGS
MILLIONS OF DOLLARS
<TABLE>
<CAPTION>
(Column A) (Column B) (Column C) (Column D) (Column E) (Column F)
Weighted
Average Weighted
Interest Rate Maximum Average Average
of Amounts Amount Amount Interest
Balance at Outstanding Outstanding Outstanding Rate
Category of Aggregate End at End at any During the During the
Year Short-Term Borrowings of Period of Period Month End Period (a) Period (b)
- ---- --------------------- ----------- -------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1993 Short-term bank loan -- --% 10.0 2.3 3.6%
Financial institutions 4.0 3.4% 6.0 1.3 3.4%
1992 Short-term bank loan -- --% -- -- --%
Financial institutions -- --% -- -- --%
1991 Short-term bank loan -- --% -- -- --%
Financial institutions -- --% -- -- --%
</TABLE>
(a) Total of daily outstanding principal divided by the actual number of days in
the period (365 days).
(b) Actual interest expense on short-term borrowing divided by the average
amount outstanding during the period, based upon a 365-day year.
76
<PAGE>
SCHEDULE X
LYONDELL PETROCHEMICAL COMPANY
SUPPLEMENTARY INCOME STATEMENT INFORMATION
MILLIONS OF DOLLARS
<TABLE>
<CAPTION>
(Column A) (Column B)
Amount
Charged
to Costs
Year Description and Expenses
---- ----------- ------------
<S> <C> <C>
1993 Maintenance and Repairs (a) $ 101
Taxes (other than income)(b) $ 55
1992 Maintenance and Repairs $ 109
Taxes (other than income)(b) $ 56
1991 Maintenance and Repairs $ 92
Taxes (other than income)(b) $ 54
</TABLE>
(a) Includes amortization of deferred turnaround costs. See Note 4 of Notes to
Consolidated Financial Statements.
(b) Includes property, superfund and other taxes.
77
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Name Page
- ----- --------- ------
<S> <C> <C>
10.1 Amended and Restated Annual Incentive Plan
10.15(b) Dispute Resolution Agreement
10.34 Lyondell Petrochemical Company
$400,000,000 Credit Agreement
10.35 LYONDELL-CITGO Refinery Company Ltd.
$100,000,000 Credit Agreement
22 Subsidiaries
24 Consult of Coopers & Lybrand
25 Power of Attorney
</TABLE>
<PAGE>
Exhibit 10.1
LYONDELL PETROCHEMICAL COMPANY
- ------------------------------
ANNUAL INCENTIVE PLAN
Effective January 1, 1993
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
ANNUAL INCENTIVE PLAN
To record the adoption of the Lyondell Petrochemical Annual Incentive Plan, as
amended and restated effective January 1, 1993, the undersigned, being duly
authorized to act on behalf of Lyondell Petrochemical Company, has executed this
plan document at Houston, Texas on the 14th day of February 1994.
ATTEST: LYONDELL PETROCHEMICAL COMPANY
By: Gerald A. O'Brien By: Richard W. Park
-------------------- --------------------------
(Gerald A. O'Brien) (Richard W. Park)
Vice President
Human Resources
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
ANNUAL INCENTIVE PLAN
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
<S> <C> <C>
Section 1. Purpose of Plan.......................... 1
Section 2. Definitions.............................. 1
Section 3. Eligibility and Participation............ 2
Section 4. Determination of Award Fund.............. 3
Section 5. Allocation and Granting of Awards........ 3
Section 6. Administration........................... 4
Section 7. Non-Assignability and Forfeiture......... 4
Section 8. Amendment, Suspension or Termination..... 5
Section 9. Communication............................ 5
Section 10. Miscellaneous Provisions................. 5
Section 11. Effective Date........................... 6
</TABLE>
(i)
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
ANNUAL INCENTIVE PLAN
As amended and restated effective January 1, 1993
SECTION 1. PURPOSE
The Plan's purpose is (i) to provide competitive annual cash awards to
executives and other key employees who make substantial contributions to the
achievement of Company performance goals and (ii) to assist the Company in
attracting, motivating and retaining management employees of high caliber and
potential.
SECTION 2. DEFINITIONS
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Award" - an annual award to a Participant pursuant to Section 5 of
-----
the Plan.
(b) "Award Fund" - the amount of money available for Awards under the
----------
Plan for a Plan Year pursuant to Section 4.
(c) "Board" - the Board of Directors of Lyondell Petrochemical Company.
-----
(d) "Chief Executive Officer" - the Chief Executive Officer of the
-----------------------
Company.
(e) "Committee" - the Compensation Committee of the Board.
---------
(f) "Company" - the Lyondell Petrochemical Company.
-------
(g) "Financial Comparison Corporations" - a group of corporations
---------------------------------
(including, but not limited to, corporations in the petrochemical industry)
selected by the Committee which, in its opinion, are suitable for comparing
business and financial performance. The comparisons are used to determine
the Plan Year individual Awards pursuant to Section 5.
(h) "Employee" - an employee of the Company or a Subsidiary.
--------
(i) "Financial Performance" - performance of the Company against
---------------------
measurements or criteria determined by the Committee, in its sole
discretion, for a specific Plan Year. These measurements shall include, but
are not limited to, cash flow, earnings, return on capital employed and
return on shareholder's equity.
1
<PAGE>
(j) "Officer" - an Employee holding a title of Secretary, Vice
-------
President, Senior Vice President, Executive Vice President, Chief Financial
Officer, Chief Legal Officer, Chief Operating Officer, President or Chief
Executive Officer of the Company.
(k) "Participant" - an Employee who is eligible for an Award for the
-----------
Plan Year.
(l) "Plan" - the Lyondell Petrochemical Company Annual Incentive Plan as
----
set forth herein and as amended from time to time.
(m) "Plan Year" - the calendar year ending December 31.
---------
(n) "Subsidiary" - any corporation, limited liability company,
----------
partnership or joint venture in which a majority of the voting stock or
rights, or the profits or capital interests, is owned directly or indirectly
by the Company, except LYONDELL-CITGO Refining Company Ltd.
(o) "Survey Comparison Corporations" a group of corporations (including,
------------------------------
but not limited to, corporations in the petrochemical industry) selected by
the Committee which, in its opinion, are suitable for comparing compensation
packages. The comparisons are used to determine the Plan Year individual
Awards pursuant to Section 5.
(p) "Total Disability" - the total disability of an Employee as
----------------
determined by the Committee. The Committee in making its determination, may
rely upon the determination of the Employee's total or permanent disability
under any Company maintained long-term disability benefit plan in which the
employee participates.
SECTION 3. ELIGIBILITY FOR PARTICIPATION
(a) Any Employee who has served as a director, officer, or in another key
position, at any time during a Plan Year is a Participant and eligible for
selection by the Committee to receive an Award for that Plan Year;
provided, however, that no member of the Committee may be selected to
receive an Award. In addition, Awards may be made (i) to Employees in
classifications that the Chief Executive Officer, upon the recommendation
of the Vice President, Human Resources, approves for participation in the
Plan and (ii) to Employees, other than Employees who regularly participate
in the Plan, who the Chief Executive Officer determines have made
substantial and significant contributions to the Company for a Plan year.
(b) Awards for Participants who have been eligible for more than six months,
but less than the full Plan year, may be pro-rated by full months as
determined by the Committee or the Chief Executive Officer, as appropriate.
2
<PAGE>
(c) The Committee may make a pro-rated Award to a Participant (or his/her
beneficiary or estate) who has terminated service with the Company prior
to the end of Plan Year if the Committee determines that the Participant
made an outstanding contribution to the Company during the Plan Year.
(d) All questions regarding eligibility shall be resolved by the Committee.
SECTION 4. DETERMINATION OF AWARD FUND
(a) The target Award Fund for a Plan Year for Officers will be established by
the Committee based on the cumulative Survey Comparison Corporations 60th
percentile of bonus awards for the Plan participants.
(b) The actual Award Fund for a Plan Year for Officers may range from 0 to 200
percent of the target Award Fund based on Company and individual
performance.
(c) The Award Fund for a Plan Year for all Participants other than Officers
shall be the total amount of the Awards approved by the Chief Executive
Officer pursuant to Section 5(c).
SECTION 5. ALLOCATION AND GRANTING OF AWARDS
(a) Generally, the amount of Awards to Participants shall be designed to
ensure that the Participants total cash compensation shall be targeted at
the 60th percentile. In no event, however, shall the total of Awards
granted in a Plan Year to Officers exceed the actual Award Fund as
determined in accordance to Section 4(b).
(b) The Chairman of the Board shall submit to the Committee a recommended Award
for the Chief Executive Officer for review and final approval before the
proposed Award is communicated. The Chief Executive Officer, in
consultation with the Vice President, Human Resources, shall make Award
recommendations for Participants who are Officers of the Company. These
recommended Awards shall be submitted to the Committee for review and
final approval before the proposed Award is communicated.
(c) Awards for Participants, other than the Chief Executive Officer and the
other Officers of the Company, shall be established and approved by the
Chief Executive Officer after review of the proposed Awards by the Vice
President, Human Resources.
3
<PAGE>
(d) The Vice President, Human Resources, shall present the Survey Comparison
Corporation information to the Committee to confirm that Awards made to
Officers conform with the Plan's terms and conditions.
(e) Following the close of the Plan Year, individual Awards, if any, shall be
paid to selected Participants.
(f) All Awards shall be paid as a single cash payment, less any required
withholding or deduction (see Section 10), in the year in which the Award
is granted except for amounts that a participant in the Lyondell
Petrochemical Company Executive Deferral Plan has elected to defer pursuant
to the terms of such plan.
SECTION 6. ADMINISTRATION
(a) The Committee has the full power and authority to construe, interpret and
administer the Plan and to make rules and regulations in accordance with
Plan provisions. All Committee decisions, actions, determinations, or
interpretations shall be at its sole discretion and shall be final,
conclusive and binding on the Company, Employees and all other persons. No
Employee or beneficiary has any right to participate in the Plan or to
receive an Award or any portion thereof except, and subject to any terms
and conditions determined by the Committee, in accordance with the
provisions of the Plan.
(b) No member of the Committee shall be personally liable for (i) any action
taken in good faith, (ii) any exercise of power given to the Committee
under the Plan or (iii) any action of any other member of the Committee.
(c) The Vice President, Human Resources, shall be authorized and empowered (i)
to make or cause to be made all necessary calculations and measurements,
and (ii) take such other actions as may be necessary to make and maintain
the Plan's effectiveness.
SECTION 7. NON-ASSIGNABILITY AND FORFEITURE
All Awards are contingent until paid and shall not be assignable, transferable
or subject to alienation whether voluntarily or by operation of law. The
Committee may declare forfeit any unpaid Awards or portions of Awards, if the
Committee determines that the Participant has been discharged for cause or has
performed an act detrimental to Company interests. Any unpaid Award shall not
be subject to forfeiture in the event of death, Total Disability or (except in
cases of discharge for cause) retirement under a qualified retirement plan
maintained by the Company.
4
<PAGE>
SECTION 8. AMENDMENT, SUSPENSION OR TERMINATION
The Committee may suspend, terminate or amend the Plan at any time. Such
action shall not alter the amount or payment of any Award made prior to the
Plan's amendment, suspension or termination.
SECTION 9. COMMUNICATION
The Chief Executive Officer shall be authorized and empowered to communicate a
description of the Plan to Participants.
SECTION 10. MISCELLANEOUS PROVISIONS
(a) All Awards shall be paid from the Company general funds and under no
circumstance shall a Participant or other person have any interest
whatsoever in any particular property or assets of the Company as a result
of the Plan or any Award.
(b) Nothing in the Plan or any action taken pursuant to the Plan, shall be
construed as a contract of employment, shall confer upon any Employee or
Participant any right to continue in the employment of the Company or
shall interfere with or restrict in any way the Company's right to
discharge any Employee or Participant at any time for any reason, with or
without good cause.
(c) Awards shall not be considered compensation for the purpose of any other
benefit plan maintained by the Company, except as provided in the Lyondell
Petrochemical Company Executive Supplementary Retirement Plan and the
Lyondell Petrochemical Company Executive Long Term Disability Plan.
(d) The Company has the right to withhold from an Award or salary or otherwise,
any federal, state, local or foreign taxes required to be withheld with
respect to payment of any Award.
(e) If a Participant becomes entitled to a distribution of benefits under the
Plan, and if at such time the Participant has outstanding any debt,
obligation, or other liability representing an amount owing to the
Company, or any benefit plan maintained by the Company, then the Company
may offset such amount owed to it or such benefit plan against the amount
of benefits otherwise distributable. Such determination shall be made by
the Vice President, Human Resources.
(f) All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, or neuter, as the identity of the person or persons
may require. As the context may require, the singular may be read as the
plural and the plural as the singular.
5
<PAGE>
(g) The Plan shall be binding upon the Company and its successors and assigns.
SECTION 11. EFFECTIVE DATE
This Plan was first adopted as of January 1, 1989 and is hereby amended and
restated effective as of January 1, 1993.
6
<PAGE>
EXHIBIT 10.15(b)
DISPUTE RESOLUTION AGREEMENT
----------------------------
This Agreement, dated April 15 , 1993, is among Atlantic
-----------------------------
Richfield Company, a Delaware corporation ("ARCO"), ARCO Chemical Company, a
Delaware corporation ("ACC"), and Lyondell Petrochemical Company, a Delaware
corporation ("LPC").
BACKGROUND
----------
Disputes involving two or more of the parties hereto ("Disputes") have in the
past arisen and may in the future arise from time to time. Many of the
Disputes involve supply contracts or services arrangements and are able to be
resolved through discussions and negotiations. The parties hereto all agree
that such informal resolution is preferable. However, in the case of any
serious Disputes that may be material to one or more of the parties hereto,
there is a need for a procedure of negotiation and binding arbitration to
promote the systematic resolution of such Disputes in a timely fashion.
AGREEMENT
---------
THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as follows:
I. GUIDING TENENTS
The following tenets regarding business dispute resolution shall apply to
any Dispute:
1. Most business disputes are best resolved privately and by agreement.
2. Executives should play a key role in business dispute resolution and
should approach a dispute as a problem to be solved, not a contest to
be won.
3. Efforts should first be made to reach agreement by unaided negotiation.
4. A skilled and respected neutral third party can play a critical role in
bringing about agreement.
<PAGE>
5. If such efforts are unsuccessful, resolution by a non-adjudicative
procedures, such as mediation or minitrial, should next be pursued.
6. If adjudication by a neutral third party is required, a well
conducted arbitration proceeding is usually preferable to litigation.
7. During an arbitration proceeding, the door to settlement should
remain open; arbitrators should encourage the parties to discuss
settlement, if appropriate employing a mediator.
II. APPOINTMENT, EDUCATION AND REPLACEMENT OF ARBITRATOR
1. Appointment: The parties hereto hereby select Charles B. Renfrew,
-----------
Esquire of San Francisco, California to serve as the arbitrator (the
"Arbitrator") for any Disputes.
2. Education: The Arbitrator shall be educated in advance of any
---------
arbitration hearing as to the various inter-company arrangements and
restrictions. Each party shall participate in the briefing of the
Arbitrator and shall share one-third of the cost of the pre-
arbitration education.
3. Replacement: If Mr. Renfrew resigns or otherwise ceases to serve as
-----------
Arbitrator, ACC, LPC, and ARCO will jointly appoint a replacement
Arbitrator from Judicial Arbitration Mediation Services, Inc. ("JAM"),
or any other agency or organization mutually acceptable to the
parties hereto. In order to select the replacement Arbitrator, the
following procedure will be followed:
a. JAM shall be requested to submit to the parties hereto a list of
not less than five candidates willing to serve as the Arbitrator.
Such list shall include a brief statement of each candidate's
qualifications.
b. Any candidates as to whom a conflict of interest is identified by
any party hereto shall be stricken from the list of candidates.
Each party may also reject any candidate (with or without
explanation). A candidate rejected by any party will be stricken
from the list of candidates. Each party shall rank the remaining
candidates in order of preference (with 5 points being assigned
to the party's first choice, 4 points being assigned to the
party's
-2-
<PAGE>
second choice, etc.), and shall deliver the list of remaining
candidates so marked to the other parties within ten days of
receipt.
c. Any party failing without good cause to return the candidate list
so marked within the specified time period shall be deemed to
have assented to all candidates listed thereon.
d. The parties shall designate as Arbitrator the candidate for whom
the parties collective have awarded the highest point total.
e. If this procedure for any reason should fail to result in the
designation of an Arbitrator, JAM shall submit an amended list of
at least two and no more than five candidates who will then be
ranked in accordance with the procedures set forth above. These
procedures shall continue until an Arbitrator is selected.
III. DISPUTE RESOLUTION PROCEDURE
1. Initiation: The dispute resolution procedure provided by this Agree-
----------
ment may only be initiated by the General Counsel of one of the
parties and only if such officer believes that there exists a Dispute
that is serious and material. Initiation of the procedure shall be in
writing to the other involved party or parties at the addresses
provided herein.
2. Good Faith Negotiations: Upon the procedure being initiated, the
-----------------------
involved parties shall attempt to settle the Dispute through good
faith negotiations. If such negotiations are not successful within a
period of two months, binding arbitration shall be commenced.
3. Binding Arbitration: Binding arbitration (i) shall be conducted by the
-------------------
Arbitrator, (ii) shall be scheduled so as to start the arbitration
hearing no later than five months from the commencement of the
arbitration, and (iii) shall be conducted in accordance with the rules
attached hereto as Exhibit A.
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<PAGE>
IV. COSTS
1. Pre-arbitration: The parties shall share the cost of the
---------------
pre-arbitration education of the Arbitrator as set forth in Section
II.2.
2. Arbitration: The fee of the Arbitrator during any arbitration and
-----------
other costs relating thereto shall be shared equally by the parties
involved therein.
V. NOTICES
Any notices given or required to be given hereunder shall be in writing and
shall be deemed to have been properly given if actually delivered or sent by
United States registered or certified mail, postage prepaid, to the General
Counsel of the appropriate party at the address listed below, or at such other
address as a party may designate by notice to the other parties:
If to ARCO:
Atlantic Richfield Company
515 South Flower Street
Los Angeles, CA 90071
If to ACC:
ARCO Chemical Company
3801 West Chester Pike
Newtown Square, PA 19073
If to LPC:
Lyondell Petrochemical Company
One Houston Center
1221 McKinney Street, Suite 1600
Houston, TX 77010
VI. GOVERNING LAW/JURISDICTION
This Agreement shall be construed, and the legal relations between the
parties hereto shall be determined, in accordance with the substantive law of
the State of Delaware, except that the United States Arbitration Act, Title 9
of the United States Code, Sections 1-16, shall apply to all matters that
arise out of arbitration. The decision of the Arbitrator shall be final and
judgment upon any award issued by the Arbitrator may be entered by any court
having jurisdiction thereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
ATLANTIC RICHFIELD COMPANY
By: [signature appears here]
--------------------------
ARCO CHEMICAL COMPANY
By: [signature appears here]
--------------------------
LYONDELL PETROCHEMICAL COMPANY
By: [signature appears here]
--------------------------
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<PAGE>
EXHIBIT A
---------
RULES WITH RESPECT TO THE CONDUCT
OF ARBITRATION PROCEEDINGS
Rule 1. General Provisions
1.1 Subject to these Rules, the Arbitrator may conduct the arbitration
in such manner as he shall deem appropriate. The Arbitrator shall be
responsible for the organization of conferences and hearings.
1.2 The proceedings shall be conducted in an expeditious manner. The
Arbitrator is empowered to impose time limits it considers reasonable
on each phase of the proceeding, including without limitation the
time allotted to each party for presentation of its case and for
rebuttal.
1.3 Except as otherwise provided in these Rules or permitted by the
Arbitrator, no party or anyone acting on its behalf shall have any
ex parte communication with the Arbitrator with respect to any matter
--------
of substance relating to the proceeding.
1.4 As promptly as possible after the commencement of the arbitration,
the Arbitrator shall hold an initial pre-hearing conference for the
planning and scheduling of the proceeding. The objective of this
conference shall be to discuss all elements of the arbitration with a
view to planning for its future conduct. Matters to be considered in
the initial pre-hearing conference may include, inter alia, the
----------
following:
(a) Procedural matters such as the timing and manner of any required
discovery; the desirability of bifurcation or other separation
of the issues in the arbitration; the scheduling of conferences
and hearing; the scheduling of pre-hearing memoranda; the need
for and type of record of conferences and hearings, including
the need for transcripts; the mount of time allotted to each
party for presentation of its case and for rebuttal; the mode,
manner and order for presenting proof; the need for expert
witnesses and how expert testimony should be presented; and the
necessity for any onsite inspection by the Arbitrator.
<PAGE>
(b) The early identification and narrowing of the
issues in the arbitration;
(c) The possibility of stipulations of fact and
admissions by the parties solely for purposes of
the arbitration, as well as simplification of
document authentication; and
(d) The possibility of the parties engaging in
settlement negotiations, with or without the
assistance of a mediator.
After the initial conference, further pre-hearing or
other conferences may be held as the Arbitrator deems
appropriate.
1.5 In order to define the issues to be heard and
determined, the Arbitrator may inter alia make pre-
----------
hearing orders for the arbitration and instruct the
parties to file statements of claim and of defense and
pre-hearing memoranda.
1.6 Unless the parties have agreed upon the place of
arbitration, the Arbitrator shall fix the place of
arbitration. The award shall be deemed made at such
place. Hearings may be held and the Arbitrator may
schedule meetings, including telephone meetings,
wherever it deems appropriate.
Rule 2. Discovery
The Arbitrator shall permit and facilitate such
discovery as it shall determine is appropriate in the
circumstances, taking into account the needs of the
parties and the desirability of making discovery
expeditious and cost-effective. The Arbitrator may
issue orders to protect the confidentiality of
proprietary information, trade secrets and other
sensitive information disclosed in discovery.
Rule 3. Evidence and Hearings
3.1 The Arbitrator shall determine the manner in which the
parties shall present their cases. Unless otherwise
determined by the Arbitrator, the presentation of a
party's case shall include the submission of a pre-
hearing memorandum including the following elements:
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<PAGE>
(a) A statement of facts;
(b) A statement of each claim being asserted;
(c) A statement of the applicable law upon which the
party relies;
(d) A statement of the relief requested, including the
basis for any damages claimed; and
(e) A statement of the evidence to be presented,
including the name, capacity and subject of
testimony of any witnesses to be called and an
estimate of the amount of time required for the
witness' direct testimony.
3.2 Evidence may be presented in written or oral form as the
Arbitrator may determine is appropriate. The Arbitrator
is not required to apply the rules of evidence used in
judicial proceedings, provided, however, that the
-------- -------
Arbitrator shall apply the lawyer-client privilege and
the work product immunity. The Arbitrator shall
determine the applicability of any privilege or immunity
and the admissibility, relevance, materiality and weight
of the evidence offered.
3.3 The Arbitrator, in its discretion, may require the
parties to produce evidence in addition to that
initially offered. It may also appoint experts whose
testimony shall be subject to cross examination and
rebuttal.
3.4 The Arbitrator shall determine the manner in which
witnesses are to be examined. The Arbitrator shall have
the right to exclude witnesses from hearings during the
testimony of other witnesses.
Rule 4. Interim Measures of Protection
4.1 At the request of a party, the Arbitrator may take such
interim measures as he deems necessary in respect of the
subject matter of the dispute, including measures for
the preservation of assets, the conservation of goods or
the sale of perishable goods. The Arbitrator may
require security for the costs of such measures.
4.2 A request for interim measures by a party to a court
shall not be deemed incompatible with the agreement to
arbitrate or as a waiver of that agreement.
-3-
<PAGE>
Rule 5. The Award
5.1 The Arbitrator may make final, interim, interlocutory
and partial awards. An award may grant any remedy or
relief which the Arbitrator deems just and equitable and
within the scope of the agreement of the parties,
including but not limited to any interim, interlocutory or
partial award, the Arbitrator may state in its award
whether or not he views the award as final, for purposes
of any judicial proceedings in connection therewith.
5.2 All awards shall be in writing and shall state the
reasoning on which the award rests unless the parties
agree otherwise.
5.3 Executed copies of awards shall be delivered by the
Arbitrator to the parties.
5.4 Within fifteen days after receipt of the award, either
party, with notice to the other party, may request the
Arbitrator to correct in any award any errors in
computation, any clerical or typographical errors, or
any errors of a similar nature. Within thirty days
after the delivery of an award to the parties, the
Arbitrator may make corrections on its own initiative
and corrections requested by either party. All such
corrections shall be in writing, and the provisions of
Rule 5 shall apply to them.
5.5 After expiration of the thirty-day period provided in
Rule 5.4, awards shall be final and binding on the
parties, and the parties undertake to carry out awards
without delay.
5.6 The dispute should in most circumstances be submitted to
the Arbitrator for decision within five months after the
initial pre-hearing conference required by Rule 1.4.
The final award should in most circumstances be rendered
within one month thereafter. The parties and the
Arbitrator shall use their best efforts to comply with
this schedule.
-4-
<PAGE>
Rule 6. Failure to Comply with Rules
Whenever a party fails to comply with these Rules in a
manner deemed material by the Arbitrator, the Arbitrator
shall fix a reasonable period of time for compliance
and, if the party does not comply within said period,
the Arbitrator may impose a remedy it deems just,
including an award on default. Prior to entering an
award on default the Arbitrator may require the non-
defaulting party to produce evidence and legal argument
in support of its contentions, which the Arbitrator may
receive without the defaulting party's presence or
participation.
-5-
<PAGE>
Exhibit 10.34
LYONDELL-CITGO REFINING COMPANY LTD.
$100,000,000
CREDIT AGREEMENT
Dated as of July 1, 1993
CONTINENTAL BANK N.A.
As Agent
<PAGE>
TABLE OF CONTENTS*
ARTICLE I
DEFINITIONS
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
SECTION 1.01 Definitions............................... 1
1.02 Accounting Terms and Determinations....... 9
1.03 Types of Borrowings....................... 9
ARTICLE II
THE CREDIT
SECTION 2.01 Commitments to Lend....................... 10
2.02 Notice of Committed Borrowings............ 10
2.03 Letters of Credit......................... 11
2.04 Notice to Banks; Funding of Loans......... 14
2.05 Notes..................................... 14
2.06 Maturity of Loans......................... 15
2.07 Interest Rates............................ 15
2.08 Fees...................................... 18
2.09 Optional Termination or Reduction of
Commitments............................... 18
2.10 Mandatory Termination of Commitments...... 19
2.11 Optional Prepayments...................... 19
2.12 General Provisions as to Payments......... 19
2.13 Computation of Interest and Fees.......... 20
2.14 Maximum Interest Rate..................... 20
2.15 Extension of Termination Date............. 22
2.16 Withholding Tax Exemption................. 23
ARTICLE III
CONDITIONS
SECTION 3.01 Effectiveness.............................. 24
3.02 Borrowings................................. 25
</TABLE>
* The Table of Contents is not a part of this Agreement.
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Representations and Warranties of the
Borrower..................................... 26
ARTICLE V
COVENANTS
SECTION 5.01 Certain Information to be Furnished by the
Borrower..................................... 29
5.02 Maintenance of Property; Insurance........... 31
5.03 Limitation on Liens.......................... 31
5.04 Consolidation, Merger........................ 33
5.05 Use of Proceeds.............................. 34
5.06 Compliance with Laws......................... 34
5.07 No Material Change........................... 34
ARTICLE VI
DEFAULTS
SECTION 6.01 Defaults..................................... 34
6.02 Notice of Default............................ 37
ARTICLE VII
THE AGENT
SECTION 7.01 Appointment and Authorization................ 37
7.02 Agent and Affiliates......................... 37
7.03 Action by Agent.............................. 37
7.04 Consultation with Experts.................... 37
7.05 Liability of Agent........................... 38
7.06 Indemnification.............................. 38
7.07 Credit Decision.............................. 38
7.08 Successor Agent.............................. 39
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01 Illegality.................................. 39
8.02 Increased Cost and Reduced Return........... 40
8.03 Substitute Loans............................ 42
8.04 Regulation D Compensation................... 42
8.05 Substitution of Bank........................ 43
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Notices..................................... 43
9.02 No Waiver................................... 44
9.03 Governing Law............................... 44
9.04 Expenses; Documentary Taxes; Indemnification 44
9.05 Amendments, Etc............................. 45
9.06 Counterparts; Integration................... 46
9.07 Successors and Assigns...................... 46
9.08 Survival.................................... 47
9.09 Acknowledgment.............................. 48
9.10 Headings.................................... 48
9.11 Sharing of Setoffs.......................... 48
9.12 Collateral.................................. 49
9.13 Consent to Jurisdiction..................... 49
9.14 Waiver of Jury Trial........................ 50
</TABLE>
EXHIBIT A - Note
EXHIBIT B - Loans and Principal Payments
EXHIBIT C - Form of Assignment and Acceptance
EXHIBIT D - Secretary's Certificate
EXHIBIT E - Certificate of Incumbency
EXHIBIT F - Opinion of General Counsel
iii
<PAGE>
CREDIT AGREEMENT dated as of July 1, 1993 among LYONDELL-CITGO
REFINING COMPANY LTD, the BANKS listed on the signature pages hereof and
CONTINENTAL BANK N.A., as Agent.
The Borrower desires to borrow from time to time amounts not exceeding
in the aggregate $100,000,000 outstanding at any one time from the Banks for its
general corporate purposes, and the Banks are prepared to make loans on the
terms hereof. Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS.
In addition to terms defined elsewhere in this Agreement, as used in this
Agreement, the following terms have the following meanings (all terms defined in
this Agreement in the singular to have the same meanings when used in the plural
and vice versa):
"ADJUSTED CD RATE" has the meaning set forth in Section 2.07(b).
"ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, the
administrative questionnaire in the form submitted to such Bank by the Agent and
submitted to the Agent (with a copy to the Borrower) duly completed by such
Bank.
"AGENT" means Continental Bank N.A. its capacity as agent for the Banks
hereunder, and its successors in such capacity.
"APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the case of
its Domestic Loans, its Domestic Lending Office and (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office.
"ASSESSMENT RATE" has the meaning set forth in Section 2.07(b).
"ASSIGNEE" has the meaning set forth in Section 9.07(c).
"AUTHORIZED OFFICER" and "AUTHORIZED REPRESENTATIVE" of the Borrower shall mean
an officer or other representative of the Borrower designated in the latest
Certificate of Incumbency of the Borrower or Lyondell or Lyondell Refining
Company. The Agent and the Banks shall be conclusively entitled to rely on the
latest such Certificate of Incumbency of the Borrower delivered to the Agent.
1
<PAGE>
"BANK" means each bank which is listed on the signature pages hereof as having a
Commitment and which has executed and delivered this Agreement, each Assignee
which becomes a Bank pursuant to Section 9.07(c), each substitute bank which
becomes a Bank pursuant to Section 8.05, and their respective successors.
"BASE RATE" means, for any day, a rate per annum equal to the higher of (i) the
Reference Rate for such day and (ii) the Federal Funds Rate for such day plus
1/4 of 1%.
"BASE RATE LOAN" means a Committed Loan to be made by a Bank as a Base Rate Loan
in accordance with the applicable Notice of Committed Borrowing or pursuant to
Article VIII.
"BORROWER" means LYONDELL-CITGO REFINING COMPANY LTD., a Texas limited liability
company.
"BORROWING" has the meaning set forth in Section 1.03.
"CD BASE RATE" has the meaning set forth in Section 2.07(b).
"CD LOAN" means a Committed Loan to be made by a Bank as a CD Loan in accordance
with the applicable Notice of Borrowing.
"CD MARGIN" has the meaning set forth in Section 2.07(b).
"CERTIFICATE OF INCUMBENCY" shall mean a Certificate of Incumbency described in
Section 3.01 (ii) and any successor or replacement Certificate of Incumbency
delivered hereunder.
"CITGO" means CITGO Petroleum Corporation.
"CODE" means the Internal Revenue Code of 1986, as amended, or any successor
statute.
"COMMITMENT" means, as to each Bank, the amount set forth opposite its name on
the signature pages hereof under the heading "Commitment" which includes the
Maximum Drawing Amount (as such amount may be reduced from time to time as
provided in Sections 2.09 and 2.10).
"COMMITMENT PERCENTAGE" means, with respect to each Bank, the percentage set
forth on the signature pages hereto as such Bank's percentage of the aggregate
Commitments of all of the Banks.
"COMMITTED LOAN" means a loan made by a Bank pursuant to Section 2.01.
2
<PAGE>
"COMPANY REGULATIONS" means the limited liability company regulations dated as
of July 1, 1993 between Lyondell Refining Company and CITGO Refining Investment
Company.
"CONTROLLED GROUP" means all members of a controlled group of corporations and
all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414(b) or 414(c) of the Code.
"CONTRIBUTION AGREEMENT" means the Contribution Agreement dated as of July 1,
1993 between Borrower and Lyondell.
"CRUDE SUPPLY AGREEMENT" means the Crude Supply Agreement dated as of May 5,
1993 between Borrower and Lagoven, S. A., including any supplemental agreements.
"DEBT" of any Person means at any date, without duplication, (i) all obligations
of such Person for borrowed money, (ii) all obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments, (iii) all obligations
of such Person to pay the deferred purchase price of property or services,
except trade accounts payable arising in the ordinary course of business, (iv)
all obligations of such Person as lessee under capital leases, (v) all Debt of
others to the extent secured by a Lien on any asset of such Person, whether or
not such Debt is assumed by such Person, and (vi) all Debt of others to the
extent Guaranteed by such Person.
"DEFAULT" means any condition or event which constitutes an Event of Default or
which with the giving of notice or lapse of time or both would, unless cured or
waived, become an Event of Default.
"DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in Chicago, Illinois or Houston, Texas are authorized by
law to close.
"DOMESTIC LENDING OFFICE" means, as to each Bank, its office, branch or
affiliate located at its address set forth in its Administrative Questionnaire
(or identified in its Administrative Questionnaire as its Domestic Lending
Office) or such other office, branch or affiliate as such Bank may from time to
time specify to the Agent and the Borrower as its Domestic Lending Office;
provided that any Bank may from time to time by notice to the Borrower and the
Agent designate separate Domestic Lending Offices for its Reference Rate Loans,
on the one hand, and its CD Loans, on the other hand, in which case all
references herein to the Domestic Lending Office of such Bank shall be deemed to
refer to either or both of such offices, as the context may require.
"DOMESTIC LOANS" means CD Loans or Reference Rate Loans or both.
3
<PAGE>
"DOMESTIC RESERVE PERCENTAGE" has the meaning set forth in Section 2.07(b).
"EFFECTIVE DATE" means the date on which this Agreement becomes effective in
accordance with Section 3.01.
"ENVIRONMENTAL MATTERS" means matters relating to pollution or protection of the
environment, including without limitation emissions, discharges, releases or
threatened releases of pollutants, contaminants or chemicals or industrial,
toxic or hazardous substances or wastes into the environment (including without
limitation ambient air, surface or ground water, land surface or subsurface
strata), or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants or toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and any successor statute.
"EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which commercial
banks are open for international business (including dealings in dollar
deposits) in New York.
"EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office, branch or
affiliate located at its address set forth in its Administrative Questionnaire
(or identified in its Administrative Questionnaire as its Euro-Dollar Lending
Office) or such other office, branch or affiliate of such Bank as it may from
time to time specify to the Agent and the Borrower as its Euro-Dollar Lending
Office.
"EURO-DOLLAR LOAN" means a Committed Loan to be made by a Bank as a Euro-Dollar
Loan in accordance with the applicable Notice of Borrowing.
"EURO-DOLLAR MARGIN" has the meaning set forth in Section 2.07(c).
"EURO-DOLLAR RESERVE PERCENTAGE" means with respect to any Bank for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the reserve requirement (including without limitation
any basic, supplemental or emergency reserves) imposed on such Bank in respect
of "Euro-currency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or in respect of any category of extensions of
credit or other assets which includes loans by a non-United States office of
such Bank to United States residents).
"EVENT OF DEFAULT" has the meaning assigned to that term in Section 6.01.
4
<PAGE>
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100th of one percent (1%)) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Continental Bank National Association on
such day for such transactions as determined by the Agent.
"GRADE 1 PERIOD" means any time during which the sum of the Maximum Drawing
Amount and the Loans is less than 50% of the aggregate amount of the
Commitments.
"GRADE 2 PERIOD" means any time during which the sum of the Maximum Drawing
Amount and the Loans is equal to and greater than 50% of the aggregate amount of
the Commitments and less than the aggregate amount of the Commitments.
"GUARANTEE" means to guarantee or act, directly or indirectly, as a surety for
any Debt or other obligation of any other Person and, without limiting the
generality of the foregoing, to incur or assume any obligation, direct or
indirect, contingent or otherwise, (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt or other obligation (whether
arising by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "Guarantee" shall
not include to endorse for collection or deposit in the ordinary course of
business.
"INTEREST PERIOD" means:
(1) with respect to each Euro-Dollar Borrowing, the period commencing on the
date of such Borrowing and ending one or seven (1 or 7) days, or one, two,
three or six (1, 2, 3 or 6) months thereafter, as the Borrower may elect in
the applicable Notice of Borrowing; provided that:
(a) any Interest Period which would otherwise end on a day which is not a
Euro-Dollar Business Day shall be extended to the next succeeding
EuroDollar Business Day unless such Euro-Dollar Business Day falls in
another
5
<PAGE>
calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (c) below, end on the last Euro-
Dollar Business Day of a calendar month; and
(c) any Interest Period applicable to any Euro-Dollar Loan of any Bank
which begins before such Bank's Termination Date and would otherwise
end after such Termination Date shall end on such Termination Date;
(2) with respect to each CD Borrowing, the period commencing on the date of
such Borrowing and ending thirty (30), sixty (60), ninety (90) or one
hundred eighty (180) days thereafter, as the Borrower may elect in the
applicable Notice of Borrowing; provided that:
(a) any Interest Period (other than an Interest Period determined pursuant
to clause (b) below) which would otherwise end on a day which is not a
Domestic Business Day shall be extended to the next succeeding
Domestic Business Day; and
(b) any Interest Period applicable to any CD Loan of any Bank which begins
before such Bank's Termination Date and would otherwise end after such
Termination Date shall end on such Termination Date;
(3) with respect to each Base Rate Borrowing, the period commencing on the date
of such Borrowing and ending 90 days thereafter; provided that:
(a) any Interest Period (other than an Interest Period determined pursuant
to clause (b) below) which would otherwise end on a day which is not a
Domestic Business Day shall be extended to the next succeeding
Domestic Business Day; and
(b) any Interest Period applicable to any Base Rate Loan of any Bank which
begins before such Bank's Termination Date and would otherwise end
after such Termination Date shall end on such Termination Date;
"INTERBANK OFFERED RATE" has the meaning set forth in Section 2.07(c).
"ISSUING BANK" means the Agent, or such other Bank as the Borrower may have
requested and the Required Banks shall have approved, issuing a Letter of
Credit.
6
<PAGE>
"LETTER OF CREDIT" See Section 2.03.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset. For the
purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to
own subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"LOAN" means a Domestic Loan or a Euro-Dollar Loan and "Loans" means Domestic
Loans or Euro-Dollar Loans or any combination of the foregoing.
"LYONDELL" means Lyondell Petrochemical Company.
"LRC" means Lyondell Refining Company.
"MAXIMUM DRAWING AMOUNT" means the maximum aggregate amount from time to time
that the beneficiaries may draw under outstanding Letters of Credit, as such
aggregate amount may be reduced from time to time pursuant to the terms of the
Letters of Credit.
"NOTES" means promissory notes of the Borrower, substantially in the form of
Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans,
and "Note" means any one of such promissory notes issued hereunder.
"NOTICE OF BORROWING" means a Notice of Committed Borrowing (as defined in
Section 2.02).
"PARENT" means, with respect to any Bank, any Person controlling such Bank.
"PARTICIPANT" has the meaning set forth in Section 9.07(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding
to any or all of its functions under ERISA.
"PERSON" means an individual, a corporation, a partnership, an association, a
trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"PLAN" means at any time an employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Code and is either (i) maintained by a member of the Controlled Group for
employees of a member of the Controlled Group or (ii) maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer
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makes contributions and to which a member of the Controlled Group is then
making or accruing an obligation to make contributions or has within the
preceding five (5) plan years made contributions.
"REFERENCE RATE" shall mean the rate of interest then most recently announced by
Continental Bank N.A. in Chicago from time to time as its "reference rate" for
calculating interest on certain loans (which may not be the lowest rate charged
by Continental Bank N.A. at that time): the "Reference Rate" hereunder will
change simultaneously with any change in Continental Bank N.A.'s "reference
rate".
"REFERENCE BANK" means Continental Bank N.A. or its successor.
"REFUNDING BORROWING" means a Committed Borrowing which, after application of
the proceeds thereof, results in no net increase in the outstanding principal
amount of Committed Loans made by any Bank.
"REGULATION D" means Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time (including any successor
provision thereto or any other United States law or regulation imposing reserves
on deposits or loans).
"REGULATION G" shall mean Regulation G of the Board of Governors of the Federal
Reserve System, as in effect from time to time (including any successor
provision thereto).
"REGULATION U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time (including any successor
provision thereto).
"REGULATION X" shall mean Regulation X of the Board of Governors of the Federal
Reserve System, as in effect from time to time (including any successor
provision thereto).
"REQUIRED BANKS" means at any date Banks having at least sixty-six and two-
thirds (66 2/3%) percent of the aggregate amount of the Commitments or, if the
Commitments have been terminated, holding Notes evidencing at least sixty-six
and two-thirds (66 2/3%) percent of the aggregate unpaid principal amount of the
Loans.
"SUBSIDIARY" means any corporation or other entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other Persons performing similar functions (whether or not
any other class of securities has or might have voting power, by reason of the
happening of a contingency) are at the time owned or controlled directly or
indirectly by the Borrower.
"TERMINATION DATE" means, for each Bank, June 30, 1994, or such later date to
which the Termination Date of such Bank shall have been extended pursuant to
Section
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2.15, or, if such day is not a Euro-Dollar Business Day, the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another
calendar month, in which case the Termination Date for such Bank shall be the
next preceding Euro-Dollar Business Day.
"UNFUNDED VESTED LIABILITIES" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all vested nonforfeitable
benefits under such Plan exceeds (ii) the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
potential liability of a member of the Controlled Group to the PBGC or the Plan
under Title IV of ERISA.
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS.
Unless otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial Statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles as in effect from time
to time, applied on a basis consistent (except for changes concurred in by the
Borrower's independent public accountants) with the most recent audited
financial statements of the Borrower delivered to the Banks.
SECTION 1.03. TYPES OF BORROWINGS.
The term "Borrowing" denotes the aggregation of Loans of one or more Banks to be
made to the Borrower pursuant to Article II on a single date and for a single
Interest Period. Borrowings are classified for purposes of this Agreement
either by reference to the pricing of Loans comprising such Borrowing (e.g., a
"Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by
reference to the provisions of Article II under which participation therein is
determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.01 in
which all Banks participate in proportion to their Commitments).
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ARTICLE II
THE CREDITS
SECTION 2.01. COMMITMENTS TO LEND.
Each Bank severally agrees, on the terms and conditions set forth in this
Agreement, to make loans to the Borrower pursuant to this Section 2.01 from time
to time in amounts such that the aggregate principal amount of Committed Loans
by such Bank at any one time outstanding shall not exceed the amount of its
Commitment. Each Borrowing under this Section 2.01 shall be in an aggregate
principal amount of $5,000,000 or any larger multiple of $1,000,000 (except that
any such Borrowing may be in an aggregate amount such that, immediately after
giving effect to such Borrowing, the aggregate outstanding principal amount of
the Loans will equal the aggregate amount of the Commitments) and shall be made
from the several Banks ratably in proportion to their respective Commitments.
Within the foregoing limits, the Borrower may borrow under this Section 2.01,
repay, or to the extent permitted by Section 2.11, prepay Loans and re-borrow at
any time.
SECTION 2.02. NOTICE OF COMMITTED BORROWINGS.
The Borrower shall give the Agent notice (a "Notice of Committed Borrowing") not
later than 10:00 A.M. (Chicago time) (9:00 A.M. Chicago time in the event of one
day Euro-Dollar Borrowing) on (x) the date of each Reference Rate Borrowing, (y)
the second Domestic Business Day before each CD Borrowing and (z) the third
Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business Day in the
case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a
Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to be CD Loans, Base Rate
Loans or EuroDollar Loans, and
(d) in the case of a CD Borrowing or a Euro-Dollar Borrowing, the requested
Interest Period; provided, however, that the Borrower shall not be
permitted to request Euro-Dollar Borrowings with one (1) day Interest
Period longer than 5 consecutive Domestic Business Days.
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SECTION 2.03. LETTERS OF CREDIT.
(a) Subject to the terms and conditions hereof and the execution and delivery
by the Borrower of a letter of credit application on the Issuing Bank's
customary form (a "Letter of Credit Application"), each of the Banks, in
its sole discretion, and the Agent in reliance upon the representations and
warranties of the Borrower contained in this Agreement, agrees to issue,
extend and renew between the Effective Date and Termination Date for the
account of the Borrower one or more standby letters of credit or
documentary letters of credit (individually, a "Letter of Credit"), in such
form as may be requested from time to time by the Borrower and agreed to by
such Bank; provided, however, that, after giving effect to such request the
sum of (A) the aggregate Maximum Drawing Amount of all Letters of Credit
and (B) the amount of all Loans outstanding shall not exceed the aggregate
amount of the Commitments.
(b) Each new Letter of Credit Application shall be completed to the
satisfaction of the Issuing Bank. In the event that any provision of any
Letter of Credit Application shall be inconsistent with any provision of
this Agreement, then the provisions of this Agreement shall, to the extent
of any such inconsistency, govern.
(c) Each Letter of Credit issued, extended or renewed hereunder shall, among
other things, (i) provide for the payment of sight drafts for honor
thereunder when presented in accordance with the terms thereof and when
accompanied by the documents described therein, and (ii) have an expiry
date no later than fourteen (14) days or, if the beneficiary is located
outside of the United States, forty-five (45) days prior to the Termination
Date. Each Letter of Credit so issued, extended or renewed shall be
subject to the Uniform Customs and Practice for Documentary Credits (1983
Revision), International Chamber of Commerce Publication No. 400 or any
successor version thereto.
(d) Upon the reduction of the total Commitments to an amount less than the
maximum Drawing Amount, the Borrower shall immediately pay to the Agent an
amount equal to such difference.
(e) The amount of each drawing under any Letter of Credit issued by an Issuing
Bank pursuant to this Agreement shall be deemed to be a Loan made by the
Banks to the Borrower on the date of such drawing and shall be funded by
the Banks in accordance with Sections 2.02 and 2.04.
(f) Each Bank (other than the Issuing Bank) and the Borrower hereby acknowledge
that each Letter of Credit issued by the Issuing Bank pursuant to this
Agreement is issued by the Issuing Bank on behalf of all of the Banks.
Each Bank absolutely and irrevocably agrees, regardless of the existence or
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continuance of an Event of Default or any other condition whatsoever, to
reimburse the Issuing Bank in an amount equal to such Bank's Commitment
Percentage of each drawing under any Letter of Credit made in accordance
with paragraph (e) above and to be responsible for its Commitment
Percentage of all liabilities incurred by the Issuing Bank in respect of
each Letter of Credit opened or extended by the Issuing Bank for the
account of the Borrower pursuant to this Agreement. The obligations of the
Banks hereunder are several and the failure of any Bank to fulfill its
obligations shall not result in any Bank becoming obligated to advance more
than its Commitment percentage of the Loans hereunder.
(g) The Issuing Bank, upon receipt of any draft drawn under a Letter of Credit,
shall promptly examine such draft and any accompanying certificate or other
document in accordance with its customary procedures for conformity to the
requirements of such Letter of Credit. In the event the Issuing Bank
determines to pay such draft in accordance with the foregoing, the Issuing
Bank shall promptly notify the Banks and the Agent and each Bank shall, as
contemplated by paragraph (f) of this Section 2.03, provide to the Agent
for the account of the Issuing Bank in funds immediately available to the
Issuing Bank, such Bank's Commitment Percentage of the funds necessary to
pay such draft.
(h) The Borrower's obligations under this Section 2.03 to repay Loans in
respect of drawings under the Letters of Credit as provided hereunder shall
rank pari passu with the obligations of the Borrower to repay all other
Loans, shall be absolute and unconditional under any and all circumstances
and irrespective of the occurrence of any Event of Default or any condition
precedent whatsoever or any setoff, counterclaim or defense to payment
which the Borrower may have or have had against the Agent, the Issuing
Bank, any other Bank or any beneficiary of a Letter of Credit. The
Borrower further agrees with the Agent and the Banks that the Agent and the
Banks shall not be responsible for, among other things, the validity or
genuineness of documents or of any endorsements thereon, even if such
documents should in fact prove to be in any or all respects invalid,
fraudulent or forged, or any dispute between or among the Borrower, the
beneficiary of any Letter of Credit or any financial institution or other
party to which any Letter of Credit may be transferred or any claims or
defenses whatsoever of the Borrower against the beneficiary of any Letter
of Credit of any such transferee. The Agent and the Banks shall not be
liable for any error, omission, interruption or delay in transmission,
dispatch or delivery or any message or advice, however transmitted, in
connection with any Letter of Credit absent the Agent's and the Banks'
gross negligence and willful misconduct. The Borrower agrees that any
action taken or omitted by the Agent or any Issuing Bank under or in
connection with each Letter of Credit and the related drafts and documents,
absent the Agent's and the Banks' gross negligence and willful misconduct,
shall be binding upon the Borrower and shall
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not result in any liability on the part of the Agent or any Issuing Bank to
the Borrower.
(i) To the extent not inconsistent with paragraph (h) above, the Issuing Bank
shall be entitled to rely, and shall be fully protected in relying upon,
any Letter of Credit, draft, writing, resolution, notice, consent
certificate, affidavit, letter, cablegram, telegram, facsimile, telex or
teletype message, statement, order or other document believed by it to be
genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Issuing Bank.
The Issuing Bank shall be fully indemnified by the Banks (exclusive of the
Issuing Bank's pro rata share of such indemnification obligation) against
any and all liability and expense (including any expense for which the
Issuing Bank has not been reimbursed by the Borrower as required by Section
9.04) which may be incurred by it by reason of taking or failing to take
any action absent the Issuing Bank's gross negligence or willful
misconduct. The Issuing Bank shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement in accordance
with a request of the Required Banks, and such request and any action taken
or failure to act pursuant thereto shall be binding upon the Banks.
(j) The Borrower shall, on the date of issuance or any extension or renewal of
any Letters of Credit and at such other time or times as such charges are
customarily made by the Issuing Bank, pay an upfront fee (in each case, a
"Letters of Credit Fee") to the Agent in respect of each Letter of Credit
so issued equal to 0.25% per annum for commercial letters of credit and
0.375% per annum during any Grade 1 Period (.625% per annum for any Grade 2
Period for the face amount of such Letters of Credit in excess of 50% of
the aggregate amount of Commitment) for standby Letters of Credit of the
face amount of such Letter of Credit, plus the Issuing Bank's issuance,
amendment and other administrative fees and charges customarily charged to
its customers similarly situated. Such Letter of Credit Fee (but not such
customary issuance, amendment fee or other administrative fees and charges
which shall be solely for the account of the Issuing bank) shall be for the
accounts of the Banks in accordance with their respective Commitment
Percentages. Such upfront fees shall be based on a 360 day year.
(k) Upon the occurrence of an Event of Default, the Borrower shall pay to the
Agent on demand an amount equal to the Maximum Drawing Amount on all
Letters of Credit, which amount shall be held in an interest bearing
account by the Agent for the benefit of all the Banks and the Agent as cash
collateral for all obligations related to such Letters of Credit.
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SECTION 2.04. NOTICE TO BANKS; FUNDING OF LOANS.
(a) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each
Bank of the contents thereof and of such Bank's share (if any) of such
Borrowing and such Notice of Borrowing shall not thereafter be revocable by
the Borrower.
(b) Not later than 2:00 P.M. (Chicago time) on the date of each Borrowing, each
Bank participating therein shall (except as provided in subsection (c) of
this Section) make available its share of such Borrowing, in Federal or
other funds immediately available in Chicago to the Agent at its address
specified in or pursuant to Section 9.01. Unless the Agent determines that
any applicable condition specified in Article III has not been satisfied,
the Agent will make the funds so received from the Banks available to the
Borrower at an account to be designated by Borrower.
(c) Unless the Agent shall have received notice from a Bank prior to the date
of any Borrowing that such Bank will not make available to the Agent such
Bank's share of such Borrowing, the Agent may assume that such Bank has
made such share available to the Agent on the date of such Borrowing in
accordance with subsections (b) and (c) of this Section 2.04 and the Agent
may, in reliance upon such assumption, make available to the Borrower on
such date a corresponding amount. If and to the extent that such Bank
shall not have so made such share available to the Agent, such Bank and the
Borrower severally agree to repay to the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the
date such amount is made available to the Borrower until the date such
amount is repaid to the Agent, at (i) in the case of the Borrower, a rate
per annum equal to the higher of the Federal Funds Rate and the interest
rate applicable thereto pursuant to Section 2.07 and (ii) in the case of
such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent
such corresponding amount, such amount so repaid shall constitute such
Bank's Loan included in such Borrowing for purposes of this Agreement. In
no event shall any payment by the Agent, or repayment by the Borrower, of
any amount pursuant to this subsection (d) relieve the Bank that failed to
make available its share of the related Borrowing of its obligations
hereunder.
SECTION 2.05. NOTES.
(a) The Loans of each Bank shall be evidenced by a single Note payable to the
order of such Bank for the account of its Applicable Lending Office in an
amount equal to the aggregate unpaid principal amount of such Bank's Loans.
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(b) Upon receipt of each Bank's Note pursuant to Section 3.01(vi), the Agent
shall mail such Note to such Bank. Each Bank shall record the date, amount
and maturity of each Loan made by it and the date and amount of each
payment of principal made by the Borrower with respect thereto, and prior
to any transfer of its Note shall endorse on the schedule forming a part
thereof appropriate notations to evidence the foregoing information with
respect to each such Loan then outstanding; provided that the failure of
any Bank to make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Notes. Each Bank is
hereby irrevocably authorized by the Borrower so to endorse its Note and to
attach to and make a part of its Note a continuation of any such schedule
as and when required.
SECTION 2.06. MATURITY OF LOANS.
Each Loan included in any Borrowing shall mature, and the principal amount
thereof shall be due and payable, on the last day of the Interest Period
applicable to such Borrowing.
SECTION 2.07. INTEREST RATES.
(a) Each Base Rate Loan shall bear interest on the outstanding principal amount
thereof, for each day from the date such Loan is made until it becomes due,
at a rate per annum equal to the Base Rate for such day. Such interest
shall be payable for each Interest Period on the last day thereof. Any
overdue principal of and, to the extent permitted by law, overdue interest
on any Reference Rate Loan shall bear interest, payable on demand, for each
day until paid at a rate (the "Default Rate") per annum equal to 2% above
the Reference Rate.
(b) Each CD Loan shall bear interest on the outstanding principal amount
thereof, for the Interest Period applicable thereto, at a rate per annum
equal to the sum of the CD Margin (as in effect on the first day of such-
Interest Period) plus the applicable Adjusted CD Rate. Such interest shall
be payable for each Interest Period on the last day thereof and if such
Interest Period is longer than 90 days, at intervals of 90 days after the
first day thereof. Any overdue principal of and, to the extent permitted
by law, overdue interest on any CD Loan shall bear interest, payable on
demand, for each day until paid at a rate per annum equal to the Default
Rate.
"CD MARGIN" means 0.5% per annum during any Grade 1 Period and 0.75% per
annum during any Grade 2 Period, provided, however, that such increased
rate is applicable only on the incremental borrowings.
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The "ADJUSTED CD RATE" means for any Interest Period for any CD Loan, an
interest rate per annum equal at all times during such Interest Period to
the sum of:
(1) the rate per annum obtained by dividing (x) the rate of
interest determined by the Reference Bank to be the average (rounded
upward, if necessary, to the nearest whole multiple of 1/16 of 1% per
annum) of the bid rates per annum quoted to the Reference Bank in the
secondary market at approximately 10:00 A.M. (Chicago, Illinois time),
or as soon thereafter as practicable, on the first day of such
Interest Period, by two Chicago certificate of deposit dealers of
recognized standing selected by the Reference Bank for the purchase at
face value of certificates of deposit issued by the Reference Bank in
an amount approximately equal or comparable to such Loan and with a
maturity approximately equal to such Interest Period, by (y) a
percentage equal to 100% minus the Domestic Reserve Percentage (as
defined below) for such Interest Period,
plus
(2) the CD Assessment Rate (as defined below) for such Interest
Period.
The "CD BASE RATE" applicable to any Interest Period is the rate of
interest determined by the Agent to be the average (rounded upward, if
necessary, to the next higher 1/100 of one percent (1%)) of the prevailing
rates per annum bid at 10:00 A.M. (Chicago time) (or as soon thereafter as
practicable) on the first day of such Interest Period by two or more
Chicago certificate of deposit dealers of recognized standing for the
purchase at face value from the Reference Bank of its certificates of
deposit in an amount comparable to the unpaid principal amount of the CD
Loan of the Reference Bank to which such Interest Period applies and having
a maturity comparable to such Interest Period.
"DOMESTIC RESERVE PERCENTAGE" means for any day that percentage (expressed
as a decimal) which is in effect on such day, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining
the maximum reserve requirement (including without limitation any basic,
supplemental or emergency reserves) for a member bank of the Federal
Reserve System in Chicago, Illinois with deposits exceeding five billion
dollars in respect of new non-personal time deposits in dollars in Chicago,
Illinois having a maturity comparable to the related Interest Period and in
an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted
automatically on and as of the effective date of any change in the Domestic
Reserve Percentage.
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"CD ASSESSMENT RATE" means for any Interest Period the net annual
assessment rate (rounded upwards, if necessary, to the next higher 1/100 of
one percent (1%)) actually incurred by Continental Bank N.A. to the Federal
Deposit Insurance Corporation (or any successor) for such Corporation's (or
such successor's) insuring time deposits at offices of Continental Bank
N.A. in the United States during the most recent period for which such rate
has been determined prior to the commencement of such Interest Period.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding principal
amount thereof, for the Interest Period applicable thereto, at a rate per
annum equal to the sum of the Euro-Dollar Margin (as in effect on the first
day of such Interest Period) plus the applicable Interbank Offered Rate.
Such interest shall be payable for each Interest Period on the last day
thereof and, if such Interest Period is longer than three (3) months, at
intervals of three (3) months after the first day thereof.
"EURO-DOLLAR MARGIN" means 0.375% per annum during any Grade 1 Period and
0.625% per annum during any Grade 2 Period, provided however, that such
increased rate is applicable only on the incremental borrowings.
The "INTERBANK OFFERED RATE" applicable to any Interest Period means the
average (rounded upward, if necessary, to the next higher 1/16 of one
percent (1%)) of the respective rates per annum at which deposits in
dollars are offered by prime banks to the Reference Bank in the interbank
Eurodollar market at approximately 10:00 A.M. (Chicago time) two Euro-
Dollar Business Days before the first day of such Interest Period in an
amount approximately equal to the principal amount of the Euro-Dollar Loan
of the Reference Bank to which such Interest Period is to apply and for a
period of time comparable to such Interest Period.
(d) Any overdue principal of and, to the extent permitted by law, overdue
interest on any Euro-Dollar Loan shall bear interest, payable on demand,
for each day from and including the date payment thereof was due to but
excluding the date of actual payment, at a rate per annum equal to the sum
of one percent (1%) plus the average (rounded upward, if necessary, to the
next higher 1/16 of one percent (1%)) of the respective rates per annum at
which one day (or, if such amount due remains unpaid more than three (3)
Euro-Dollar Business Days, then for such other period of time not longer
than three (3) months as the Agent may select) deposits in dollars in an
amount approximately equal to such overdue payment due to the Reference
Bank are offered to the Reference Bank in the interbank Eurodollar market
for the applicable period determined as provided above (or, if the
circumstances described in clause (a) or (b) of Section 8.01 shall exist,
at a rate per annum equal to the sum of one percent (1%) plus the rate
applicable to Base Rate Loans for such day).
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(e) The Agent shall determine each interest rate applicable to the Loans
hereunder. The Agent shall give prompt notice to the Borrower and the
participating Banks by fax or cable of each rate of interest so determined,
and its determination thereof shall be conclusive in the absence of
manifest error.
SECTION 2.08. FEES.
(a) Commitment Fee.
The Borrower shall pay to the Agent for the account of the Banks ratably in
proportion to their Commitments a commitment fee at the rate of 0.15% per
annum on the daily average amount by which the aggregate amount of the
Commitments exceeds the aggregate outstanding principal amount of the
Loans. Such commitment fee shall accrue for the account of each Bank and
including the Effective Date to but excluding the Termination Date of such
Bank.
(b) Participation Fee.
Upon the execution and delivery hereof, the Borrower shall pay to the Agent
for the account of each Bank a one time participation fee at the rate of
0.06% of such Bank's commitment.
(c) Payments.
Accrued fees under this Section for the account of any Bank shall be
payable quarterly in arrears on each September 30, December 31, March 31
and June 30 and upon the date of termination of such Bank's Commitments in
their entirety (and, if later, the date the Loans of such Bank shall be
repaid in their entirety).
SECTION 2.09. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS.
The Borrower may, upon at least three Domestic Business Day's notice to the
Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at
such time or (ii) ratably reduce from time to time by an aggregate amount of
$10,000,000 or any larger multiple of $1,000,000, the aggregate amount of the
Commitments in excess of the aggregate outstanding principal amount of the
Loans.
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SECTION 2.10. MANDATORY TERMINATION OF COMMITMENTS.
(a) The Commitment of each Bank shall terminate on the Termination Date of such
Bank, and any Loans of such Bank then outstanding (together with accrued
interest thereon) shall be due and payable on such date.
SECTION 2.11. OPTIONAL PREPAYMENTS.
(a) The Borrower may, upon at least one Domestic Business Day's notice to the
Agent, prepay any Reference Rate Borrowing or, upon at least two Domestic
Business Days notice to the Agent, prepay any CD Borrowing or, upon at
least three (3) Euro-Dollar Business Days' notice to the Agent, prepay any
Euro-Dollar Borrowing in whole at any time, or from time to time in part in
amounts aggregating $5,000,000 or any larger multiple of $1,000,000, by
paying the principal amount to be prepaid together with accrued interest
thereon to but excluding the date of prepayment. Each such optional
prepayment shall be applied to prepay ratably the Loans of the several
Banks included in such Borrowing.
(b) Upon receipt of a notice of prepayment pursuant to this Section, the Agent
shall promptly notify each Bank of the contents thereof and of such Bank's
ratable share (if any) of such prepayment and such notice shall not
thereafter be revocable by the Borrower.
SECTION 2.12. GENERAL PROVISIONS AS TO PAYMENTS.
(a) The Borrower shall make each payment of principal of, and interest on, the
Loans and of fees hereunder, not later than 12:00 Noon (Chicago time) on
the date when due, in Federal or other funds immediately available in
Chicago, to the Agent at its address referred to in Section 9.01. The
Agent will promptly distribute to each Bank its ratable share, if any, of
each such payment received by the Agent for the account of the Banks.
Whenever any payment of principal of, or interest on, the Domestic Loans or
of fees shall be due on a day which is not a Domestic Business Day, the
date for payment thereof shall be extended to the next succeeding Domestic
Business Day. Whenever any payment of principal of, or interest on, the
Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar
Business Day, the date for payment thereof shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day. If the date for any
payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
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(b) Unless the Agent shall have received notice from the Borrower prior to the
date on which any payment is due to the Banks hereunder that the Borrower
will not make such payment in full, the Agent may assume that the Borrower
has made such payment in full to the Agent on such date and the Agent may,
in reliance upon such assumption, cause to be distributed to each Bank on
such due date an amount equal to the amount then due such Bank. If and to
the extent that the Borrower shall not have so made such payment, each Bank
shall repay to the Agent forthwith on demand such amount distributed to
such Bank together with interest thereon, for each day from the date such
amount is distributed to such Bank until the date such Bank repays such
amount to the Agent, at the Federal Funds Rate.
SECTION 2.13. COMPUTATION OF INTEREST AND FEES.
All interest and fees shall be computed on the basis of a year of three hundred
sixty (360) days and paid for the actual number of days elapsed (including the
first day but excluding the last day).
SECTION 2.14. MAXIMUM INTEREST RATE.
(a) It is the intention of the parties hereto to comply strictly with all
applicable usury laws regarding the contracting for, and the charging,
payment and receipt of, interest (which shall, for purposes of this Section
2.15, be deemed to include, without limitation, any compensation received
by any Bank for the use, forbearance or detention (as such terms are used
in Tex. Rev. Civ. Stat. Ann. Art. 5069-1.01(a)) of the indebtedness
incurred under this Agreement and evidenced by the Notes) whether such laws
are now or hereafter in effect, including the laws of the United States of
America or any other jurisdiction whose laws are applicable, and including
any subsequent revisions to or judicial interpretations of those laws, in
each case to the extent they are applicable to this Agreement and the Notes
(the "Applicable Usury Laws").
(b) If any payment by the Borrower to any Bank hereunder (including any payment
upon acceleration of the maturity of any Notes of such Bank) results or
would result in the Borrower paying to any Bank any interest in excess of
the Maximum Amount, as defined in subsection (e) below, or if any
transaction contemplated by or any provision of this Agreement, such Bank's
Note or Notes or any other agreement or instrument (collectively, such
Bank's "Loan Documents") would otherwise be usurious under any Applicable
Usury Laws, then, notwithstanding anything to the contrary in such Bank's
Loan Documents, the Borrower and such Bank agree as follows:
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(i) the provisions of this Section 2.14 shall govern and control;
(ii) the aggregate amount of all interest that is contracted for, charged
or received pursuant to such Bank's Loan Documents or otherwise shall
under no circumstances exceed the Maximum Amount;
(iii) neither the Borrower nor any other Person shall be obligated to pay
the amount of such interest to the extent that it would exceed the
Maximum Amount; and
(iv) the provisions of such Bank's Loan Documents immediately shall be
deemed reformed, without the necessity of the execution of any new
document or instrument, so as to comply with all Applicable Usury
Laws.
(c) If any payment by the Borrower under any Bank's Loan Documents (including
any payment upon acceleration of the maturity of any Note) results in the
Borrower actually having paid to such Bank any interest in excess of the
Maximum Amount, then such excess amount shall be applied to the reduction
of the principal balance of such Bank's Loans or to other amounts (other
than interest) payable hereunder, and if no such principal is then
outstanding, and no such other amount is then payable, such excess or part
thereof remaining, shall be repaid to the Borrower.
(d) All interest paid, or agreed to be paid, pursuant to any Bank's Loan
Documents shall, to the fullest extent permitted by Applicable Usury Laws,
be amortized, prorated, allocated and spread throughout the full term of
any indebtedness incurred under or evidenced by such Bank's Loan Documents
so that the rate of interest paid under such Bank's Loan Documents does
not exceed the Highest Lawful Rate in effect at any particular time during
the full term thereof.
(e) As used herein, the term "Maximum Amount" means, with respect to any Bank,
the maximum nonusurious amount of interest that may be lawfully contracted
for, charged or received by such Bank in connection with the indebtedness
incurred under or evidenced by such Bank's Loan Documents under all
Applicable Usury Laws, and the term "Highest Lawful Rate" means, with
respect to any Bank, the maximum rate of interest, if any, that may be
charged the Borrower under all Applicable Usury Laws on the principal
balance of the indebtedness incurred under or evidenced by such Bank's Loan
Documents from time to time outstanding.
(f) In the event that the rate of interest set forth in Section 2.07 on any
Loan of any Bank (the "Stated Rate"), together with any fees or other
amounts payable to such Bank deemed to constitute interest under Applicable
Usury Laws ("Additional Interest"), exceeds the Highest Lawful Rate, then
the amount of
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interest payable to such Bank to accrue pursuant to such Bank's Loan
Documents shall be limited, notwithstanding anything to the contrary in
such Bank's Loan Documents, to the amount of interest that would accrue at
the Highest Lawful Rate; provided that, to the fullest extent permitted by
Applicable Usury Laws, any subsequent reductions in the Stated Rate shall
not reduce the interest payable to such Bank to accrue pursuant to such
Bank's Loan Documents below the Highest Lawful Rate until the aggregate
amount of interest payable to such Bank actually accrued pursuant to such
Bank's Loan Documents, together with all Additional Interest payable to
such Bank, equals the amount of interest which would have accrued if the
Stated Rate had at all times been in effect and such Additional Interest,
if any, had been paid in full.
(g) In the event that, at maturity or upon payment in full of all amounts
payable under any Bank's Loan Documents, the total amount of interest paid
to any Bank or payable to such Bank and accrued under the terms of or
evidenced by such Bank's Loan Documents is less than the total amount of
interest which would have been paid to such Bank or accrued on the
indebtedness incurred under or evidenced by such Bank's Loan Documents if
the Stated Rate had, at all times, been in effect and all Additional
Interest had been paid in full, then the Borrower shall, to the extent
permitted by Applicable Usury Laws, pay to the Agent for the account of
such Bank an amount equal to the difference between (a) the lesser of (i)
the amount of interest payable to such Bank which would have accrued if the
Highest Lawful Rate for such Bank had at all times been in effect or (ii)
the amount of interest which would have accrued on the indebtedness
incurred under or evidenced by such Bank's Loan Documents if the Stated
Rate had at all times been in effect and all Additional Interest had been
paid in full and (b) the amount of interest actually paid to such Bank or
payable to such Bank and accrued under or evidenced by such Bank's Loan
Documents.
SECTION 2.15. EXTENSION OF TERMINATION DATE.
(a) The Termination Date of each Bank may be extended, in the manner set forth
in this Section 2.15, on June 30, 1994 and on the day following such date
(an "Extension Date") for a period of 364 days after the date on which such
Termination Date would otherwise have occurred. If the Borrower wishes to
request an extension of the Termination Date of the Banks on any Extension
Date it shall give notice to that effect to the Agent not less than forty-
five (45) nor more than sixty (60) days prior to such Extension Date,
whereupon the Agent shall promptly notify each of the Banks of such
request.
(b) Each Bank which desires to extend its Termination Date as requested by the
Borrower may, at its option, so elect by notice to the Borrower and the
Agent
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within fifteen (15) days after receipt of such notice. Such notice shall
be irrevocable. Any Bank which does not give such notice to the Borrower
and the Agent shall be deemed to have elected not to extend its Termination
Date as requested, and such Bank's Commitment shall terminate in accordance
with Section 2.10 on its then Termination Date.
(c) The Borrower shall have the right, with the assistance of the Agent, to
seek a mutually satisfactory substitute bank or banks (which may be one or
more of the Banks) to purchase the Note at par and assume the Commitment of
any Bank electing not to extend its Termination Date, all in accordance
with Section 9.07(c).
SECTION 2.16. WITHHOLDING TAX EXEMPTION.
At least five (5) Domestic Business Days prior to the first date on which
interest or fees are payable hereunder for the account of any Bank, each Bank
that is not incorporated under the laws of the United States of America or a
state thereof agrees that it will deliver to each of the Borrower and the Agent
two duly completed copies of United States Internal Revenue Service Form 1001 or
4224, certifying in either case that such Bank is entitled to receive payments
under this Agreement and the Notes without deduction or withholding of any
United States federal income taxes. Each Bank which so delivers a Form 1001 or
4224 further undertakes to deliver to each of the Borrower and the Agent two
additional copies of such form (or a successor form) on or before the date that
such form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Agent, in each case certifying that such Bank
is entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal income taxes, unless an
event (including without limitation any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Bank from duly completing and delivering any such form with respect to it and
such Bank advises the Borrower and the Agent that it is not capable of receiving
payments without any deduction or withholding of United States federal income
tax. If any Bank notifies the Borrower that it is not capable of receiving
payments without any deduction or withholding of United States federal income
tax, the Borrower shall commence making any deductions and withholding any
amounts with respect to payments for the account of such Bank that are required
by applicable law.
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ARTICLE III
CONDITIONS
SECTION 3.01. EFFECTIVENESS.
This Agreement shall become effective on the date that each of the following
conditions shall have been satisfied (or waived in accordance with Section
9.05):
(i) receipt by the Agent of certified copies of the Certificate of
Organization and Regulations of the Borrower and the resolutions of
the Owners Committee of the Borrower authorizing the transactions
contemplated hereby and such other documents as the Agent or the
Required Banks may reasonably request relating to the existence of
the Borrower, the corporate authority for and the validity of this
Agreement and the Notes, and any other matters relevant hereto, all
in form and substance satisfactory to the Agent;
(ii) receipt by the Agent of a Certificate of Incumbency dated the
Effective Date executed by the Secretary or an Assistant Secretary of
the Borrower in substantially the form of Exhibit E hereto setting
forth the name, title and specimen signature of each Authorized
Officer or Authorized Representative of the Borrower (l) who has
signed this Agreement on behalf of the Borrower, (2) who will sign
the Notes on behalf of the Borrower or (3) who will, until replaced
by another officer or representative duly authorized for that
purpose, act as the representative of the Borrower for the purposes
of signing documents and giving notices and other communications by
the Borrower in connection with this Agreement and the transactions
contemplated hereby;
(iii) receipt by the Agent of counterparts hereof signed by each of the
parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the Agent in
form satisfactory to it of telegraphic, telex or other written
confirmation from such party of execution of a counterpart hereof by
such party);
(iv) receipt by the Agent of an opinion of the General Counsel of the
Borrower in substantially the form of Exhibit F hereto and covering
such additional matters relating to the transactions contemplated
hereby as the Required Banks may reasonably request;
(v) receipt by the Agent of a certificate signed by the Chief Executive
Officer or Controller of the Borrower dated the Effective Date to the
effect set forth in clauses (iii) and (iv) of Section 3.02; and
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(vi) receipt by the Agent for the account of each Bank of a duly executed
Note dated on or before the Effective Date, complying with the
provisions of Section 2.05.
provided that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later
than July 1 , 1993. The Agent shall promptly notify the Borrower and the
Banks of the Effective Date, and such notice shall be conclusive and binding on
all parties hereto.
SECTION 3.02. BORROWINGS.
The obligation of any Bank to make a Loan, including, without limitation, a
Letter of Credit, on the occasion of any Borrowing hereunder is subject to the
satisfaction of the following conditions:
(i) receipt by the Agent of a Notice of Borrowing as required by Section
2.02;
(ii) the fact that, immediately after such Borrowing, the aggregate
outstanding principal amount of the Loans will not exceed the
aggregate amount of the Commitments. For purposes of calculating the
available amount of a Loan as at any date, all Loans requested but
not yet advanced and the aggregate face amount of all Letters of
Credit requested but not yet issued will be treated as advanced
unless the Borrower has directed that the requested advance be
disbursed to repay the Loans;
(iii) the fact that, immediately after such Borrowing, no Default shall
have occurred and be continuing;
(iv) the fact that the representations and warranties of the Borrower
contained in this Agreement shall be true on and as of the date of
such Borrowing as if made on and as of such date (except in the case
of a Refunding Borrowing, the representations and warranties set
forth in clauses (c) and (d) of Section 4.01 as to any material-
adverse change or litigation which has theretofore been disclosed in
writing by the Borrower to the Banks);
Each Borrowing hereunder shall be deemed to be a representation and warranty
by the Borrower on the date of such Borrowing as to the facts specified in
clauses (ii), (iii) and (iv) of this Section.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER.
The Borrower represents and warrants to the Banks as follows:
(a) (1) The Borrower is
(i) a limited liability company duly organized, validly existing and
in good standing under the laws of the State of Texas and
(ii) The Borrower is registered, qualified or licensed (or has applied
for such registration, qualification or licensing) to do business
and in good standing in each of the jurisdictions within the
United States where ownership of its properties or the conduct of
its business requires such registration, qualification or
licensing and which currently permit registration, qualification
or licensing of limited liability companies and has or will apply
for registration, qualification or licensing to do business in
each other jurisdiction within the United States where the
ownership of its properties or the conduct of its business
requires such registration, qualification or licensing as soon as
such jurisdiction permits registration, qualification of or
licensing for limited liability companies, except in all cases
where the failure to be so registered, qualified or licensed
would not have a material adverse effect on the business,
operations, affairs, assets, condition (financial or otherwise)
or results of operation of the Borrower considered as a whole.
(2) The Borrower has all power and authority, governmental permits,
licenses, consents, authorizations, orders and approvals and other
authorizations as are necessary to carry on its business substantially
as presently conducted except for such governmental permits, licenses,
consents, authorizations, orders and approvals and other
authorizations as are held by Lyondell or any of Lyondell's
subsidiaries or predecessors in interest, are non-transferable in
accordance with their respective terms or require the consent of third
parties (including governmental entities) to their transfer and as to
which the Borrower and Lyondell believe that such third-party consents
can be obtained or substitute permits, licenses, consents,
authorizations, orders and approvals may be obtained by the Borrower
in due course and without materially affecting the ability of the
Borrower to carry on its business substantially as presently
conducted in
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the meantime. The Borrower is diligently seeking to obtain such
third-party consents and such substitute permits, licenses, consents,
authorizations, orders and approvals.
(3) The execution, delivery and performance by the Borrower of this
Agreement and of the Notes, and Borrowings hereunder, are within its
power and authority and have been duly authorized by all necessary
proceedings.
(4) Neither such authorization nor the execution, delivery and performance
by the Borrower of this Agreement or of the Notes, nor any Borrowing
hereunder when made, will conflict with, result in a breach of or
constitute a default under any of the terms, conditions or provisions
of any law or any regulation, order, writ, injunction or decree of any
court or governmental authority or of the Certificate of Organization
or Regulations of the Borrower or result in the violation or
contravention of, or the acceleration of any obligation under, or
cause the creation of any Lien on any of the assets of the Borrower
pursuant to the provisions of, any indenture, agreement or other
instrument to which it is a party or by which it is bound.
(5) Assuming its due execution by the Banks and the Agent, this Agreement
constitutes a legal, valid and binding agreement of the Borrower and
the Notes, when duly executed on behalf of the Borrower and delivered
in accordance with this Agreement, will constitute legal, valid and
binding obligations of the Borrower.
(b) The pro forma balance sheet of the Borrower as of March 31, 1993 a copy of
which has been delivered to each of the Banks, fairly present, in
conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in paragraph (b) of
this Section, the financial position of the Borrower as of such date
(subject to normal year-end adjustments and not including footnotes or
schedules required by generally accepted accounting principles).
(c) Except as disclosed in writing to the Banks, there has been no material
adverse change since March 31, 1993 in the business, operations, assets or
condition (financial or otherwise) of the Borrower, considered as a whole.
(d) Except as disclosed in writing to the Banks, there is no action, suit or
proceeding pending or, to the knowledge of the Borrower, threatened
against or affecting the Borrower in any court or before or by any
arbitrator, governmental department, agency or instrumentality, an adverse
decision in which might materially and adversely affect the business,
operations, affairs,
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assets, condition (financial or otherwise) or results of operations of the
Borrower considered as a whole or the ability of the Borrower to perform
its obligations hereunder and under the Notes or which in any manner draws
into question the validity of this Agreement or the Notes.
(e) No Default has occurred and is continuing.
(f) No consent, authorization, order or approval of (or filing or registration
with) any governmental commission, board or other regulatory authority
(other than routine reporting requirements) is required for the execution,
delivery and performance by the Borrower of this Agreement or of the Notes.
(g) Each member of the Controlled Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan
and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and has not incurred any liability to the
PBGC or a Plan under Title IV of ERISA.
(h) Each of the Contribution Agreement and the Company Regulations is in full
force and effect in accordance with its respective terms as originally
executed except for any amendments, modifications or waivers which do not
affect the Borrower in any material fashion, including without limitation
(1) any amendments, modifications or waivers which do not, in the
aggregate, materially reduce the rights of the Borrower thereunder against
Lyondell or CITGO or materially increase the obligations of the Borrower
thereunder to Lyondell or CITGO and (2) any other amendments, modifications
or waivers to which the Required Banks have consented in writing. True and
complete copies of all amendments, modifications and waivers referred to
above have been delivered to the Agent for each of the Banks.
(i) The Borrower is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "public-utility company"
or a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935 or a "public utility" under the laws of the State of
Texas.
(j) The Borrower has good and indefeasible fee simple title to or valid and
enforceable leasehold interests in all of its real property, and good title
to all of its other property and assets (which property, real or otherwise,
is material to the businesses, operations, properties, assets or condition,
financial or otherwise, of the Borrower, considered as a whole), and none
of such property or assets is subject to any Lien, except as permitted by
Section 5.03. Except as permitted in Section 5.03, there is not on file in
any public office, and the Borrower has not signed any financing statement
naming it as debtor. The
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Borrower has not subordinated any of its rights under any obligation owing
to it the rights of any other Person. The Borrower has no subsidiary.
(k) All information heretofore furnished by or on behalf of the Borrower to the
Agent or any Bank for purposes of or in connection with this Agreement or
any transaction contemplated hereby is, and all such information hereafter
furnished by the Borrower to the Agent or any Bank will be, true, accurate
and complete in every material respect or based on reasonable estimates on
the date as of which such information is stated or certified.
(l) Except as set forth in Lyondell's Annual Report on Form 10-K for the year
ended 1992 and any subsequent documents filed by Lyondell pursuant to the
Securities Exchange Act of 1934, there does not exist any violation by the
Borrower of any law, rule, regulation or order of any government or
government agency relating to the Environmental Matters which will or
threatens to impose a liability on the Borrower or which will require an
expenditure by the Borrower to cure such violation, which liability or
expenditure would be material to the Borrower.
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment hereunder or
any amount payable under any Note remains unpaid:
SECTION 5.01. CERTAIN INFORMATION TO BE FURNISHED BY THE BORROWER. The Borrower
will deliver to each Bank:
(a) as soon as available and in any event within one hundred twenty (120) days
after the end of each of its fiscal years, the balance sheet of the
Borrower as of the end of such fiscal year and the related statements of
income, stockholder's equity and cash flows for such year, setting forth in
each case in comparative form the figures for the previous fiscal year,
prepared in accordance with generally accepted accounting principles
consistently applied and so certified by a nationally recognized firm of
independent certified public accountants;
(b) as soon as available and in any event within sixty (60) days after the end
of each of the first three quarters of each of its fiscal years, the
balance sheet of the Borrower as of the end of such fiscal quarter, the
related statement of income for such fiscal quarter and for the portion of
the fiscal year ended with such quarter and the related statement of cash
flows for the portion of the
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fiscal year ended with such quarter, setting forth in each case in
comparative form the figures for the corresponding quarter and the
corresponding portion of the Borrower's previous fiscal year, all
certified (subject to normal year-end adjustments and not including
footnotes or schedules required by generally accepted accounting
principles) as to fairness of presentation, generally accepted accounting
principles and consistency by the chief financial officer or the chief
accounting officer of the Borrower;
(c) simultaneously with the delivery of the financial statements referred to in
clause (a) and (b) above, a certificate of the Borrower signed by an
Authorized Officer of the Borrower stating whether there exists on the date
of such certificate any Default, and, if any such Default then exists,
specifying the nature and period of existence thereof and the action the
Borrower is taking and proposes to take with respect thereto;
(d) forthwith, if at any time any officer of the Borrower shall obtain
knowledge of any Default, a certificate of an Authorized Officer specifying
the nature and period of existence thereof and the action the Borrower is
taking and proposes to take with respect thereto;
(e) if and when any member of the Controlled Group (i) gives or is required to
give notice to the PBGC of any "reportable event" (as defined in Section
4043 of ERISA) with respect to any Plan which might constitute grounds for
a termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any
such reportable event, a copy of the notice of such reportable event given
or required to be given to the PBGC; (ii) receives notice of complete or
partial withdrawal liability under Title IV of ERISA, a copy of such
notice; or (iii) receives notice from the PBGC under Title IV of ERISA of
an intent to terminate or appoint a trustee to administer any Plan, a copy
of such notice;
(f) in the event of any damage, loss or casualty to or destruction of any
portion of any facility of the Borrower, the Borrower shall give prompt
notice thereof to the Banks, specifying the nature and extent of such
damage, loss, casualty or destruction and whether such damage, loss,
casualty or destruction, in the reasonable judgment of the Borrower,
materially adversely affects the production capacity of such facility or
the economic value of such facility; provided that the Borrower shall have
no obligation to deliver such notice if the damage to the facility in the
good faith judgment of the Borrower will not cost in excess of $25,000,000
to rebuild, replace or restore or if such damage does not materially
adversely affect such production capacity or the economic value of the
facility;
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(g) in the event of any total or partial shutdown of any production or storage
facility of the Borrower or any Subsidiary in connection with any
Environmental Matter, the Borrower shall give prompt notice thereof to the
Banks, specifying the reason for such shutdown; provided that the Borrower
shall have no obligation to deliver such notice if in the good faith
judgment of the Borrower such shutdown will not result in a reduction of
consolidated net income of $25,000,000 or more over the remaining period of
this Agreement; and
(h) from time to time such further information regarding compliance with this
Agreement or the business, operations, assets, condition (financial or
otherwise), material change or results of operations of the Borrower as the
Agent, at the request of any Bank, may reasonably request.
SECTION 5.02. MAINTENANCE OF PROPERTY; INSURANCE.
(a) The Borrower will keep all property useful and necessary in its business in
good working order and condition, ordinary wear and tear excepted.
(b) The Borrower will maintain insurance to the extent available to the
Borrower on commercially reasonable terms and will furnish to the Banks,
upon request from the Agent, information presented in reasonable detail as
to the insurance so carried.
SECTION 5.03. LIMITATION ON LIENS.
Nothing in this Agreement shall in any way restrict or prevent the Borrower from
incurring any Debt; provided that neither the Borrower will issue, assume or
guarantee any Debt secured by any Lien or grant any Lien to secure any such Debt
without effectively providing that all of the Notes (together with, if the
Borrower so determines, any other Debt then existing and any other Debt
thereafter created ranking equally with the Notes) shall be secured equally and
ratably with (or prior to) such Debt so long as such Debt shall be so secured.
To the extent the following Liens would otherwise be prohibited by the foregoing
provisions, the foregoing provisions shall not apply to:
(a) Liens on any property of a corporation existing at the time it becomes a
Subsidiary or at the time it is merged into or consolidated with the
Borrower or a Subsidiary and not created in contemplation of such event;
(b) Liens on any property (i) existing at the time of acquisition thereof and
not created in contemplation of such event or (ii) incurred to secure
payment of all or part of the purchase price thereof or (iii) incurred to
secure Debt incurred
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prior to, at the time of or within ninety (90) days after acquisition
thereof for the purpose of financing all or part of the purchase price
thereof;
(c) Liens on property of the Borrower existing on the date hereof and listed on
Schedule I hereto;
(d) Liens (i) on any improvement in connection with such improvement to be made
on the properties of the Borrower, or (ii) on the real properties of the
Borrower in connection with construction to be done on such real properties
(but only on the real properties upon which such construction occurs), and
in connection with the acquisition of real property by the Borrower (but
only on the real property so acquired), after the date hereof, securing
Debt incurred or assumed either
(i) at the time of or within twenty-four (24) months after commencement of
improvement or construction or
(ii) within ninety (90) days after completion of improvement or
construction of such plant in a principal amount not exceeding the
cost of such improvement or construction and the cost of acquisition
of such plant and such real estate;
(e) Liens which secure only Debt owing by a Subsidiary to the Borrower or
another Subsidiary;
(f) Liens in favor of the United States of America or any state thereof or any
department, agency, instrumentality or political subdivision of any such
jurisdiction to secure partial, progress, advance or other payments
pursuant to any contract or statute or to secure any Debt incurred for the
purpose of financing all or any part of the purchase price or cost of
constructing or improving the property subject to such Lien, including,
without limitation, Liens to secure Debt of the pollution control or
industrial revenue bond type;
(g) Liens required by any contract or statute in order to permit the Borrower
or a Subsidiary to perform any contract or subcontract made by it with or
at the request of the United States of America, any state or any
department, agency or instrumentality or political subdivision of either;
or
(h) any extension, renewal or replacement (or successive extensions, renewals
or replacements), in whole or in part, of any Lien referred to in the
foregoing clauses (a) to (g) inclusive or of any Debt secured thereby,
provided that the principal amount of Debt secured thereby shall not exceed
the principal amount of Debt so secured at the time of such extension,
renewal or replacement, and that such extension, renewal or replacement
Lien shall be limited to all or part
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of substantially the same property which secured the Lien extended, renewed
or replaced (plus improvements on such property); provided that the
Borrower may issue, assume or guarantee Debt secured by Liens which would
otherwise be subject to the foregoing restrictions or grant any such Lien
to secure any such Debt in an aggregate principal amount which, together
with the aggregate outstanding principal amount of all Debt of the Borrower
which would otherwise be subject to the foregoing restrictions (not
including Debt permitted to be secured under clauses (a) to (h) inclusive
above) does not at any one time exceed the greater of $50,000,000 or ten
percent (10%) of net tangible assets of the Borrower.
SECTION 5.04. CONSOLIDATION, MERGER.
(a) Nothing contained in this Agreement shall prevent any consolidation or
merger of the Borrower with or into any other limited liability company or
other organization (whether or not affiliated with the Borrower), or
successive consolidations or mergers in which the Borrower or its successor
or successors shall be a party or parties, or shall prevent any sale or
conveyance of all or substantially all the property of the Borrower, to any
other Person (whether or not affiliated with the Borrower) authorized to
acquire and operate the same; provided, however, that upon any such
consolidation, merger, sale or conveyance, other than a consolidation or
merger in which the Borrower is the continuing organization, the due and
punctual payment of the principal of and interest on all of the Notes,
according to their tenor, and the due and punctual performance and
observance of all of the covenants and conditions of this Agreement, shall
be expressly assumed by instrument satisfactory to the Required Banks and
executed and delivered to the Agent by the organization (if other than the
Borrower) (i) formed by such consolidation or into which the Borrower shall
have been merged or by the Person which shall have acquired such property
and (ii) satisfactory to the Required Banks; and provided further that no
Default shall exist hereunder after giving effect to such consolidation,
merger or sale of assets.
(b) If, upon any consolidation or merger of the Borrower with or into any other
organization, or upon the sale or conveyance of all or substantially all
the property of the Borrower to any other Person, any of the property of
the Borrower would thereupon become subject to any Lien, the Borrower,
prior to or simultaneously with such consolidation, merger, sale or
conveyance, will secure the Notes and all other obligations of the Borrower
under this Agreement equally and ratably with any other obligations of the
Borrower then entitled thereto, by a direct Lien on all such property prior
to all Liens other than any theretofore existing thereon.
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SECTION 5.05. USE OF PROCEEDS.
The proceeds of the Loans made under this Agreement will be used by the Borrower
for general corporate purposes. None of such proceeds will be used in violation
of Regulation U, Regulation X, Regulation G or of any similar laws or
regulations.
SECTION 5.06. COMPLIANCE WITH LAWS.
The Borrower will comply in all material respects with all applicable laws,
ordinances, rules, regulations, and requirements to governmental authorities
(including, without limitation, ERISA and the rules and regulations thereunder,
and relating to the Environmental Matters) except where the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
SECTION 5.07. NO MATERIAL CHANGE.
The Borrower shall not amend, supplement, waive or modify the Crude Supply
Agreement in any way which would result in a material change of terms set forth
in the Crude Supply Agreement as in effect as of the date hereof, without
written consent of the Required Banks.
ARTICLE VI
DEFAULTS
SECTION 6.01. DEFAULTS.
If one or more of the following events (herein called "Events of Default") shall
occur and be continuing:
(a) the Borrower shall default in the payment when due of any principal of any
Loan or shall default in the payment within five (5) days of the due date
thereof of any interest on any Loan or any other amount payable hereunder;
(b) the Borrower shall fail to perform or observe any covenant or agreement to
be performed by it contained in Sections 5.03 and 5.04;
(c) the Borrower shall fail to perform or observe any covenant or agreement to
be performed by it contained in this Agreement (other than those covered by
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clause (a) or (b) above) for thirty (30) days after written notice of such
failure is given to the Borrower by the Agent at the request of any Bank;
(d) the Borrower shall have made, or be deemed to have made pursuant to Section
3.02, any representation or warranty in this Agreement, or in any
certificate, financial statement or other document delivered pursuant
hereto, which shall prove to have been incorrect in any material respect
when so made or deemed to have been made;
(e) an amendment or modification to the Company Regulations shall have been
adopted that affects the Borrower in any material fashion, including any
amendment or modification that materially changes the ownership of the
Borrower as in effect as of the date hereof, other than the changes in the
Owners' Participation Percentages (as defined in the Company Regulations)
as contemplated by the Company Regulations. reduces the rights of the
Borrower thereunder against Lyondell or CITGO or materially increases the
obligations of the Borrower thereunder to Lyondell or CITGO and such
amendment or modification shall not have been consented to in writing by
the Required Banks;
(f) the Borrower or any Subsidiary shall fail to pay any indebtedness for
borrowed money (other than the Loans) payable or guaranteed by it, or any
interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure
shall continue after the applicable grace period, if any, specified in the
agreement or instrument relating to such indebtedness or guarantee;
provided that the aggregate amount of such indebtedness or guarantee,
including any interest or premium thereon, shall exceed $20,000,000;
(g) the Borrower shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its
debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary
case or other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any corporate action to authorize
any of the foregoing, or shall admit in writing its inability to pay its
debts as they become due;
(h) an involuntary case or other proceeding shall be commenced against the
Borrower 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
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or other similar official of it or any substantial part of its property,
and such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of sixty (60) days; or an order for relief shall be
entered against the Borrower under the federal bankruptcy laws as now or
hereafter in effect;
(i) any member of the Controlled Group shall fail to pay when due an amount or
amounts aggregating in excess of $25,000,000 which it shall have become
liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice
of intent to terminate a Plan or Plans having aggregate Unfunded Vested
Liabilities in excess of $25,000,000 (collectively, a "Material Plan")
shall be filed under Title IV of ERISA by any member of the Controlled
Group, any plan administrator or any combination of the foregoing; or the
PBGC shall institute proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any Material Plan or a
proceeding shall be instituted by a fiduciary of any Material Plan against
any member of the Controlled Group to enforce Section 515 of ERISA and such
proceeding shall not have been dismissed within thirty (30) days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any Material Plan must be
terminated;
(j) a final, non-appealable judgment or order for the payment of money in
excess of $25,000,000 shall be rendered against the Borrower and such
judgment or order shall continue unsatisfied for a period of thirty (30)
days; or
(k) A default shall have occurred and shall be continuing under either the
Company Regulations or the Crude Supply Agreement
then, and in every such event, the Agent shall (i) if requested by Banks having
more than fifty percent (50%) in aggregate amount of the Commitments, by notice
to the Borrower terminate the Commitments, and they shall thereupon terminate,
and (ii) if requested by Banks holding Notes evidencing more than fifty percent
(50%) in aggregate principal amount of the Loans, by notice to the Borrower
declare the full unpaid principal of and accrued interest on the Loans and the
Notes and all other amounts payable hereunder to be immediately due and payable,
whereupon the Commitments shall terminate and the Loans and the Notes and such
other amounts shall be immediately due and payable, without further notice,
presentment, demand, protest or other formality of any kind, all of which are
hereby expressly waived by the Borrower; provided that in the case of the
occurrence of an event referred to in clause (f) or (g) above, the Commitments
shall automatically terminate and the full unpaid principal of and accrued
interest on the Loans and the Notes and all other amounts payable hereunder
shall automatically become immediately due and payable, without notice,
presentment, demand, protest or other formality of any kind, all of which are
hereby expressly waived by the Borrower.
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SECTION 6.02. NOTICE OF DEFAULT.
The Agent shall give notice to the Borrower under Section 6.01(c) promptly upon
being requested to do so by any Bank and shall thereupon notify all the Banks
thereof.
ARTICLE VII
THE AGENT
SECTION 7.01. APPOINTMENT AND AUTHORIZATION.
Each Bank irrevocably appoints and authorizes the Agent to take such action as
agent on its behalf and to exercise such powers under this Agreement and the
Notes as are delegated to the Agent by the terms hereof or thereof, together
with all such powers as are reasonably incidental thereto.
SECTION 7.02. AGENT AND AFFILIATES.
Continental Bank National Association shall have the same rights and powers
under this Agreement as any other Bank and may exercise or refrain from
exercising the same as though it were not the Agent, and Continental Bank N. A.
and its affiliates may accept deposits from, lend money to, and generally engage
in any kind of business with the Borrower or any Subsidiary or any affiliate
thereof as if it were not the Agent hereunder.
SECTION 7.03. ACTION BY AGENT.
(a) The obligations of the Agent hereunder are only those expressly set forth
herein. Without limiting the generality of the foregoing, the Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in Article VI.
SECTION 7.04. CONSULTATION WITH EXPERTS.
The Agent may consult with legal counsel (who may be counsel for the Borrower),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken by it in good faith in
accordance with the advice of such counsel, accountants or experts.
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SECTION 7.05. LIABILITY OF AGENT.
Neither the Agent nor any of its directors, officers, agents or employees shall
be liable to any Bank for any action taken or not taken by it in connection
herewith
(i) with the consent or at the request of the Required Banks or
(ii) in the absence of its own gross negligence or willful misconduct.
Neither the Agent nor any of its directors, officers, agents or
employees shall be responsible for or have any duty to ascertain,
inquire into or verify (i) any statement, warranty or representation
made in connection with this Agreement or any Borrowing hereunder;
(ii) the performance or observance of any of the covenants or
agreements of any Borrower; (iii) the satisfaction of any condition
specified in Article III, except receipt of items required to be
delivered to the Agent; or (iv) the validity, effectiveness or
genuineness of this Agreement, the Notes or any other instrument or
writing furnished in connection herewith. The Agent shall not incur
any liability by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a bank wire,
telex or similar writing) reasonably believed by it to be genuine or
to be signed by the proper party or parties.
SECTION 7.06. INDEMNIFICATION.
Each Bank shall, ratably in accordance with its Commitment, indemnify the Agent
(to the extent not reimbursed by the Borrower) against any cost, expense
(including counsel fees and disbursements), claim, demand, action, loss or
liability (except such as result from the Agent's gross negligence or willful
misconduct) that the Agent may suffer or incur in connection with this Agreement
or any action taken or omitted by the Agent hereunder.
SECTION 7.07. CREDIT DECISION.
Each Bank acknowledges that it has, independently and without reliance upon the
Agent or any other Bank, and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Bank also acknowledges that it will, independently and without
reliance upon the Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking any action under this Agreement.
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SECTION 7.08. SUCCESSOR AGENT.
The Agent may resign at any time by giving written notice thereof to the Banks
and the Borrower, with such resignation to be effective upon the acceptance by a
successor Agent of its appointment as agent hereunder, as set forth below. Upon
any such resignation, the Required Banks shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Required Banks, and shall have accepted such appointment, within (thirty) 30
days after the retiring Agent's giving of notice of resignation, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent, which
shall be a Bank or a commercial bank organized under the laws of the United
States of America or of any state thereof and having a combined capital and
surplus of at least $50,000,000. Upon the acceptance of its appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. ILLEGALITY.
If, after the Effective Date, the adoption of any applicable law, rule or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Bank (or its
Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and
such Bank shall so notify the Agent, the Agent shall forthwith give notice
thereof to the other Banks and the Borrower whereupon until such Bank notifies
the Borrower and the Agent that the circumstances giving rise to such suspension
no longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be
suspended. Before giving any notice to the Agent pursuant to this Section, such
Bank shall designate a different Euro-Dollar Lending Office if such designation
will avoid the need for giving such notice and will not, in the judgment of such
Bank, be otherwise disadvantageous to such Bank. If such Bank shall determine
that it may not lawfully continue to maintain and fund any of its outstanding
Euro-Dollar Loans to maturity and shall so specify in such notice, the Borrower
shall immediately prepay in full the then outstanding principal amount of each
such affected
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Euro-Dollar Loan, together with accrued interest thereon. Concurrently with
prepaying each such affected Euro-Dollar Loan, the Borrower shall borrow a
Reference Rate Loan (or, if the Borrower so elects by at least one Domestic
Business Day's notice to the Agent and such Bank the Borrower shall borrow a CD
Loan), from such Bank in a principal amount equal to the principal amount of
such affected Euro-Dollar Loan for an Interest Period coincident with the
remaining term of the Interest Period applicable to such affected Euro-Dollar
Loan of the Borrower, and such Bank shall make such a Reference Rate Loan.
SECTION 8.02. INCREASED COST AND REDUCED RETURN.
(a) If on or after the Effective Date, in the case of any Committed Loan or any
obligation to make Committed Loans the adoption of any applicable law,
rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Parent or
Applicable Lending Office) with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency:
shall impose, modify or deem applicable any reserve, special deposit,
deposit insurance assessment or similar requirement (including,
without limitation, any such requirement imposed by the Board of
Governors of the Federal Reserve System, but excluding (A) with
respect to any CD Loan any such requirement included in an applicable
Domestic Reserve Percentage and (B) with respect to any Euro-Dollar
Loan any such requirement with respect to which such Bank is entitled
to compensation during the relevant Interest Period under Section
8.04) against assets of, deposits with or for the account of, or
credit extended by, any Bank (or its Applicable Lending Office);
and the result of any of the foregoing is to reduce the amount of any sum
received or receivable by such Bank (or its Applicable Lending Office)
under this Agreement or under its Notes with respect thereto, by an amount
deemed by such Bank to be material, then, within fifteen (15) days after
demand by such Bank (with a copy to the Agent), the Borrower shall pay to
such Bank (without duplication of amounts otherwise payable hereunder) such
additional amount or amounts as will compensate such Bank for such
increased cost or reduction with respect to such affected sum.
(b) If any Bank shall have reasonably determined that the adoption of any
applicable law, rule or regulation regarding capital adequacy or any change
therein, or any change in the interpretation or administration thereof by
any governmental
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authority, central bank or comparable agency charged with the interpretation
or administration thereof, or compliance by any Bank (or its Parent or
Applicable Lending Office) with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or has had the effect of reducing the
rate of return on capital of such Bank (or its Parent) as a consequence of
such Bank's obligations hereunder to a level below that which such Bank or
its Parent could have achieved but for such adoption, change or compliance
(taking into consideration such Bank's policies with respect to capital
adequacy) by an amount deemed by such Bank to be material, then from time
to time, within fifteen (15) days after demand by such Bank (with a copy to
the Agent), the Borrower shall pay to such Bank (without duplication of
amounts otherwise payable hereunder) such additional amount or amounts as
will compensate such Bank or its Parent for such reduction.
(c) Each Bank will promptly notify the Borrower and the Agent of any event of
which it has knowledge, occurring after the Effective Date, which will
entitle such Bank to compensation pursuant to this Section and will
designate a different Applicable Lending Office if such designation will
avoid the need for, or reduce the amount of, such compensation and will
not, in the judgment of such Bank, be otherwise disadvantageous to such
Bank. A certificate of any Bank claiming compensation under this Section,
setting forth the additional amount or amounts to be paid to it hereunder
and setting forth in reasonable detail the basis for such compensation shall
be conclusive in the absence of manifest error, and the amount set forth
therein shall be payable by Borrower within five (5) days after receipt of
such certificate. In determining such amount, such Bank may use any
reasonable averaging and attribution methods.
(d) In the event a Bank shall incur any loss or expense (including any loss or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Bank to make, continue or maintain any portion
of the principal amount of any Loan as, or to convert any portion of the
principal amount of any Loan into, a CD Loan or Euro-Dollar Loan) as a
result of
(1) any conversion or repayment or prepayment of the principal amount of
any CD Loan or Euro-Dollar Loan on a date other than the scheduled
last day of the Interest Period applicable thereto;
(2) any Loans not being made as CD Loans or Euro-Dollar Loans in
accordance with any request therefor; or
(3) any Loans not being continued as, or converted into, CD Loans or Euro-
Dollar Loans in accordance with the notice therefor,
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then, upon the written notice of such Bank to the Borrower, the Borrower
shall, within five days of its receipt thereof, pay to such Bank such amount
as will (in its reasonable determination) reimburse such Bank for such loss
or expense. Such written notice (which shall include calculations in
reasonable detail) shall, in the absence of manifest error, be conclusive
and binding on the Borrower.
(e) If a Bank shall have determined that
(1) U.S. dollar certificates of deposit or U.S. dollar deposits, as the
case may be, in the relevant amount and for the relevant Interest
Period are not available to such Bank in its relevant market; or
(2) by reason of circumstances affecting such Bank's relevant market,
adequate means do not exist for ascertaining the interest rate
applicable hereunder to CD Loans or Euro-Dollar Loans of such type,
then, upon notice from such Bank to the Borrower, such Bank's obligations
under this Agreement to make or continue any Loans as, or to convert any
Loans into, CD Loans or Euro-Dollar Loans of such type shall forthwith be
suspended until such Bank shall notify the Borrower that the circumstances
causing such suspension no longer exist.
SECTION 8.03. SUBSTITUTE LOANS.
If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended
pursuant to Section 8.01 or (ii) any Bank has demanded compensation under
Section 8.02(a) and the Borrower shall, by at least five (5) Euro-Dollar
Business Days' prior notice to such Bank through the Agent, have elected that
the provisions of this Section shall apply to such Bank, then, unless and until
such Bank notifies the Borrower that the circumstances giving rise to such
suspension or demand for compensation no longer apply:
(a) all Loans which would otherwise be made by such Bank as CD Loans or Euro-
Dollar Loans, as the case may be, shall be made instead as Reference Rate
Loans.
SECTION 8.04. REGULATION D COMPENSATION.
Each Bank may require the Borrower to pay, contemporaneously with each payment
of interest on Euro-Dollar Borrowings, additional interest on the related Euro-
Dollar Loan of such Bank at a rate per annum equal to the excess of (i) (A) the
applicable London Interbank Offered Rate divided by (B) one minus the Euro-
Dollar Reserve
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Percentage over (ii) the rate specified in clause (i)(A). Any Bank electing to
require payment of such additional interest shall so notify the Borrower and the
Agent, at least five (5) Euro-Dollar Business Days prior to each date on which
interest is payable on the Euro-Dollar Loans of the amount then due it under
this Section.
SECTION 8.05. SUBSTITUTION OF BANK.
If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended
pursuant to 8.01 or (ii) any Bank has demanded compensation under Section 8.02
or 8.04, the Borrower shall have the right, with the assistance of the Agent, to
seek a mutually satisfactory substitute bank or banks (which may be one or more
of the Banks) to purchase the Notes for cash without recourse to such Bank and
assume the Commitment of such Bank. Any such purchase shall be at par, shall be
without prejudice to the Borrower's obligations under Section 9.04 and shall
release such Bank from all further obligations under this Agreement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. NOTICES.
(a) All notices and other communications provided for herein shall be in writing
(including bank wire, telecopy, or similar writing) and shall be given to
the intended recipient at the "Address for Notices" specified, if the
intended recipient is the Borrower or the Agent, below its name on the
signature pages hereof or, if the intended recipient is a Bank, in such
Bank's Administrative Questionnaire, or, as to any party, at such other
address as shall be designated by such party in a notice to the Borrower and
the Agent. All notices and other communications shall be effective
(i) if given by mail, 72 hours after such communication is deposited in
the mails with first class postage prepaid, addressed as aforesaid,
(ii) if given by telecopier, upon confirmation that the telecopied document
has been received by the individual to whom it was addressed, or
(iii) if given by any other means, when delivered at the address specified
in this Section; provided that notices to the Agent under Article II
or VIII hereof shall not be effective until received and notices to
the Borrower under Section 6.01 shall not be effective until such
notice is delivered.
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(b) All notices given to the Borrower shall also be given to LYONDELL at the
address below and to CITGO at the address below:
to LYONDELL:
Lyondell Petrochemical Company
1221 McKinney, Suite 1600
One Houston Center
Houston, Texas 77010
Attention: Treasurer
to CITGO:
CITGO Petroleum Corporation
One Warren Place
6100 S. Yale
Tulsa, Oklahoma 74136
Attention: Treasurer
SECTION 9.02. NO WAIVER.
No failure on the part of the Agent or any Bank to exercise and no delay in
exercising, and no course of dealing with respect to, any right, power or
privilege under this Agreement or any Note shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
this Agreement or any Note preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.
SECTION 9.03. GOVERNING LAW.
THIS AGREEMENT, THE NOTES AND THE REQUESTS, INVITATIONS AND OFFERS PROVIDED FOR
HEREIN SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF ILLINOIS.
SECTION 9.04. EXPENSES; DOCUMENTARY TAXES; INDEMNIFICATION.
(a) The Borrower shall pay, within thirty (30) days after receipt of a
reasonably detailed statement setting forth the amount and nature thereof,
(i) all out-of-pocket expenses of the Agent, including the reasonable fees
and disbursements of special counsel for the Agent, in connection with the
preparation of this
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Agreement, any waiver or consent hereunder or any amendment hereof or any
Default or alleged Default hereunder and (ii) if an Event of Default occur,
all out-of-pocket expenses incurred by the Agent or any Bank, including
reasonable fees and disbursements of counsel, in connection with such Event
of Default and collection and other enforcement proceedings resulting
therefrom. The Borrower shall indemnify each Bank against any transfer
taxes, documentary taxes, assessments or charges made by any governmental
authority by reason of the execution and delivery of this Agreement or the
Notes.
(b) The Borrower agrees to indemnify each Bank and the Agent and hold each Bank
and the Agent harmless from and against any and all liabilities (including
without limitation, environmental liabilities), losses, damages, costs and
expenses of any kind (including, without limitation, the reasonable fees and
disbursements of counsel for any Bank and the Agent in connection with any
investigative, administrative or judicial proceeding, whether or not such
Bank or the Agent shall be designated a party thereto) which may be incurred
by any Bank, or by the Agent in connection with its actions as Agent
hereunder, relating to or arising out of Article VI or VII of this Agreement
or any actual or proposed use of proceeds of Loans hereunder; provided that
neither any Bank nor the Agent shall have the right to be indemnified
hereunder for its own gross negligence or willful misconduct as determined
by a court of competent jurisdiction.
SECTION 9.05. AMENDMENTS, ETC.
Any provision of this Agreement or the Notes may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by the Borrower
and the Required Banks (and, if the rights or duties of the Agent are affected
thereby, by the Agent); provided that no such amendment, waiver or modification
shall, unless signed by all the Banks,
(i) increase or decrease the Commitment of any Bank or subject any Bank to
any additional obligation (except for increases to the Commitment of
any Bank pursuant to Section 8.05 to which such Bank has agreed in
writing),
(ii) reduce the principal of or rate of interest on any Loan or any fees
hereunder,
(iii) postpone the date fixed for any payment of principal of or interest on
any Loan or any fees hereunder or for any reduction or termination of
any Commitment,
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(iv) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Notes, or the number of Banks, which shall be
required for the Banks or any of them to take any action under this
Section or any other provision of this Agreement or
(v) amend or waive any provision of Section 3.01 or Section 9.05.
SECTION 9.06. COUNTERPARTS; INTEGRATION.
This Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement constitutes the entire agreement and understanding among the parties
hereto and supersedes any and all prior agreements and understandings, oral or
written, relating to the subject matter hereof.
SECTION 9.07. SUCCESSORS AND ASSIGNS.
(a) The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that the Borrower may not assign or otherwise transfer any of its
rights under this Agreement without the prior written consent of all Banks,
except as set forth in Section 5.04(a).
(b) Any Bank may at any time grant to one or more banks or other institutions
(each a "Participant") participating interests in its Commitment or any or
all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Agent, such Bank shall remain responsible for the
performance of its obligations hereunder, and the Borrower and the Agent
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement. Any agreement
pursuant to which any Bank may grant such a participating interest shall
provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrower hereunder including, without
limitation, the right to approve any amendment, modification or waiver of
any provision of this Agreement; provided that such participation agreement
may provide that such Bank will not agree to any modification, amendment or
waiver of this Agreement described in clause (i), (ii), (iii) or (iv) of
Section 9.05 without the consent of the Participant. The Borrower agrees
that each Participant shall be entitled to the benefits of Sections 2.11 and
9.04 and Article VIII with respect to its participating interest; provided
that all amounts payable to a Bank for the account of a Participant under
Sections 2.11
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and 9.04 and Article VIII shall be determined as if such Bank had not
granted such participation to the Participant. An assignment or other
transfer which is not permitted by subsection (c) below shall be given
effect for purposes of this Agreement only to the extent of a participating
interest granted in accordance with this subsection (b).
(c) Any Bank may upon 5 days notice by the Agent and the Borrower at any time
assign to one or more banks or other institutions (each an "Assignee") all,
or a part of all(a minimum of $5,000,000, in multiples of $1,000,000) of its
rights and obligations under this Agreement and the Notes, and such Assignee
shall assume such rights and obligations, pursuant to an instrument
substantially in the form of Exhibit B attached hereto, executed by such
Assignee and such transferor Bank, with (and subject to) the subscribed
consent of the Borrower and the Agent, which consent shall not be
unreasonably withheld; provided that if an Assignee is an affiliate of such
transferor Bank, no such consent shall be required. Upon execution by the
transferor Bank, the Borrower, the Assignee and the Agent, and delivery of,
such an instrument and payment by such Assignee to such transferor Bank of
an amount equal to the purchase price agreed between such transferor Bank
and such Assignee, such Assignee shall be a Bank party to this Agreement and
shall have all the rights and obligations of a Bank with a Commitment as
set forth in such instrument of assumption, and the transferor Bank shall be
released from its obligations hereunder to the extent of such assignment,
and no further consent or action by any party shall be required. Upon the
consummation of any assignment pursuant to this subsection (c), the
transferor Bank, the Agent and the Borrower shall make appropriate
arrangements so that, if required, new Notes are issued to the Assignee.
Prior to the issuance of any such new Note, the Assignee to which such Note
is issued shall pay to the Agent a fee of $2,500.
(d) No Assignee or other transferee of any Bank's rights shall be entitled to
receive any greater payment under Section 8.02 than such Bank would have
been entitled to receive with respect to the rights transferred, unless such
transfer is made with the Borrower's prior written consent or by reason of
the provisions of Section 8.01 or 8.02 requiring such Bank to designate a
different Lending Office under certain circumstances or at a time when the
circumstances giving rise to such greater payment did not exit.
SECTION 9.08. SURVIVAL.
The obligation of the Borrower under Article VIII and Section 9.04 shall survive
the repayment of the Loans and the termination of the Commitments.
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SECTION 9.09. ACKNOWLEDGEMENT.
The Borrower acknowledges that the Banks have entered into this Agreement in
reliance on the Borrower's assurance that the Borrower does not intend to use
the proceeds of any Borrowings hereunder in a manner which would violate any
applicable law or governmental rule or regulation.
SECTION 9.10. HEADINGS.
The Table of Contents and Article and Section headings used herein shall not
affect the interpretation of any provision of this Agreement.
SECTION 9.11. SHARING OF SETOFFS.
Each Bank agrees that, if it shall, by exercising any right of setoff or
counterclaim or otherwise, receive payment of a proportion of the aggregate
amount of principal and interest due with respect to any Note held by it which
is greater than the proportion received by any other Bank in respect of the
aggregate amount of principal and interest due with respect to any Note held by
such other Bank (other than disproportionate payments to any Bank provided for
by this Agreement), the Bank receiving such proportionately greater payment
shall purchase such participation in the Notes held by the other Banks, and such
other adjustments shall be made, as may be required so that all such payments of
principal and interest with respect to the Notes held by the Banks shall be
shared by the Banks pro rata; provided that nothing in this Section shall impair
the right of any Bank to exercise any right of setoff or counterclaim it may
have and to apply the amount recovered thereby to the payment of indebtedness of
the Borrower other than its indebtedness under the Notes. If under any
applicable bankruptcy, insolvency or other similar law, any Bank receives a
secured claim in lieu of a setoff to which this Section applies, such Bank
shall, to the extent practicable, exercise its rights in respect of such secured
claim in a manner consistent with the rights of the Banks entitled under this
Section to share in the benefits of any recovery on such secured claim. The
Borrower agrees, to the fullest extent it may effectively do so under applicable
law, that any Bank which is a holder of a participation in a Note, whether or
not acquired pursuant to the foregoing arrangements, may exercise rights of
setoff or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
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SECTION 9.12. COLLATERAL.
Each of the Banks represents to the Agent and each of the other Banks that it in
good faith is not relying upon any "margin stock" (as defined in Regulation U)
as collateral in the extension or maintenance of the credit provided for in this
Agreement.
SECTION 9.13. CONSENT TO JURISDICTION.
(A) THE BORROWER IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR
ILLINOIS STATE COURT OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY NOTE. THE BORROWER IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN SUCH COURT AND ANY CLAIM THAT ANY SUIT, ACTION OR
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. THE BORROWER AGREES THAT A FINAL, NONAPPEALABLE JUDGMENT IN ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT SHALL BE CONCLUSIVE AND
BINDING UPON THE BORROWER AND MAY BE ENFORCED IN ANY FEDERAL OR ILLINOIS
STATE COURT (OR ANY OTHER COURTS TO THE JURISDICTION OP WHICH THE BORROWER
IS OR MAY BE SUBJECT) BY A SUIT UPON SUCH JUDGMENT, PROVIDED THAT SERVICE OF
PROCESS IS EFFECTED UPON THE BORROWER IN ONE OP THE MANNERS SPECIFIED IN
SUBSECTION (B) OF THIS SECTION OR AS OTHERWISE PERMITTED BY LAW.
(B) IN LIGHT OF THE EXPRESS INTENT OF THE PARTIES TO SUBMIT TO THE JURISDICTION
OF ILLINOIS COURTS FOR THE RESOLUTION OF ANY AND ALL DISPUTES ARISING UNDER
THIS AGREEMENT, THE PARTIES FURTHER HEREBY WAIVE ANY AND ALL AFFIRMATIVE
DEFENSES THEY COULD OR MIGHT OTHERWISE BE ABLE TO ASSERT BASED ON AN ALLEGED
INCAPACITY OF THE BORROWER (SOLELY BASED ON CERTAIN STATUTORY PROVISIONS OF
ILLINOIS LAW) TO ASSERT A CLAIM OR COUNTER-CLAIM IN EITHER THE FEDERAL OR
STATE COURTS OF THE STATE OF ILLINOIS. THE AFFIRMATIVE DEFENSES AND MOTIONS
HEREBY WAIVED INCLUDE BUT ARE NOT LIMITED TO OBJECTIONS TO SUIT PURSUANT TO
THE ILLINOIS BUSINESS CORPORATION ACT SECTION 13.70, AS AMENDED, AND ANY
SIMILAR ILLINOIS PARTNERSHIP LAW STATUTE. THE PARTIES WAIVE ALL AFFIRMATIVE
DEFENSES AND DEFENSIVE MOTIONS PREDICATED ON,, THE FOREGOING STATUTORY
PROVISIONS WITH FULL KNOWLEDGE OF THEIR RIGHTS, IF ANY, UNDER THOSE
PROVISIONS. IT IS THE EXPRESS AND KNOWING INTENTION OF THE PARTIES TO WAIVE
THE RIGHT TO ASSERT AS
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AN AFFIRMATIVE DEFENSE THE LEGAL INCAPACITY OF THE BORROWER TO MAINTAIN A
CLAIM OR COUNTER-CLAIM ON THE GROUNDS THAT IT FAILED TO COMPLY WITH ANY OR
ALL REGISTRATION, CERTIFICATION, NOTIFICATION, FILING OR DESIGNATION-OF-
AGENT REQUIREMENTS SET FORTH AND ENFORCED BY THE FOREGOING OR ANY SIMILAR
STATUTORY PROVISIONS.
(C) SERVICE OF PROCESS. THE BORROWER HEREBY CONSENTS TO PROCESS BEING SERVED
IN ANY SUIT, ACTION OR PROCEEDING REFERRED TO IN THE FIRST SENTENCE OF
SUBSECTION (A) OF THIS SECTION IN ANY FEDERAL OR ILLINOIS STATE COURT BY
MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED AIR MAIL, POSTAGE PREPAID,
RETURN RECEIPT REQUESTED, TO THE BORROWER AT ITS ADDRESS SPECIFIED IN
SECTION 9.01 OR TO ANY OTHER ADDRESS OF WHICH THE BORROWER SHALL HAVE GIVEN
WRITTEN NOTICE TO THE AGENT. THE BORROWER IRREVOCABLY WAIVES TO THE FULLEST
EXTENT PERMITTED BY LAW, ALL CLAIM OF ERROR BY REASON OF ANY SUCH SERVICE IN
ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE AGENT OR ANY BANK. THE
BORROWER AGREES THAT SUCH SERVICE SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
SERVICE OF PROCESS UPON THE BORROWER IN ANY SUCH SUIT, ACTION OR PROCEEDING
AND SHALL, TO THE FULLEST EXTENT PERMITTED BY LAW, BE TAKEN AND HELD TO BE
VALID AND PERSONAL SERVICE UPON AND PERSONAL DELIVERY TO THE BORROWER.
(D) NO LIMITATION ON SERVICE OR SUIT. NOTHING IN THIS ARTICLE SHALL AFFECT THE
RIGHT OF THE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR LIMIT THE RIGHT OF THE AGENT OR ANY BANK TO BRING
PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF THE JURISDICTION OF THE
BANK'S LENDING OFFICE OR THE COURTS OP ANY JURISDICTION OR JURISDICTIONS IN
WHICH THE BORROWER HAS ANY ASSETS.
SECTION 9.14. WAIVER OF JURY TRIAL
THE AGENT, THE BANKS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH,
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE
BANKS OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS
RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER
PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A
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<PAGE>
PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE
BANKS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
LYONDELL-CITGO REFINING COMPANY LTD.
By: /s/ William E. Haynes
-----------------------------------------
Title: President and Chief Executive Officer
Address for Notices:
One Houston Center
Suite 1600
1221 McKinney Street
P. O. Box 3646
Houston TX 77253-3646
Attn: Controller
Telephone No.: 713-475-4111
Telecopier No.: 713-951-1505
CONTINENTAL BANK N.A.
As Agent
By: /s/ Ronald E. McKaig
-----------------------------------------
Title: Vice President
Address for Notices:
231 South La Salle Street
Chicago, Illinois 60697
Attn: Robert Ingersoll
Telephone No.: 312-828-6720
Telecopier No.: 312-987-5614
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Exhibit 10.35
LYONDELL PETROCHEMICAL COMPANY
$400,000,000
CREDIT AGREEMENT
DATED AS OF DECEMBER 6, 1993
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
AS ADMINISTRATIVE AGENT
AND
CONTINENTAL BANK N.A.
AS CO-AGENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS*
-----------------
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions............................ 1
1.02 Accounting Terms and Determinations.... 14
1.03 Types of Loans and Borrowings.......... 14
ARTICLE II
THE CREDITS
SECTION 2.01 Commitments to Lend.................... 14
2.02 Notice of Borrowings................... 15
2.03 Letters of Credit...................... 15
2.04 Notice to Banks; Funding of Loans...... 21
2.05 Notes.................................. 22
2.06 Maturity of Loans...................... 22
2.07 Interest Rates......................... 22
2.08 Conversions and Continuances........... 25
2.09 Pro Rata Borrowings.................... 25
2.10 Optional Termination or Reduction of
Commitments............................ 26
2.11 Mandatory Termination of Commitments... 26
2.12 Optional Prepayments................... 26
2.13 General Provisions as to Payments...... 27
2.14 Funding Losses......................... 27
2.15 Fees................................... 28
2.16 Computation of Interest and Fees....... 28
2.17 Maximum Interest Rate.................. 29
2.18 Withholding Tax Exemption.............. 31
</TABLE>
- ---------------------------------------
* The Table of Contents is not a part of this Agreement.
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<TABLE>
<CAPTION>
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<C> <C> <S> <C>
ARTICLE III
CONDITIONS
SECTION 3.01 Effectiveness.......................... 32
3.02 Credit Events.......................... 34
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Representations and Warranties of
the Borrower........................... 35
ARTICLE V
COVENANTS
SECTION 5.01 Certain Information to be Furnished
by the Borrower........................ 39
5.02 Maintenance of Property; Insurance..... 42
5.03 Limitation on Liens.................... 42
5.04 Consolidation, Merger, Disposition of
Assets................................. 44
5.05 Use of Proceeds........................ 45
5.06 Payment of Taxes....................... 45
5.07 LCR Matters............................ 46
5.08 Financial and Other Covenants.......... 47
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01 Defaults............................... 49
6.02 Other Remedies......................... 52
6.03 Rights of Setoff....................... 52
</TABLE>
ii
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<TABLE>
<CAPTION>
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<C> <C> <S> <C>
ARTICLE VII
THE AGENTS
SECTION 7.01 Appointment and Authorization.......... 52
7.02 Agents and Affiliates.................. 53
7.03 Action by Agents....................... 53
7.04 Consultation with Experts.............. 53
7.05 Liability of Agents.................... 53
7.06 Indemnification........................ 53
7.07 Credit Decision........................ 54
7.08 Successor Agents....................... 54
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01 Basis for Determining Interest Rate
Inadequate or Unfair................... 55
8.02 Illegality............................. 55
8.03 Increased Cost and Reduced Return...... 56
8.04 Substitute Loans....................... 58
8.05 Regulation D Compensation.............. 58
8.06 Substitution of Bank................... 59
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Notices................................ 59
9.02 No Waiver.............................. 60
9.03 Governing Law.......................... 60
9.04 Expenses; Documentary Taxes;
Indemnification........................ 60
9.05 Amendments, Etc........................ 61
9.06 Counterparts; Integration.............. 62
9.07 Successors and Assigns................. 62
9.08 Survival............................... 63
9.09 Acknowledgment......................... 63
9.10 Headings............................... 63
9.11 Sharing of Setoffs..................... 64
</TABLE>
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<TABLE>
<CAPTION>
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<C> <C> <S> <C>
9.12 Collateral............................. 64
9.13 Consent to Jurisdiction................ 64
SCHEDULE 2.07 -Rate Adjustments
SCHEDULE 2.15 -Commitment Fees
SCHEDULE 5.03(c)-Existing and Contemplated Liens
EXHIBIT 2.02 -Form of Notice of Borrowing
EXHIBIT 2.03(b) -Form of Letter of Credit Request
EXHIBIT 2.05 -Form of Note
EXHIBIT 2.08 -Form of Notice of Conversion
EXHIBIT 3.01(ii)-Form of Certificate of Incumbency
EXHIBIT 3.01(iv)-Form of Opinion of Counsel for the Borrower
EXHIBIT 3.01(v) -Form of Opinion of Special Counsel for the Agents
</TABLE>
iv
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CREDIT AGREEMENT dated as of December 6, 1993 among LYONDELL
PETROCHEMICAL COMPANY, the BANKS listed on the signature pages hereof and TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, as Administrative Agent AND CONTINENTAL BANK
N.A., as Co-Agent (the Agreement").
The Borrower desires to borrow from time to time amounts not exceeding
in the aggregate $400,000,000 outstanding at any one time from the Banks for
general business purposes, and the Banks are prepared to make loans on the terms
hereof. Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. In addition to terms defined elsewhere in
this Agreement, as used in this Agreement the following terms have the following
meanings (all terms defined in this Agreement in the singular to have the same
meanings when used in the plural and vice versa):
"Adjusted CD Rate" has the meaning set forth in Section 2.07(b).
"Administrative Questionnaire" means, with respect to each Bank, the
administrative questionnaire in the form submitted to such Bank by the
Administrative Agent and submitted to the Administrative Agent (with a copy to
the Borrower) duly completed by such Bank.
"Administrative Agent" means Texas Commerce Bank National Association in
its capacity as administrative and syndication agent for the Banks hereunder and
its successors in such capacity.
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with such Person.
"Agents" means the Administrative Agent and the Co-Agent in their capacity
as agents for the Banks hereunder, and their successors in such capacity.
"Agreement" has the meaning specified in the introduction to this
Agreement, including all amendments, extensions and modifications thereto.
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<PAGE>
"Applicable Lending Office" means, with respect to any Bank, (i) in the
case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office, and, (iii) with respect to
the Issuing Bank, its Domestic Lending Office.
"Assessment Rate" has the meaning set forth in Section 2.07(b).
"Assignee" has the meaning set forth in Section 9.07(c).
"Authorized Officer" and "Authorized Representative" of the Borrower shall
mean an officer or other representative of the Borrower designated in the latest
Certificate of Incumbency of the Borrower. The Agents and the Banks shall be
conclusively entitled to rely on the latest such Certificate of Incumbency of
the Borrower delivered to the Administrative Agent.
"Bank" means each bank which is listed on the signature pages hereof as
having a Commitment and which has executed and delivered this Agreement, each
Assignee which becomes a Bank pursuant to Section 9.07(c) and their respective
successors.
"Base Rate" means, for any day, a rate per annum equal to the lesser of (i)
the higher of (x) the Prime Rate for such day plus the Base Rate Margin or (y)
the Federal Funds Rate for such day plus 1/2 of 1 percent plus the Base Rate
Margin, or (ii) the Highest Lawful Rate.
"Base Rate Loan" means a Loan to be made by a Bank as a Base Rate Loan in
accordance with the applicable Notice of Borrowing or pursuant to Article VIII.
"Base Rate Margin" means the highest applicable basis points set forth in
Schedule 2.07(a) hereto.
"Borrower" means Lyondell Petrochemical Company, a Delaware corporation,
and its successors.
"Borrowing" has the meaning set forth in Section 1.03.
"CD Base Rate" has the meaning set forth in Section 2.07(b).
"CD Loan" means a Loan to be made by a Bank as a CD Loan in accordance with
the applicable Notice of Borrowing.
"CD Margin" has the meaning set forth in Section 2.07(b).
2
<PAGE>
"CD Reference Banks" means Texas Commerce Bank National Association and
Continental Bank N.A. and each such other bank as may be appointed pursuant to
Section 9.07(e).
"Certificate of Incumbency" shall mean a Certificate of Incumbency
described in clause (ii) of Section 3.01 and any successor or replacement
Certificate of Incumbency delivered hereunder.
"CITGO" means CITGO Petroleum Corporation, a Delaware corporation, and its
successors and assigns.
"CITGO Refining", means CITGO Refining Investment Company, an Oklahoma
corporation, and its successors (including, without limitation, any entity that
assumes Citgo Refining's obligations under the Company Regulations).
"Co-Agent" means Continental Bank N.A. in its capacity as co-agent for the
Banks hereunder and its successors in such capacity.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Commitment" means, as to each Bank, the amount set forth opposite its name
on the signature pages hereof under the heading "Commitment" or as set forth in
an instrument signed by all appropriate parties in accordance with Section
9.07(c) (as such amount may be reduced from time to time as provided in Section
2.10).
"Commitment Percentage" of any Bank means, at any time, the ratio which its
Commitment bears to the aggregate of all the Banks' Commitments or, if the
Commitments have been terminated, the ratio which the aggregate outstanding
principal amount of the Loans made by such Bank bears to the aggregate
outstanding principal amount of all Loans made by the Banks.
"Company Regulations" means the amended and restated limited liability
company regulations of LCR dated as of July 1, 1993.
"Consolidated Capital Expenditures" means, for any period, the gross
additions to fixed assets attributable to cash flows from investing activities
as reflected on the consolidated statement of cash flows of the Borrower and its
Consolidated Subsidiaries for such period.
"Consolidated Debt" means, as of the date of any determination thereof, a
consolidated computation of all Debt of the Borrower and its Consolidated
Subsidiaries.
3
<PAGE>
"Consolidated Interest Expense" means, for any period, the Interest Expense
reflected on the consolidated statement of income of the Borrower and its
Consolidated Subsidiaries for such period.
"Consolidated Net Income or Loss" means, for any period, the net income
(loss) reflected on the consolidated statement of income of the Borrower and its
Consolidated Subsidiaries for such period.
"Consolidated Net Tangible Assets" means the total amount of assets (less
applicable reserves and other properly deductible items) after deducting
therefrom (i) all current liabilities (excluding any liabilities that are by
their terms extendible or renewable at the option of the obligor thereon to a
time more than 12 months after the time as of which the amount thereof is being
computed), and (ii) all goodwill, trade names, trademarks, patents, purchased
technology, unamortized debt discount and other like intangible assets, all as
set forth on the most recent quarterly consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries.
"Consolidated Subsidiary" means at any date any Subsidiary or other entity
(including, without limitation, LCR) the accounts of which would be consolidated
with those of the Borrower in its consolidated financial statements as of such
date.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414(b) or 414(c) of the Code.
"Credit Event" means the making of a Loan or the occasion of any Borrowing
hereunder or the issuance, renewal or extension of any Letter of Credit
hereunder.
"Debt" of any Person means without duplication, as of the date of any
determination thereof (i) the aggregate outstanding principal amounts of all
indebtedness for borrowed money of such Person, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments
(including letters of credit), (iii) all obligations of such Person to pay the
deferred purchase price of property or services, except trade accounts payable
arising in the ordinary course of business, (iv) all obligations of such Person
as lessee under capital leases, (v) all Debt of others to the extent secured by
a Lien on any asset of such Person, whether or not such Debt is assumed by such
Person, and (vi) all Debt of others to the extent Guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
4
<PAGE>
"Dividend" means any cash dividend paid or declared by the board of
directors of the Borrower in respect of the Borrower's stock now or hereafter
outstanding.
"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in Houston, Texas are authorized by law to close.
"Domestic Lending Office" means, as to each Bank including the Issuing
Bank, its office, branch or affiliate located at its address set forth in its
Administrative Questionnaire (or identified in its Administrative Questionnaire
as its Domestic Lending Office) or such other office, branch or affiliate as
such Bank may from time to time specify to the Administrative Agent and the
Borrower as its Domestic Lending Office; provided, however, that any Bank may
from time to time by notice to the Borrower and the Administrative Agent
designate separate Domestic Lending Offices for its Base Rate Loans, on the one
hand, and its CD Loans, on the other hand, in which case all references herein
to the Domestic Lending Office of such Bank shall be deemed to refer to either
or both of such offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
"Domestic Reserve Percentage" has the meaning set forth in Section 2.07(b).
"Drawing" means any drawing under a Letter of Credit.
"EBITDA" means, for any period, the Borrower's Consolidated Net Income or
Loss for such period, minus interest income, plus Consolidated Interest Expense,
plus depreciation, amortization and provisions for taxes and plus or minus any
Non-Operating Special Items; provided, however, that for any fiscal quarter in
which the Borrower or any of its Consolidated Subsidiaries shall incur downtime
at or with respect to any plant or manufacturing or processing unit (as
determined by the Borrower in its sole discretion), the Borrower shall have the
right to add up to the lesser of (i) the estimated amount by which EBITDA is
impacted by such downtime or (ii) $20,000,000 to the amount of EBITDA calculated
for such fiscal quarter; provided further, that such addition of up to
$20,000,000 may only be made in the calculation of EBITDA for each of two fiscal
quarters during the term of this Agreement and that any such addition may only
be made for one fiscal quarter during any four consecutive fiscal quarters.
"Effective Date" means the date on which this Agreement becomes effective
in accordance with Section 3.01.
"Environmental Laws" means federal, state or local laws, rules or
regulations, including any administrative order, permit or approval pertaining
to health, safety or the environment in effect in the applicable jurisdiction at
the time in question, including
5
<PAGE>
the Clean Air Act, as amended, the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA"), the Federal Water
Pollution Control Act, as amended, the Occupational Safety and Health Act, as
amended, the Resource Conservation and Recovery Act, as amended, the Safe
Drinking Water Act, as amended, the Toxic Substances Control Act, as amended,
the Superfund Amendment and Reauthorization Act of 1986, as amended, the
Hazardous Materials Transportation Act, as amended, comparable state and local
laws, and other environmental conservation and protection laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office, branch or
affiliate located at its address set forth in its Administrative Questionnaire
(or identified in its Administrative Questionnaire as its Euro-Dollar Lending
Office) or such other office, branch or affiliate of such Bank as it may from
time to time specify to the Administrative Agent and the Borrower as its Euro-
Dollar Lending Office.
"Euro-Dollar Loan" means a Loan to be made by a Bank as a Euro-Dollar Loan
in accordance with the applicable Notice of Borrowing.
"Euro-Dollar Margin" has the meaning set forth in Section 2.07(c).
"Euro-Dollar Rate" has the meaning set forth in Section 2.07(c).
"Euro-Dollar Reference Banks" means Texas Commerce Bank National
Association and Continental Bank N.A. and each such other bank as may be
appointed pursuant to Section 9.07(e).
"Euro-Dollar Reserve Percentage" means with respect to any Bank for any day
that percentage (expressed as a decimal) which is in effect on such day as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the reserve requirement (including without limitation
any basic, supplemental or emergency reserves) imposed on such Bank in respect
of "Euro-currency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or in respect of any category of extensions of
credit or other assets which includes loans by a non-United States office of
such Bank to United States residents).
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"Event of Default" has the meaning set forth in Section 6.01.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/1OOth of 1 percent) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of Dallas on the Domestic Business
Day next succeeding such day; provided, however, that (i) if such day is not a
Domestic Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Domestic Business Day as so published on
the next succeeding Domestic Business Day, and (ii) if no such rate is so
published on such next succeeding Domestic Business Day, the Federal Funds Rate
for such day shall be the average rate quoted to Texas Commerce Bank National
Association on such day for such transactions as determined by the
Administrative Agent.
"Financial Letter of Credit" means a Letter of Credit on which the
beneficiary thereof can draw due to the failure of a party to perform a payment
obligation for the benefit of the beneficiary.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or any combination
of the foregoing.
"Guarantee", in respect of any Person, means to guarantee or act, directly
or indirectly, as a surety for any Debt or other obligation of any other Person
and, without limiting the generality of the foregoing, to incur or assume any
obligation, direct or indirect, contingent or otherwise, (i) to purchase or pay
(or advance or supply funds for the purchase or payment of) such Debt or other
obligation (whether arising by virtue of partnership arrangements, by binding
agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for the purpose of assuring in any other manner the obligee of such
Debt or other obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part); provided, however, that
the term "Guarantee" shall not include to endorse for collection or deposit in
the ordinary course of business.
"Hazardous Materials" means any pollutant, contaminant, solid waste,
asbestos, petroleum product, crude oil or a fraction thereof, any toxic or
hazardous substance, material or waste, any flammable, explosive or radioactive
material or any other material or substance not mentioned above which is
regulated under any Environmental Law.
"Highest Lawful Rate" has the meaning set forth in Section 2.17.
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"Interest Expense" means, for any period and for any Person, without
duplication, the total interest expense of such Person as reflected on an income
statement of such Person for such period.
"Interest Period" means: (1) with respect to each Euro-Dollar Borrowing,
the period commencing on the date of such Borrowing and ending one through seven
days (subject to market availability), or one, two, three or six months
thereafter, as the Borrower may elect in the applicable Notice of Borrowing;
provided, however, that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of a calendar month; and
(c) any Interest Period applicable to any Euro-Dollar Loan of any
Bank which begins before the Termination Date and would otherwise end after
the Termination Date shall end on the Termination Date;
(2) with respect to each CD Borrowing, the period commencing on the date
of such Borrowing and ending 30, 60, 90 or 180 days thereafter, as the Borrower
may elect in the applicable Notice of Borrowing; provided, however, that:
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (b) below) which would otherwise end on a day which is
not a Domestic Business Day shall be extended to the next succeeding
Domestic Business Day; and
(b) any Interest Period applicable to any CD Loan of any Bank which
begins before the Termination Date and would otherwise end after the
Termination Date shall end on the Termination Date; and
(3) with respect to each Base Rate Borrowing, the period commencing on the
date of such Borrowing and ending 90 days thereafter; provided, however, that:
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (b) below) which would otherwise end on a day which
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is not a Domestic Business Day shall be extended to the next succeeding
Domestic Business Day; and
(b) any Interest Period applicable to any Base Rate Loan of any Bank
which begins before the Termination Date and would otherwise end after the
Termination Date shall end on the Termination Date.
"Investment" means any capital contribution or loan made by the Borrower or
any of its Subsidiaries to LCR in accordance with the Company Regulations.
"Issuing Bank" means Texas Commerce Bank National Association, or such
other Bank as the Borrower may have requested and which has consented to serve
as Issuing Bank that issues a Letter of Credit.
"LCR" means LYONDELL-CITGO Refining Company Ltd., a Texas limited liability
company and its successors.
"LRC" means Lyondell Refining Company, a Delaware corporation and a wholly-
owned subsidiary of the Borrower, and its successors (including, without
limitation any entity that assumes LRC's obligations under the Company
Regulations).
"Letter of Credit" has the meaning set forth in Section 2.03(a).
"Letter of Credit Application" has the meaning set forth in Section
2.03(a).
"Letter of Credit Fee" has the meaning set forth in Section 2.03(n).
"Letter of Credit Limit" means $75,000,000.
"Letter of Credit Margin" means the highest applicable basis points set
forth in Schedule 2.07(b).
"Letter of Credit Outstandings" means, at any time, the sum of (a) the
aggregate Stated Amount of all outstanding Letters of Credit and (b) the amount
of all Unpaid Drawings in respect of all Letters of Credit.
"Letter of Credit Request" has the meaning set forth in Section 2.03(a).
"Letter of Credit Termination Date" means December 3, 1998 or the earlier
date of acceleration of the Obligations of the Borrower hereunder and under the
Notes pursuant to Section 6.01.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.
"Loan" means a Domestic Loan or a Euro-Dollar Loan and "Loans" means
Domestic Loans or Euro-Dollar Loans or any combination of the foregoing.
"Loan Documents" means this Agreement (including all exhibits), the Notes
and the Letter of Credit Applications.
"Material Adverse Effect" means relative to the occurrence of any event and
after taking into account existing or reasonably anticipated insurance coverage
and indemnification rights with respect to such occurrence, a material adverse
effect (i) on the business, operations, affairs, assets, condition (financial or
otherwise) or results of operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole or (ii) on the ability of the Borrower to
perform its obligations hereunder and under the Notes.
"Net Interest" means the sum of (i) interest on Replacement Debt minus any
interest earned on the proceeds from Replacement Debt plus (ii) interest on
Replaced Debt.
"Non-Operating Special Item" means (i) any item resulting from a change in
one or more accounting principles, (ii) any extraordinary or non-recurring item
or (iii) any material operating item which is unusual in nature or infrequent in
occurrence; provided, however, that with respect to the designation of any item
(other than non-cash items) described in clause (iii), Borrower must obtain the
agreement of the Administrative Agent and the Co-Agent that such designation is
appropriate, which agreement shall not be unreasonably withheld.
"Notes" means promissory notes of the Borrower, substantially in the form
of Exhibit 2.05 hereto, evidencing the obligation of the Borrower to repay the
Loans, and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" means a Notice of Borrowing (as defined in Section
2.02).
"Notice of Conversion" has the meaning set forth in Section 2.08.
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"Obligations" means all of the obligations of the Borrower now or hereafter
existing under the Loan Documents, whether for principal, Unpaid Drawings,
interest, fees, expenses, indemnification or otherwise.
"Parent" means, with respect to any Bank, any Person controlling such Bank.
"Participant" has the meaning set forth in Section 9.07(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Performance Letter of Credit" means a Letter of Credit on which the
beneficiary thereof can draw due to the failure of a party to perform any
contractual duty or obligation, other than a payment obligation, for the benefit
of the beneficiary.
"Person" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under Section
412 of the Code and is either (i) maintained by a member of the Controlled Group
for employees of a member of the Controlled Group or (ii) maintained pursuant to
a collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which a member of the Controlled Group
is then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions.
"Prime Rate" means the prime rate of interest most recently determined by
Texas Commerce Bank National Association and thereafter entered in the minutes
of its Loan and Discount Committee, automatically fluctuating upward and
downward with and at the time specified in each such announcement without notice
to the Borrower or any other Person which prime rate may not necessarily
represent the lowest or best rate actually charged to a customer.
"Rating Agencies" shall mean Standard & Poor's Corporation and its
successors ("S&P"), and Moody's Investors Service, Inc. and its successors
("Moody's"), or, if S&P or Moody's or both shall not make a rating on the
Borrower's long-term senior unsecured Debt publicly available, a nationally
recognized securities rating agency or agencies that provide comparable ratings,
selected by the Borrower with the consent of the Administrative Agent, which
consent shall not be unreasonably withheld, which shall be substituted for S&P
or Moody's or both, as the case may be.
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"Reference Banks" means the CD Reference Banks or the Euro-Dollar Reference
Banks, as the context may require, and "Reference Bank" means any one of such
Reference Banks.
"Refunding Borrowing" means a Borrowing which, after application of the
proceeds thereof, results in no net increase in the outstanding principal amount
of Loans made by any Bank.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time (including any successor
provision thereto or any other United States law or regulation imposing reserves
on deposits or loans).
"Regulation G" shall mean Regulation G of the Board of Governors of the
Federal Reserve System, as in effect from time to time (including any successor
provision thereto).
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time (including any successor
provision thereto).
"Regulation X" shall mean Regulation X of the Board of Governors of the
Federal Reserve System, as in effect from time to time (including any successor
provision thereto).
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment (including the abandonment or discarding of barrels, containers
and other closed receptacles).
"Required Banks" means at any date Banks having at least 66 2/3 percent of
the aggregate amount of the Commitments or, if the Commitments have been
terminated, holding (i) Notes evidencing at least 66 2/3 percent of the
aggregate unpaid principal amount of the Loans and (ii) participations in at
least 66 2/3 percent of the Letter of Credit Outstandings.
"Requirements of Environmental Laws" means, as to any Person, the
requirements of any Environmental Laws applicable to such Person or the
condition or operation of such Person's business or its properties, both real
and personal.
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"Restricted Property" means:
(a) any plant (including fixtures and equipment) for the refining of
petroleum or the production of petrochemicals owned by the Borrower, or a
Subsidiary, except (i) related facilities which in the opinion of the Board
of Directors of the Borrower are transportation or marketing facilities and
(ii) any plant for the refining of petroleum or the production of
petrochemicals which in the reasonable opinion of the Board of Directors of
the Borrower is not a principal plant of the Borrower and its Subsidiaries;
(b) any inventory of the Borrower or a Subsidiary;
(c) any trade accounts receivable of the Borrower or a Subsidiary;
and
(d) any shares of capital stock or indebtedness of a Restricted
Subsidiary owned by the Borrower or a Subsidiary (excluding any of such
shares that constitute "margin stock" as defined in Regulation U).
"Restricted Subsidiary" shall mean any Subsidiary of the Borrower which
owns any Restricted Property.
"Stated Amount" means, with respect to each Letter of Credit, at any time,
the maximum amount then available to be drawn thereunder.
"Subsidiary" means any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other Persons performing similar functions (whether or
not any other class of securities has or might have voting power by reason of
the happening of a contingency) are at the time owned or controlled directly or
indirectly by the Borrower. Without in any other way limiting the foregoing, LCR
shall not be deemed to be a Subsidiary.
"Termination Date" means December 6, 1998, or such earlier date of
acceleration if the Obligations of the Borrower hereunder and under the Notes
are accelerated pursuant to Section 6.01 or, if such day is not a Euro-Dollar
Business Day, the next succeeding Euro-Dollar Business Day unless such Euro-
Dollar Business Day falls in another calendar month, in which case the
Termination Date shall be the next preceding Euro-Dollar Business Day.
"34 Act Report" has the meaning set forth in Section 4.01(d).
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"Unfunded Vested Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the present value of all vested nonforfeitable
benefits under such Plan exceeds (ii) the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
potential liability of a member of the Controlled Group to the PBGC or the Plan
under Title IV of ERISA.
"Unpaid Drawing" has the meaning specified in Section 2.03(g).
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Administrative Agent.
SECTION 1.03. Types of Loans and Borrowings. The term "Borrowing" denotes
the aggregation of Loans of one or more Banks to be made to the Borrower
pursuant to Article II on a single date and for a single Interest Period. Loans
and Borrowings are classified for purposes of this Agreement by reference to the
pricing of Loans comprising such Borrowings (e.g., a "Euro-Dollar Borrowing" is
a Borrowing comprised of Euro-Dollar Loans).
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend. Each Bank severally agrees, on the
terms and conditions set forth in this Agreement, from time to time to make
loans to the Borrower pursuant to this Section 2.01 in amounts such that the
aggregate principal amount of Loans by such Bank plus its Commitment Percentage
of the Letter of Credit Outstandings at any one time outstanding shall not
exceed the amount of its Commitment. Without in any way limiting the foregoing,
at no time will the sum of (A) the Letter of Credit Outstandings plus (B) the
aggregate
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outstanding principal amount of the Loans exceed the aggregate amount
of the Commitments. Each Borrowing under this Section 2.01 shall be in an
aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000
(except that any such Borrowing may be in an aggregate amount such that,
immediately after giving effect to such Borrowing, the sum of (A) the Letter of
Credit Outstandings plus (B) the aggregate outstanding principal amount of the
Loans will equal the aggregate amount of the Commitments) and shall be made from
the several Banks ratably in proportion to their respective Commitments. Within
the foregoing limits, the Borrower may borrow under this Section 2.01, repay, or
to the extent permitted by Section 2.12, prepay Loans and re-borrow at any time.
SECTION 2.02. Notice of Borrowings. The Borrower shall give the
Administrative Agent notice (a "Notice of Borrowing") substantially in the form
of Exhibit 2.02 hereto not later than 10:00 A.M. (Houston time) on (i) the date
of each Base Rate Borrowing or each Euro-Dollar Borrowing with an Interest
Period of seven days or less (ii) the second Domestic Business Day before each
CD Borrowing and (iii) the third Euro-Dollar Business Day before each Euro-
Dollar Borrowing with an Interest Period greater than seven days, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in
the case of a Euro-Dollar Borrowing;
(b) the aggregate amount of such Borrowing;
(c) whether the Loans comprising such Borrowing are to be CD Loans,
Base Rate Loans or Euro-Dollar Loans or a combination thereof;
(d) in the case of a Fixed Rate Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period; and
(e) the aggregate outstanding principal amount of Debt of the
Borrower and its Subsidiaries incurred after the Effective Date and, if
required, a calculation as of the date of such Notice of Borrowing pursuant
to Section 5.08(a).
SECTION 2.03. Letters of Credit.
(a) Subject to and upon the terms and conditions hereof and the execution
and delivery of a letter of credit application ("Letter of Credit Application"),
and a letter of credit request ("Letter of Credit Request") substantially in the
form of Exhibit 2.03(b) hereto, the Issuing Bank agrees that it will, at any
time and from time to time on or after the Effective Date and prior to the
Letter of Credit Termination Date, renew, extend and issue for the account of
the Borrower (in support of its obligations and the obligations of its
Consolidated Subsidiaries) one or more irrevocable standby letters of credit
(all such letters of credit collectively, the "Letters of Credit"); provided,
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however, that the Issuing Bank shall not extend, renew or issue any Letter of
Credit if at the time of such issuance, extension or renewal:
(i) the Stated Amount of such Letter of Credit shall be greater than
an amount which when added to the Letter of Credit Outstandings at such
time and the aggregate principal amount of all Loans then outstanding or
requested would exceed the aggregate amount of the Banks' Commitments; or
(ii) the Stated Amount of such Letter of Credit shall be greater than
an amount which when added to the Letter of Credit Outstandings at such
time, would exceed the Letter of Credit Limit; or
(iii) the expiry date or, in the case of any Letter of Credit
containing an expiry date that is extendible at the option of the Issuing
Bank, the initial expiry date of such Letter of Credit, is a date that is
later than the Letter of Credit Termination Date; or
(iv) such issuance, renewal or extension shall be prohibited by
applicable law.
(b) The Issuing Bank shall neither renew nor permit the renewal of any
Letter of Credit if any of the conditions precedent to such renewal set forth in
Section 3.02 are not satisfied or, after giving effect to such renewal, the
expiry date of such Letter of Credit would be a date that is later than the
Letter of Credit Termination Date.
(c) Whenever the Borrower requests that a Letter of Credit be issued or
renewed for its account or an existing expiry date be extended, it shall forward
an executed Letter of Credit Request and Letter of Credit Application to the
Issuing Bank (with copies to be sent to the Administrative Agent (if different
from the Issuing Bank)) (i) in the case of a Letter of Credit to be issued or
renewed at least four Domestic Business Days' prior to the proposed date of
issuance or renewal and (ii) in the case of the extension of the existing expiry
date of any Letter of Credit, at least five Domestic Business Days prior to the
date on which the Issuing Bank must notify the beneficiary thereof that the
Issuing Bank does not intend to extend such existing expiry date. Each Letter
of Credit shall be denominated in U.S. dollars, shall expire no later than the
date specified in paragraph (a) above, shall not be in an amount greater than is
permitted under this Section 2.03 and shall be in such form as may be approved
from time to time by the Issuing Bank and the Borrower. At the time of
issuance, the Issuing Bank shall designate the Letter of Credit as either a
Financial Letter of Credit or a Performance Letter of Credit, which designation
shall be final.
(d) The making of each Letter of Credit Request shall be deemed to be a
representation and warranty by the Borrower that such Letter of Credit may be
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renewed, extended or issued in accordance with, and will not violate the
requirements of this Agreement. Unless the Issuing Bank has received notice
from the Administrative Agent (if different from the Issuing Bank) before it
issues or renews the respective Letter of Credit or extends the existing expiry
date of a Letter of Credit that one or more of the conditions specified in
Article III are not then satisfied, or that the renewal, extension or issuance
of such Letter of Credit would violate any of the terms of this Agreement, then
the Issuing Bank may renew, extend or issue the requested Letter of Credit for
the account of the Borrower (in support of its obligations and the obligations
of its Consolidated Subsidiaries) in accordance with the Issuing Bank's usual
and customary practices. Upon its issuance or renewal of any Letter of Credit
or the extension of the existing expiry date of any Letter of Credit, as the
case may be, the Issuing Bank shall promptly notify the Borrower, the
Administrative Agent and each Bank of such issuance, renewal or extension, which
notice shall be accompanied by a copy of the Letter of Credit actually issued or
renewed or a copy of any amendment extending the existing expiry date of any
Letter of Credit, as the case may be.
(e) Upon the renewal, extension or issuance by the Issuing Bank of each
Letter of Credit, the Issuing Bank shall be deemed to have sold and transferred
to each Bank, and each Bank shall be deemed irrevocably and unconditionally to
have purchased and received from the Issuing Bank, without recourse or warranty,
an undivided interest and participation, to the extent of such Bank's Commitment
Percentage in each such Letter of Credit (including extensions of the expiry
date thereof), each substitute letter of credit, each drawing made thereunder
and the Obligations of the Borrower under this Agreement and the other Loan
Documents with respect thereto and any security, if any, therefor.
(f) In determining whether to pay under any Letter of Credit, the Issuing
Bank shall have no obligation relative to the Banks other than to confirm that
any documents required to be delivered under such Letter of Credit appear to
have been delivered and that they appear to comply on their face with the
requirements of such Letter of Credit.
(g) Upon the receipt by the Issuing Bank of any documentation presented
for a drawing from a beneficiary under a Letter of Credit, the Issuing Bank
promptly will provide the Administrative Agent (if different from the Issuing
Bank), the Banks and the Borrower with telecopy notice thereof and the Issuing
Bank will promptly examine the documentation presented for such drawing in
accordance with its customary procedures for conformity to the requirements of
such Letter of Credit. The Borrower hereby agrees to reimburse the Issuing Bank
by making payment to the Administrative Agent in immediately available funds
(which payment may be made by application of the proceeds of Loans made to the
Borrower in accordance with this Agreement) for any payment so made by the
Issuing Bank under any Letter of Credit issued by it
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(each such amount so paid until reimbursed by the Borrower, including by
application of the proceeds of Loans to the Borrower in accordance with this
Agreement, an "Unpaid Drawing") upon demand on or after the date of such
payment, with interest on the amount so paid by the Issuing Bank, to the extent
not reimbursed prior to 2:00 p.m. (Houston time) on the date of such payment,
from and including the date paid to but excluding the date reimbursement is made
as provided above, at a rate per annum equal to the lesser of (i) the sum of 2
percent plus the Base Rate or (ii) the Highest Lawful Rate.
(h) In the event that the Issuing Bank makes any payment under any Letter
of Credit and the Borrower shall not have reimbursed such amount in full to the
Issuing Bank (including by any application of the proceeds of Loans) pursuant to
paragraph (g) above, the Issuing Bank shall promptly notify the Administrative
Agent (if different from the Issuing Bank) and the Administrative Agent, shall
promptly notify each Bank of such failure, and each Bank shall promptly and
unconditionally pay the Administrative Agent for the account of the Issuing Bank
the amount of such Bank's Commitment Percentage of such unreimbursed payment in
dollars and in funds immediately available in Houston. If the Administrative
Agent so notifies, prior to 11:00 a.m. (Houston time) on any Domestic Business
Day, any Bank required to fund a payment under a Letter of Credit, such Bank
shall make available to the Administrative Agent for the account of the Issuing
Bank such Bank's Commitment Percentage of the amount of such payment on such
Domestic Business Day in funds immediately available in Houston. If and to the
extent such Bank shall not have so made its Commitment Percentage of the amount
of such payment available to the Administrative Agent for the account of the
Issuing Bank, such Bank agrees to pay to the Administrative Agent for the
account of the Issuing Bank, forthwith on demand such amount, together with the
interest thereon, for each day from such date until the date such amount is paid
to the Administrative Agent for the account of the Issuing Bank at the Federal
Funds Rate. The failure of any Bank to make available to the Administrative
Agent for the account of the Issuing Bank, its Commitment Percentage of any
payment under any Letter of Credit shall not relieve any other Bank of its
obligation hereunder to make available to the Administrative Agent for the
account of the Issuing Bank its Commitment Percentage of any payment under any
Letter of Credit on the date required, as specified above, but no Bank shall be
responsible for the failure of any other Bank to make available to the
Administrative Agent for the account of the Issuing Bank such other Bank's
Commitment Percentage of any such payment.
(i) Whenever the Issuing Bank receives a payment of a reimbursement
obligation as to which the Administrative Agent has received for the account of
the Issuing Bank any payments from a Bank pursuant to paragraph (h) above, the
Issuing Bank shall pay to the Administrative Agent (if different from the
Issuing Bank) and the Administrative Agent shall promptly pay to each Bank which
has paid its
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Commitment Percentage thereof, in dollars and in same day funds, an
amount equal to such Bank's Commitment Percentage thereof together with any
interest on such reimbursement obligation allocable to such Bank's Commitment
Percentage paid by the Borrower to the Issuing Bank and received by the
Administrative Agent pursuant to paragraph (g) above.
(j) The obligations of the Banks to make payments to the Administrative
Agent for the account of the Issuing Bank with respect to Letters of Credit
shall be irrevocable and not subject to any qualification or exception
whatsoever (except for the gross negligence or willful misconduct of the Issuing
Bank) and shall be made in accordance with the terms and conditions of this
Agreement under all circumstances, including any of the following circumstances:
(1) any lack of validity or enforceability of this Agreement or any
of the other Loan Documents;
(2) the existence of any claim, setoff, defense or other right which
the Borrower may have at any time against a beneficiary named in a Letter
of Credit, any transferee of Letter of Credit, any Agent, the Issuing Bank,
any other Bank, or any other Person, whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated herein or
any unrelated transactions;
(3) any draft, certificate or any other document presented under the
Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
(4) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Loan Documents; or
(5) the occurrence of any Default or Event of Default.
(k) The Borrower also agrees with the Issuing Bank and the Banks that the
Issuing Bank shall not be responsible for, and the Borrower's reimbursement
obligations under paragraph (g) above are absolute and unconditional and shall
not be affected by any of the following (absent any gross negligence, willful
misconduct or violation of law on the part of any of the Issuing Bank, the
Agents and the other Banks): the validity or genuineness of documents or any
endorsements thereon, even though such documents shall in fact prove to be
invalid, fraudulent or forged, or any dispute between or among the Borrower and
the beneficiary of any letter of Credit or any other party to which such Letter
of Credit may be transferred or any claims whatsoever of the Borrower against
any beneficiary of such Letter of Credit or any
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such transferee or any other matter or event similar to any of the foregoing or
any setoff, counterclaim or defense to payment which the Borrower may have.
(l) The Issuing Bank, its officers, directors, agents and employees, shall
not be liable for any error, omission, interruption or delay in transmission,
dispatch or delivery of any message or advice, however transmitted, in
connection with any Letter of Credit, except for errors, omissions,
interruptions or delays caused by the Issuing Bank's gross negligence or willful
misconduct or violation of law. IT IS THE EXPRESS INTENTION OF THE PARTIES
HERETO THAT THE ISSUING BANK SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY
AND ALL LOSSES, LIABILITIES, CLAIMS, DEFICIENCIES, JUDGMENTS OR REASONABLE
EXPENSES ARISING OUT OF OR RESULTING FROM THE ORDINARY NEGLIGENCE (WHETHER SOLE
OR CONTRIBUTORY) OF THE ISSUING BANK IN CONNECTION WITH ANY SUCH ERROR,
OMISSION, INTERRUPTION OR DELAY AS AFORESAID. The Borrower agrees that any
action taken or omitted by the Issuing Bank under or in connection with any
Letter of Credit or the related drafts or documents if done in accordance with
the standards of care specified in the Uniform Customs and Practice for
Documentary Credits (1983 Revision), International Chamber of Commerce,
Publication No. 400 (and any subsequent revisions thereof approved by a Congress
of the International Chamber of Commerce and adhered to by the Issuing Bank)
and, to the extent not inconsistent therewith, the Uniform Commercial Code of
the State of Texas, shall not result in any liability of the Issuing Bank to the
Borrower.
(m) To the extent that any provision of any Letter of Credit Application
related to any Letter of Credit is inconsistent with the provisions of this
Agreement, the provisions of this Agreement shall control and no Letter of
Credit Application or any other document relating to any Letter of Credit shall
give the Agents or the Banks any additional rights than they would otherwise
have under this Agreement.
(n) The Borrower shall, on the date of issuance or any extension or
renewal of any Letter of Credit and at such other time or times as such charges
are customarily made by the Issuing Bank, pay an upfront fee (in each case, a
"Letter of Credit Fee") to the Administrative Agent in respect of each
Performance Letter of Credit or Financial Letter of Credit so issued equal to
the Letter of Credit Margin for such Performance Letter of Credit or Financial
Letter of Credit, as the case may be, (the applicable basis points set forth on
Schedule 2.07(b) computed on an annualized basis) plus a fronting fee for the
benefit of the Issuing Bank equal to 12.5 basis points (computed on an
annualized basis) plus the Issuing Bank's issuance, amendment and other
administrative fees and charges customarily charged to its customers similarly
situated. Such Letter of Credit Fee (but not such customary issuance, amendment
fee or other administrative fees and charges, or the fronting fee, all of which
shall be solely for the account of the Issuing Bank) shall be for the accounts
of the Banks in accordance with their respective Commitment Percentages. Such
upfront fees and fronting fees shall be based on a 360-day year, except that if
the use of a 360-day
20
<PAGE>
year would cause any such fees constituting interest
(within the meaning of all applicable laws) to exceed the Highest Lawful Rate,
then such interest and fees will be computed on the basis of a year of 365 days
(or 366 in a leap year).
SECTION 2.04. Notice to Banks; Funding of Loans.
(a) Upon receipt of a Notice of Borrowing, the Administrative Agent shall
promptly notify each Bank of the contents thereof and of such Bank's share (if
any) of such Borrowing and such Notice of Borrowing shall not thereafter be
revocable by the Borrower.
(b) Not later than 12:00 Noon (Houston time) on the date of each
Borrowing, each Bank participating therein shall (except as provided in
subsection (c) of this Section) make available its share of such Borrowing, in
funds immediately available in Houston, to the Administrative Agent at its
address specified in or pursuant to Section 9.01. Unless the Administrative
Agent determines that any applicable condition specified in Article III has not
been satisfied, the Administrative Agent will make the funds so received from
the Banks available to the Borrower at the Administrative Agent's aforesaid
address.
(c) If any Bank makes a new Loan hereunder on a day on which the Borrower
is to repay all or any part of an outstanding Loan from such Bank, such Bank
shall apply the proceeds of its new Loan to make such repayment and only an
amount equal to the difference (if any) between the amount being borrowed and
the principal amount being repaid shall be made available by such Bank to the
Administrative Agent as provided in subsection (b), or remitted by the Borrower
to the Administrative Agent as provided in Section 2.13, as the case may be.
(d) Unless the Administrative Agent shall have received notice from a Bank
prior to or on the date of any Borrowing that such Bank will not make available
to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsections (b) and (c) of this Section 2.04 and the Administrative Agent may,
in reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so made
such share available to the Administrative Agent, such Bank and the Borrower
severally agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Administrative Agent, at (i) in the case of the Borrower, a rate
per annum equal to the higher of the Federal Funds Rate and the interest rate
applicable thereto pursuant to Section 2.07 and (ii) in the case of such Bank,
the Federal Funds Rate. If such Bank shall repay to the Administrative
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<PAGE>
Agent such corresponding amount, such amount so repaid shall constitute such
Bank's Loan included in such Borrowing for purposes of this Agreement. In no
event shall any payment by the Administrative Agent, or repayment by the
Borrower, of any amount pursuant to this subsection (d) relieve the Bank that
failed to make available its share of the related Borrowing of its obligations
hereunder.
SECTION 2.05. Notes. (a) The Loans of each Bank shall be evidenced by
a single Note payable to the order of such Bank for the account of its
Applicable Lending Office in an amount equal to such Bank's Commitment.
(b) Upon receipt of each Bank's Note pursuant to Section 3.01(viii), the
Administrative Agent shall send by overnight mail such Note to such Bank. Each
Bank shall record the date, amount and maturity of each Loan made by it and the
date and amount of each payment of principal made by the Borrower with respect
thereto, and prior to any transfer of its Note shall endorse on the schedule
forming a part thereof appropriate notations to evidence the foregoing
information with respect to each such Loan then outstanding; provided, however,
that the failure of any Bank to make any such recordation or endorsement shall
not affect the obligations of the Borrower hereunder or under the Notes. Each
Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and
to attach to and make a part of its Note a continuation of any such schedule as
and when required.
SECTION 2.06. Maturity of Loans. Subject to any rights of the Borrower
under Section 2.08, each Loan included in any Borrowing shall mature, and the
principal amount thereof shall be due and payable, on the last day of the
Interest Period applicable to such Borrowing.
SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the Base
Rate for such day (as described on Schedule 2.07(a)). Such interest shall be
payable for each Interest Period on the last day thereof. Any overdue principal
of and, to the extent permitted by law, overdue interest on any Base Rate Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the lesser of (i) the sum of 2 percent plus the rate otherwise
applicable to Base Rate Loans for such day or (ii) the Highest Lawful Rate.
(b) Each CD Loan shall bear interest on the outstanding principal amount
thereof, for the Interest Period applicable thereto, at a rate per annum equal
to the lesser of (i) the sum of the CD Margin (as in effect on the first day of
such Interest Period) plus the applicable Adjusted CD Rate or (ii) the Highest
Lawful Rate. Such interest shall be payable for each Interest Period on the
last day thereof and, if such Interest Period is longer than 90 days, at
intervals of 90 days after the first day
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<PAGE>
thereof. Any overdue principal of and, to the extent permitted by law, overdue
interest on any CD Loan shall bear interest, payable on demand, for each day
until paid at a rate per annum equal to the lesser of (i) the sum of 2 percent
plus the rate applicable to Base Rate Loans for such day or (ii) the Highest
Lawful Rate.
"CD Margin" means the applicable basis points set forth in Schedule 2.07(c)
hereto.
The "Adjusted CD Rate" applicable to any Interest Period means a rate per
annum determined pursuant to the following formula:
<TABLE>
<C> <C> <S>
[CDBR ]*
ACDR = [-----------] + AR
[1.00 - DRP]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
</TABLE>
- --------------------
* The amount in brackets being rounded upwards, if necessary, to the next higher
1/100 of 1 percent.
The "CD Base Rate" applicable to any Interest Period is the rate of interest
determined by the Administrative Agent to be the average (rounded upward, if
necessary, to the next higher 1/100 of 1 percent) of the prevailing rates per
annum (as determined by the CD Reference Banks as of approximately 9:00 a.m. on
the preceding day) on the first day of such Interest Period paid by the CD
Reference Banks on their respective certificates of deposit in an amount
comparable to the unpaid principal amount of the CD Loan to which such Interest
Period applies and having a maturity comparable to such Interest Period.
"Domestic Reserve Percentage" means for any day that percentage (expressed as
a decimal) which is in effect on such day, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including without limitation any basic,
supplemental or emergency reserves) for a member bank of the Federal Reserve
System in Dallas with deposits exceeding five billion dollars in respect of new
non-personal time deposits in dollars in Dallas having a maturity comparable to
the related Interest Period and in an amount of $100,000 or more. The Adjusted
CD Rate shall be adjusted automatically on and as of the effective date of any
change in the Domestic Reserve Percentage.
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<PAGE>
"Assessment Rate" means for any day the annual assessment rate in effect on
such day which is payable by a member of the Bank Insurance Fund classified as
well capitalized and within supervisory subgroup "B" (or a comparable successor
assessment risk classification) within the meaning of 12 C.F.R. Section 327.3(d)
(or any successor provision) to the Federal Deposit Insurance Corporation (or
any successor) for such Corporation's (or such successor's) insuring time
deposits at offices of such institution in the United States. The Adjusted CD
Rate shall be adjusted automatically on and as of the effective date of any
change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at a rate
per annum equal to the lesser of (i) the sum of the Euro-Dollar Margin (as in
effect on the first day of such Interest Period) plus the Euro-Dollar Rate or
(ii) the Highest Lawful Rate. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof.
"Euro-Dollar Margin" means the applicable basis points set forth in Schedule
2.07(d) hereto.
"Euro-Dollar Rate" means, as to any Interest Period, the average (rounded
upward, if necessary, to the next higher 1/16 of 1 percent) of the respective
rates per annum at which deposits in dollars are offered to each of the Euro-
Dollar Reference Banks by prime banks in whatever Euro-Dollar interbank market
(or, in the case of 1-7 day Euro-Dollar Loans, the appropriate money markets)
may be selected by the Euro-Dollar Reference Banks in their sole and absolute
discretion, acting in good faith, at the time of determination and in accordance
with the then usual practice in such market, at approximately 9:00 A.M. (Houston
time) two Euro-Dollar Business Days before the first day of such Interest Period
in an amount approximately equal to the principal amount of the Euro-Dollar Loan
of such Reference Bank to which such Interest Period is to apply and for a
period of time comparable to such Interest Period.
(d) Any overdue principal of and, to the extent permitted by law, overdue
interest on any Euro-Dollar Loan shall bear interest, payable on demand, for
each day from and including the date payment thereof was due to but excluding
the date of actual payment, at a rate per annum equal to the lesser of (i) the
sum of 2 percent plus the rate applicable to Base Rate Loans for such day or
(ii) the Highest Lawful Rate.
(e) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the Borrower and the participating Banks by telecopy, telex or cable
of each rate of
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<PAGE>
interest so determined, and its determination thereof shall be
conclusive in the absence of manifest error.
(f) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Administrative Agent as contemplated by this Section. If any
Reference Bank does not furnish a timely quotation, the Administrative Agent
shall determine the relevant interest rate on the basis of the quotation or
quotations furnished by the remaining Reference Bank or Banks or, if none of
such quotations is available on a timely basis, the provisions of Section 8.01
shall apply.
SECTION 2.08. Conversions and Continuances. At the end of any Interest
Period, the Borrower shall have the option to convert or continue all or a
portion, equal to not less than $5,000,000 ($1,000,000 in the case of
conversions or continuations into Base Rate Loans), of the outstanding principal
amount of one Type of its Loans made pursuant to one or more Borrowings into a
Borrowing or Borrowings of the other Type or Types of Loans; provided, however,
that except as otherwise provided in Section 8.03, no partial conversion or
continuation of Euro-Dollar Loans shall reduce the outstanding principal amount
of Euro-Dollar Loans made pursuant to any single Borrowing to less than
$5,000,000 and (ii) Base Rate Loans may be converted into CD Loans or Euro-
Dollar Loans or continued as Base Rate Loans, and CD Loans and Euro-Dollar Loans
may be continued as CD Loans or as Euro-Dollar Loans (as applicable) or
converted into Base Rate Loans for additional Interest Periods if and only if,
in either case no Default or Event of Default is in existence on the date of the
conversion or continuation. Each such conversion or continuation shall be
effected by the Borrower giving the Administrative Agent notice substantially in
the form of Exhibit 2.08 (each a "Notice of Conversion") prior to 11:00 a.m.
(Houston, Texas time) at least (a) three Euro-Dollar Business Days prior to the
date of such conversion or continuation in the case of a conversion or
continuation into Euro-Dollar Loans, (b) two Domestic Business Days in the case
of a continuation or conversion into CD Loans and (c) one Domestic Business Day
in the case of a conversion or continuation into Base Rate Loans, specifying
each Type of Borrowing (or portions thereof) to be so converted or continued
and, if to be converted or continued into CD Loans or Euro-Dollar Loans, the
Interest Period to be initially applicable thereto. The Administrative Agent
shall promptly give the Banks written or telephonic notice (promptly confirmed
in writing) of any such proposed conversion or continuation affecting any of its
Loans.
SECTION 2.09. Pro Rata Borrowings. All Borrowings under this Agreement
shall be incurred from the Banks ratably in proportion to their respective
Commitments. It is understood that no Bank shall be responsible for any default
by any other Bank in its obligation to make Loans hereunder and that each Bank
shall be obligated to make the Loans provided to be made by it hereunder,
regardless of the failure of any other Bank to fulfill its Commitment hereunder.
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<PAGE>
SECTION 2.10. Optional Termination or Reduction of Commitments. The
Borrower may, upon at least three Domestic Business Days' notice to the
Administrative Agent, (i) terminate the Commitments at any time, if no Loans or
Letters of Credit are outstanding at such time or (ii) ratably reduce from time
to time by an aggregate amount of $10,000,000 or any larger multiple of
$1,000,000, the aggregate amount of the Commitments in excess of the sum of the
aggregate outstanding principal amount of the Loans plus the Letter of Credit
Outstandings; provided, however, that if no Loans are then outstanding, the
Borrower may terminate the Commitments at any time when there are outstanding
Letters of Credit by depositing with the Administrative Agent such amount of
cash as is equal to the aggregate Stated Amount of the Letters of Credit then
outstanding to be held in an interest bearing account with the Administrative
Agent, all such cash and interest to be held by the Administrative Agent as
security for the obligations of the Borrower in respect of such Letters of
Credit; provided further, that the Borrower shall remain liable for any expenses
and other liabilities in respect of such Letters of Credit on terms consistent
with Section 9.04, but for all other purposes of this Agreement and the other
Loan Documents the Obligations will be deemed paid in full and not outstanding.
Any reduction of the Commitments shall apply proportionately to the Commitment
of each Bank in accordance with its Commitment Percentage and any such reduction
shall be permanent.
SECTION 2.11. Mandatory Termination of Commitments. The Commitment of each
Bank shall terminate on the Termination Date, and all Loans then outstanding
(together with accrued interest thereon) shall be due and payable on such date;
provided, however, if there are any Letter of Credit Outstandings or unpaid
Loans on the Termination Date, all obligations of the Borrower and all rights
and remedies of the Banks hereunder shall continue, subject to the provisos of
Section 2.10, until the full and final repayment thereof.
SECTION 2.12. Optional Prepayments. (a) The Borrower may, upon at least
one Domestic Business Day's notice to the Administrative Agent, prepay any Base
Rate Borrowing (or any other Borrowing bearing interest at the Base Rate
pursuant to Article VIII) or, subject to Section 2.14 and upon at least three
Euro-Dollar Business Days' notice to the Administrative Agent, prepay any Fixed
Rate Borrowing, in whole at any time, or from time to time in part in amounts
aggregating $10,000,000 or any larger multiple of $1,000,000, by paying the
principal amount to be prepaid together with accrued interest thereon to but
excluding the date of prepayment. Each such optional prepayment shall be applied
to prepay ratably the Loans of the several Banks included in such Borrowing.
(b) Upon receipt of a notice of prepayment pursuant to this Section, the
Administrative Agent shall promptly notify each Bank of the contents thereof and
of
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<PAGE>
such Bank's ratable share (if any) of such prepayment and such notice shall
not thereafter be revocable by the Borrower.
SECTION 2.13. General Provisions as to Payments.
(a) The Borrower shall make each payment of principal of, and interest
on, the Loans and of fees hereunder, not later than 12:00 Noon (Houston time) on
the date when due, in Federal or other funds immediately available in Houston,
Texas, to the Administrative Agent at its address referred to in Section 9.01.
The Administrative Agent will promptly distribute to each Bank its ratable
share, if any, of each such payment received by the Administrative Agent for the
account of the Banks. Whenever any payment of principal of, or interest on, the
Domestic Loans or of fees shall be due on a day which is not a Domestic Business
Day, the date for payment thereof shall be extended to the next succeeding
Domestic Business Day. Whenever any payment of principal of, or interest on, the
Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day,
the date for payment thereof shall be extended to the next succeeding Euro-
Dollar Business Day unless such Euro-Dollar Business Day falls in another
calendar month, in which case the date for payment thereof shall be the next
preceding Euro-Dollar Business Day. If the date for any payment of principal is
extended by operation of law or otherwise, interest thereon shall be payable for
such extended time.
(b) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Banks hereunder
that the Borrower will not make such payment in full, the Administrative Agent
may assume that the Borrower has made such payment in full to the Administrative
Agent on such date and the Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Bank on such due date an amount
equal to the amount then due such Bank. If and to the extent that the Borrower
shall not have so made such payment, each Bank shall repay to the Administrative
Agent forthwith on demand such amount distributed to such Bank together with
interest thereon, for each day from the date such amount is distributed to such
Bank until the date such Bank repays such amount to the Administrative Agent, at
the Federal Funds Rate.
SECTION 2.14. Funding Losses. The Borrower shall pay to the Administrative
Agent for the account of each Bank, upon the request of such Bank through the
Administrative Agent, such amount or amounts as shall compensate such Bank for
any reasonable loss, cost or expense actually incurred by such Bank (or, subject
to Section 9.07(b), by any existing Participant in the related Loan) as a result
of:
(a) any payment or prepayment of a Fixed Rate Loan (pursuant to
Section 2.12 or Article VI or VIII or otherwise) held by such Bank (or
27
<PAGE>
such Participant) on a date other than the last day of the Interest Period
applicable thereto, or
(b) any failure by the Borrower to borrow a Fixed Rate Loan held or
to be held by such Bank (or such Participant) on the date for such
Borrowing specified in the relevant Notice of Borrowing,
such compensation to include, without limitation, an amount equal to the excess,
if any, of (i) the amount of interest which would have accrued on the amount so
paid or prepaid, or not converted or borrowed, for the period from the date of
such payment or prepayment or failure to borrow or convert to the last day of
such Interest Period (or, in the case of a failure to borrow, the Interest
Period for such Fixed Rate Loan which would have commenced on the date of such
failure to convert or borrow) in each case at the applicable rate of interest
for such Fixed Rate Loan provided for herein (excluding, however, the CD Margin
or the Euro-Dollar Margin included therein) over (ii) the amount of interest (as
reasonably determined by such Bank or Participant) which would have accrued to
such Bank or Participant on such amount by placing such amount on deposit for a
comparable period with leading banks in the relevant interbank market; provided,
however, that such Bank shall have delivered to the Borrower, within 60 days
after the date of such payment or prepayment or failure to borrow, a certificate
as to the amount of such actual loss or expense, which certificate shall set
forth in reasonable detail the basis for such loss or expense and shall be
conclusive in the absence of manifest error. Any payment required to be made
pursuant to this Section 2.14 shall be made within 5 days after receipt of the
certificate referred to above.
SECTION 2.15. Fees.
(a) Commitment Fee. The Borrower shall pay to the Administrative Agent
for the account of the Banks ratably in proportion to their Commitments a
commitment fee equal to the highest applicable basis points set forth in
Schedule 2.15 calculated on the daily average amount by which the aggregate
amount of the Commitments exceeds the sum of (i) the Letter of Credit
Outstandings and (ii) the aggregate outstanding principal amount of the Loans.
Such commitment fee shall accrue for the account of each Bank from and including
the Effective Date to but excluding the Termination Date.
(b) Payments. Accrued fees under this Section and Section 2.03 for the
account of any Bank shall be payable quarterly in arrears on each March 31, June
30, September 30 and December 31 and upon the Termination Date.
SECTION 2.16. Computation of Interest and Fees. Interest based on the
Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in
a leap year)
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<PAGE>
and paid for the actual number of days elapsed (including the first day but
excluding the last day). All other interest and all fees shall be computed on
the basis of a year of 360 days and paid for the actual number of days elapsed
(including the first day but excluding the last day) except that if use of a
360-day year would cause any interest or fees constituting interest (within the
meaning of all applicable laws) to exceed the Highest Lawful Rate, then such
interest and fees will be computed on the basis of a year of 365 days (or 366 in
a leap year).
SECTION 2.17. Maximum Interest Rate. (a) It is the intention of the
parties hereto to comply strictly with all applicable usury laws regarding the
contracting for, and the taking, reserving, charging, collection, payment and
receipt of, interest (which shall, for purposes of this Section 2.17, be deemed
to include, without limitation, any compensation received by any Agent or any
Bank for the use, forbearance or detention (as such terms are used in Tex. Rev.
Civ. Stat. Ann. Art. 5069-1.01(a)) of the indebtedness incurred under this
Agreement and the Notes) whether such laws are now or hereafter in effect,
including the laws of the United States of America or any other jurisdiction
whose laws are applicable, and including any subsequent revisions to or judicial
interpretations of those laws, in each case to the extent they are applicable to
this Agreement and the Notes (the "Applicable Usury Laws").
(b) If any payment by the Borrower or any other Person to any Agent or any
Bank hereunder (including any payment upon acceleration of the maturity of any
Notes of such Bank) would produce a rate of interest in excess of the Highest
Lawful Rate, as defined in paragraph (e) below, with respect to any Bank, or
otherwise result in the Borrower or any other Person paying or being deemed to
have paid to any Agent or any Bank any interest in excess of the Maximum Amount,
as defined in subsection (e) below, with respect to any Bank, or if any Agent or
any Bank shall for any reason receive any unearned interest in violation of any
Applicable Usury Law, or if any transaction contemplated by or any provision of
this Agreement, any Bank's Note or Notes, any Letter of Credit Application or
any other agreement or instrument (collectively, such Bank's "Loan Documents")
would otherwise be usurious under any Applicable Usury Laws, then,
notwithstanding anything to the contrary in any Bank's Loan Documents, the
parties hereto agree as follows: (i) the provisions of this Section 2.17 shall
govern and control; (ii) the aggregate amount of all interest under Applicable
Usury Laws that is contracted for, taken, reserved, charged, collected or
received pursuant to each Bank's Loan Documents or otherwise shall under no
circumstances exceed the Maximum Amount; (iii) neither the Borrower nor any
other Person shall be obligated to pay the amount of such interest to the extent
that it exceeds the Maximum Amount; and (iv) the provisions of each Bank's Loan
Documents immediately shall be deemed reformed, without the necessity of the
execution of any new document or instrument, so as to comply with all Applicable
Usury Laws, it being the intention of the parties, to the fullest extent
permitted by law, to render
29
<PAGE>
inapplicable any and all penalties of any kind provided by any Applicable Usury
Law as a result of any such excess interest.
(c) If any payment by the Borrower or any other Person under any Bank's
Loan Documents (including any payment upon acceleration of the maturity of any
Note) results in the Borrower actually having paid to such Bank or any Agent any
interest in excess of the Maximum Amount, then such excess amount shall be
applied to the reduction of the principal balance of such Bank's Loans or to
other amounts (other than interest) payable hereunder, and if no such principal
is then outstanding, and no such other amount is then payable, such excess or
part thereof remaining, shall be repaid to the Borrower or such other Person.
(d) All interest paid, or agreed to be paid, pursuant to any Bank's Loan
Documents shall, to the fullest extent permitted by Applicable Usury Laws, be
amortized, prorated, allocated and spread throughout the full term of any
indebtedness incurred under or evidenced by such Bank's Loan Documents.
(e) As used herein, the term "Maximum Amount" means, with respect to any
Bank, in any of such Bank's capacities hereunder, the maximum nonusurious amount
of interest that may be lawfully contracted for, reserved, charged, collected or
received (in each case as determined by the Applicable Usury Laws) by such Bank
in connection with the indebtedness incurred under or evidenced by such Bank's
Loan Documents under all Applicable Usury Laws, and the term "Highest Lawful
Rate" means, with respect to any Bank, on any day, the maximum rate of interest,
if any, that may be contracted for, taken, reserved, charged, collected or
received under all Applicable Usury Laws on the principal balance of the
indebtedness incurred under or evidenced by such Bank's Loan Documents from time
to time outstanding. In this connection, for purposes of Tex. Rev. Civ. Stat.
Ann. Art. 5069-1.04, as it may from time to time be amended, the Highest Lawful
Rate, to the extent it is determined with reference thereto, shall be the
"indicated rate ceiling" from time to time in effect, referred to in, and
determined pursuant to Section (a)(1) of such Art. 5069-1.04, as amended, as
modified by Section (b) of such Art. 5069-1.04; provided, however, that to the
fullest extent permitted by all Applicable Usury Laws, each Agent and each Bank
reserves the right to change, from time to time, in accordance with such Art.
5069-1.04, by written notice to the Borrower, the ceiling upon which the Highest
Lawful Rate is based under such Art. 5069-1.04 to the extent it is based
thereon; provided further, that the Highest Lawful Rate shall not be limited to
the applicable rate ceiling under such Art. 5069-1.04 if applicable federal laws
or state laws now or hereafter in effect shall permit a higher rate of interest
to be contracted for, taken, reserved, charged, collected and received under any
Bank's Loan Documents.
(f) In the event that any rate of interest set forth in Sections 2.07 and
8.01 on any Loan of any Bank (a "Stated Rate"), together with any fees or other
amounts
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<PAGE>
payable under such Bank's Loan Documents to any Agent or such Bank, in any of
such Bank's capacities hereunder, deemed to constitute interest under Applicable
Usury Laws ("Additional Interest"), exceeds the Highest Lawful Rate, then the
amount of interest payable to such Bank to accrue pursuant to such Bank's Loan
Documents shall be limited, notwithstanding anything to the contrary in such
Bank's Loan Documents, to the amount of interest that would accrue at the
Highest Lawful Rate; provided, however, that, to the fullest extent permitted by
Applicable Usury Laws, any subsequent reductions in any Stated Rate shall not
reduce the interest payable to such Bank to accrue pursuant to such Bank's Loan
Documents below the Highest Lawful Rate until the aggregate amount of interest
payable to such Bank actually accrued pursuant to such Bank's Loan Documents,
together with all Additional Interest payable to such Bank, equals the amount of
interest which would have accrued if the Stated Rates had at all times been in
effect and such Additional Interest, if any, had been paid in full.
(g) In the event that, at maturity or upon payment in full of all amounts
payable under any Bank's Loan Documents, the total amount of interest paid or
payable to any Agent or any Bank, in any of such Bank's capacities hereunder,
and accrued under the terms of or evidenced by such Bank's Loan Documents is
less than the total amount of interest which would have been paid or accrued on
the indebtedness incurred under or evidenced by such Bank's Loan Documents if
the Stated Rates had, at all times, been in effect and all Additional Interest
had been paid in full, then the Borrower shall, to the extent permitted by
Applicable Usury Laws, pay to the Administrative Agent for the account of such
Bank an amount equal to the difference between (1) the lesser of (i) the amount
of interest payable to such Bank which would have accrued if the Highest Lawful
Rate for such Bank had at all times been in effect or (ii) the amount of
interest which would have accrued on the indebtedness incurred under or
evidenced by such Bank's Loan Documents if the Stated Rates had at all times
been in effect and all Additional Interest had been paid in full and (2) the
amount of interest actually paid to such Bank or payable to such Bank and
accrued under or evidenced by such Bank's Loan Documents.
(h) The Borrower, the Agents and the Banks agree that, except for Article
15.10(b) thereof, the provisions of Chapter 15, Subtitle 79, Revised Civil
Statutes of Texas, 1925, as amended (which regulates certain revolving credit
loan accounts and revolving tri-party accounts), do not apply to this Agreement
or any of the Notes or any of the Obligations.
SECTION 2.18. Withholding Tax Exemption. At least five Domestic Business
Days prior to the first date on which interest or fees are payable hereunder for
the account of any Bank, each Bank that is not incorporated under the laws of
the United States of America or a state thereof agrees that it will deliver to
each of the Borrower and the Administrative Agent two duly completed copies of
United States Internal
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Revenue Service Form 1001 or 4224, certifying in either case that such Bank is
entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal income taxes. Each Bank
which so delivers a Form 1001 or 4224 further undertakes to deliver to each of
the Borrower and the Administrative Agent two additional copies of such form (or
a successor form) on or before the date that such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrower or the
Administrative Agent, in each case certifying that such Bank is entitled to
receive payments under this Agreement and the Notes without deduction or
withholding of any United States federal income taxes, unless an event
(including without limitation any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Bank from duly completing and delivering any such form with respect to it and
such Bank advises the Borrower and the Administrative Agent that it is not
capable of receiving payments without any deduction or withholding of United
States federal income tax. Any Bank that is not capable of receiving payments
without any deduction or withholding of United States federal income tax will
promptly notify the Borrower and the Administrative Agent to that effect and
will designate a different Applicable Lending Office if such designation will
render such Bank capable of receiving payments without any such deduction or
withholding and will not, in the reasonable judgment of such Bank, be otherwise
disadvantageous. If the Borrower shall receive a certificate of such Bank
claiming the need for deductions or withholdings under this Section 2.18, the
Borrower shall, subject to Section 8.06 hereof, commence making any deductions
and withholding any amounts with respect to payments for the account of such
Bank that are required by applicable law.
ARTICLE III
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall become effective on
the date that each of the following conditions shall have been satisfied (or
waived in accordance with Section 9.05):
(i) receipt by the Administrative Agent of certified copies of the
Certificate of Incorporation and By-Laws of the Borrower and the
resolutions of the Board of Directors of the Borrower authorizing the
transactions contemplated hereby and such other documents as the
Administrative Agent or the Required Banks may reasonably request relating
to the existence of the Borrower, the corporate authority for and the
validity of this Agreement and the
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Notes, and any other matters relevant hereto, all in form and substance
satisfactory to the Administrative Agent;
(ii) receipt by the Administrative Agent of a Certificate of
Incumbency dated the Effective Date executed by the Secretary or an
Assistant Secretary of the Borrower in substantially the form of Exhibit
3.01(ii) hereto setting forth the name, title and specimen signature of
each Authorized Officer or Authorized Representative of the Borrower (1)
who has signed this Agreement on behalf of the Borrower, (2) who will sign
the Notes on behalf of the Borrower or (3) who will, until replaced by
another officer or representative duly authorized for that purpose, act as
the representative of the Borrower for the purposes of signing documents
and giving notices and other communications by the Borrower in connection
with this Agreement and the transactions contemplated hereby;
(iii) receipt by the Administrative Agent of counterparts of this
Agreement signed by each of the parties hereto (or, in the case of any
party as to which an executed counterpart shall not have been received,
receipt by the Administrative Agent in form reasonably satisfactory to it
of telecopied, telegraphic, telex or other written confirmation from such
party of execution of a counterpart hereof by such party);
(iv) receipt by the Administrative Agent of an opinion of the General
Counsel of the Borrower in substantially the form of Exhibit 3.01(iv)
hereto and covering such additional matters relating to the transactions
contemplated hereby as the Required Banks may reasonably request;
(v) receipt by the Agents of an opinion of Andrews & Kurth L.L.P.,
counsel for the Agents in substantially the form of Exhibit 3.01(v) hereto
and covering such additional matters relating to the transactions
contemplated hereby as the Required Banks may reasonably request;
(vi) receipt by the Administrative Agent of a certificate signed by
the Chief Executive Officer, Chief Financial Officer or Treasurer of the
Borrower dated the Effective Date to the effect set forth in clauses (iii)
and (iv) of Section 3.02;
(vii) receipt by the Administrative Agent of a certificate signed by
the Chief Executive Officer, Chief Operating Officer or Chief Financial
Officer of LRC, dated the Effective Date, to the effect that LRC is not in
default in its material obligations pursuant to the Company Regulations;
and
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(viii) receipt by the Administrative Agent for the account of each
Bank of a duly executed Note dated on or before the Effective Date,
complying with the provisions of Section 2.05; and
(ix) receipt by the Administrative Agent of evidence that, prior to
or as of the Effective Date, (A) the Credit Agreement dated as of July 3,
1990 among the Borrower, the banks listed therein and Texas Commerce Bank
National Association, as agent, and the "commitments" thereunder, have been
terminated.
provided, however, that this Agreement shall not become effective or be binding
on any party hereto unless all of the foregoing conditions are satisfied not
later than December 31, 1993. The Administrative Agent shall promptly notify
the Borrower and the Banks of the Effective Date, and such notice shall be
conclusive and binding on all parties hereto. The Administrative Agent shall
promptly forward to the Banks copies of the documents delivered pursuant to this
Section 3.01.
SECTION 3.02. Credit Events. The obligation of any Bank to make a Loan
on the occasion of any Borrowing hereunder and the obligation of the Issuing
Bank to issue, renew or extend any Letter of Credit hereunder are subject to the
satisfaction of the following conditions:
(i) receipt by the Administrative Agent of a Notice of Borrowing as
required by Section 2.02 or receipt by the Issuing Bank of a Letter of
Credit Request as required by Section 2.03, as the case may be;
(ii) the fact that, immediately after such Credit Event, the
aggregate outstanding principal amount of the Loans plus the Letter of
Credit Outstandings will not exceed the aggregate amount of the
Commitments;
(iii) the fact that, immediately before and after such Credit Event,
no Default or Event of Default shall have occurred and be continuing; and
(iv) the fact that the representations and warranties of the Borrower
contained in this Agreement shall be true on and as of the date of such
Credit Event as if made on and as of such date (except in the case of a
Refunding Borrowing, the representations and warranties set forth in
paragraphs (d), (e), (k) and (l) of Section 4.01).
Each Credit Event hereunder shall be deemed to be a representation and warranty
by the Borrower on the date of such Borrowing as to the facts specified in
clauses (ii), (iii) and (iv) of this Section.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower. The
Borrower represents and warrants to the Banks as follows:
(a)(1) The Borrower is (i) a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and
(ii) qualified to do business and in good standing in each jurisdiction
where the ownership of its properties or the conduct of its business
requires such qualification except where the failure to be so qualified
would not have a Material Adverse Effect.
(2) The Borrower has all corporate power and authority, governmental
permits, licenses, consents, authorizations, orders and approvals and other
authorizations and powers as are necessary to carry on its business
substantially as presently conducted except where the failure to have such
power, authority, permits, licenses, consents, authorizations, orders and
approvals would not have a Material Adverse Effect.
(3) The execution, delivery and performance by the Borrower of this
Agreement and of the Notes, and Borrowings and other extensions of credit
hereunder, are within the Borrower's corporate power and authority and have
been duly authorized by all necessary corporate proceedings.
(4) Neither such authorization nor the execution, delivery and
performance by the Borrower of this Agreement or of the Notes, nor any
Borrowing or Letter of Credit when made or issued, as the case may be,
hereunder will conflict with, result in a breach of or constitute a default
under any of the terms, conditions or provisions of any law or any
regulation, order, writ, injunction or decree of any court or governmental
authority or of the Certificate of Incorporation or By-Laws of the Borrower
or result in the violation or contravention of, or the acceleration of any
obligation under, or cause the creation of any Lien on any of the assets of
the Borrower pursuant to the provisions of, any indenture, loan or credit
agreement or other material instrument to which it is a party or by which
it is bound.
(5) Assuming its due execution by the Banks and the Agents, this
Agreement constitutes a legal, valid and binding agreement of the Borrower
and the Notes, when duly executed on behalf of the Borrower, and delivered
in accordance with this Agreement, will constitute legal, valid and binding
obligations of the Borrower.
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(b) The consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of December 31, 1992 and the related
consolidated statements of income and cash flows for the fiscal year ended
that date, reported on by Coopers & Lybrand, copies of which have been
delivered to the Administrative Agent, present fairly, in all material
respects, the consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such fiscal year, in conformity with
generally accepted accounting principles consistently applied.
(c)(1) The unaudited consolidated balance sheet of the Borrower and
its Consolidated Subsidiaries as of September 30, 1993 and the related
unaudited consolidated statements of income and cash flows for the nine-
month period then ended, copies of which have been delivered to the
Administrative Agent, present fairly, in all material respects, in
conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in paragraph (b) of
this Section, the consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such nine-month period (subject to normal
year-end adjustments and not including footnotes or schedules required by
generally accepted accounting principles).
(c)(2) The unaudited balance sheet of LCR as of September 30, 1993
and the related statements of income and cash flows for the three-month
period then ended, copies of which have been delivered to the
Administrative Agent, present fairly, in all material respects, in
conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in paragraph (c)(1) of
this Section, the financial position of LCR as of such date (subject to
normal year-end adjustments and not including footnotes or schedules
required by generally accepted accounting principles).
(d) Except as described in the Company's Annual Report on Form 10-K
for the year ended December 31, 1992 ("1992 Form 10-K") or any document
filed subsequently by the Borrower pursuant to the Securities Exchange Act
of 1934 ("'34 Act Report") or as otherwise disclosed in writing to the
Administrative Agent and delivered to the Banks, there is no action, suit
or proceeding pending or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any of its Consolidated Subsidiaries
in any court or before or by any arbitrator, governmental department,
agency or instrumentality, an adverse decision in which could reasonably be
expected to have a Material Adverse Effect.
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(e) Except as described in the 1992 Form 10-K or any subsequent '34
Act Report or as otherwise disclosed in writing to the Administrative Agent
and delivered to the Banks, there has been no material adverse change since
December 31, 1992 in the business, operations, affairs, assets, condition
(financial or otherwise) or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole.
(f) No Default or Event of Default has occurred and is continuing.
(g) No consent, authorization, order or approval of (or filing or
registration with) any governmental commission or board or other
governmental regulatory authority (other than routine reporting
requirements) is required for the execution, delivery and performance by
the Borrower of this Agreement or of the Notes.
(h) Each member of the Controlled Group has fulfilled its obligations
under the minimum funding standards of ERISA and the Code with respect to
each Plan and is in compliance in all material respects with the presently
applicable provisions of ERISA and the Code, and has not incurred any
liability to the PBGC (other than for routine premiums due to the PBGC) or
a Plan under Title IV of ERISA.
(i)(1) Each corporate Subsidiary is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as
now conducted except for powers, licenses, authorizations, consents or
approvals the absence of which would not have a Material Adverse Effect.
(2) LCR is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Texas and is
registered, qualified or licensed (or has applied for such registration,
qualification or licensing) to do business and is in good standing in each
of the jurisdictions within the United States where ownership of its
properties or the conduct of its business requires such registration,
qualification or licensing and which currently permit registration,
qualification or licensing of limited liability companies and has or will
apply for registration, qualification or licensing to do business in each
other jurisdiction within the United States where the ownership of its
properties or the conduct of its business requires such registration,
qualification or licensing as soon as such jurisdiction permits
registration, qualification or licensing for limited liability companies,
except in all cases where the failure to be so registered, qualified or
licensed would not reasonably be expected to have a Material Adverse
Effect. LCR also has all
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power and authority, governmental permits, licenses, consents,
authorizations, orders and approvals and other authorizations as are
necessary to carry on its business substantially as presently conducted
except in all cases where the failure to have any of the foregoing would
not reasonably be expected to have a Material Adverse Effect.
(j) The Borrower is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, or a "public-utility
company" or a "holding company" within the meaning of the Public Utility
Holding Company Act of 1935 or a "public utility" under the laws of the
State of Texas.
(k) Except as described in the Borrower's 1992 Form 10-K or any
subsequent '34 Act Report or as otherwise disclosed in writing to the
Administrative Agent and delivered to the Banks, to the best of its
knowledge (i) the Borrower and each of its Consolidated Subsidiaries
possess all environmental, health and safety licenses, permits,
authorizations, registrations, approvals and similar rights necessary for
the Borrower or such Consolidated Subsidiary to conduct its operations as
now being conducted (other than where the failure to possess or maintain
any of the foregoing would not reasonably be expected to have a Material
Adverse Effect) and (ii) the Borrower and each of its Consolidated
Subsidiaries are in compliance with all terms, conditions or other
provisions of such licenses, permits, authorizations, registrations,
approvals and similar rights except for such failure or noncompliance that
would not reasonably be expected to have a Material Adverse Effect.
(l) Except as described in the Borrower's 1992 Form 10-K or any
subsequent '34 Act Report or as otherwise disclosed in writing to the
Administrative Agent and delivered to the Banks, to the best of its
knowledge, there does not exist any Release of a Hazardous Material or any
violation of the Requirements of Environmental Laws that reasonably would
be expected to impose a liability on the Borrower or a Consolidated
Subsidiary, or require an expenditure by the Borrower or a Consolidated
Subsidiary to cure such violation, in any case where such liability or
expenditure would reasonably be expected to have a Material Adverse Effect.
(m) Each of the Borrower and its Consolidated Subsidiaries has filed
all federal income tax returns and other material tax returns, statements
and reports (or obtained extensions with respect thereto) which are
required to be filed and have paid or deposited or made adequate provision
in accordance with generally accepted accounting standards for the payment
of all taxes (including estimated taxes shown on such returns, statements
and reports) which are shown to be due pursuant to such returns.
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(n) The Company Regulations, as the same may be amended or otherwise
modified from time to time, are in full force and effect in accordance with
their terms.
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment hereunder
or any amount payable under any Note or in respect of any Letter of Credit
remains unpaid:
SECTION 5.01. Certain Information to be Furnished by the Borrower. The
Borrower will deliver to the Administrative Agent and the Administrative Agent
shall promptly deliver to the Banks:
(a)(1) as soon as available and in any event within 120 days after
the end of each of its fiscal years, the consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal
year and the related consolidated statements of income and cash flows for
such year, setting forth in each case in comparative form the figures for
the previous fiscal year, together with the audit report thereon of a
nationally recognized firm of independent certified public accountants;
(a)(2) as soon as available and in any event within 120 days after
the end of each of its fiscal years, the balance sheet of LCR as of the end
of such fiscal year and the related statements of income and cash flows for
such year, setting forth in each case in comparative form the figures for
the previous fiscal year, together with an audit report thereon of a
nationally recognized firm of independent certified public accountants;
(b)(1) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each of its fiscal years, (i)
the consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of the end of such fiscal quarter, (ii) the related
consolidated statement of income for such fiscal quarter and for the
portion of the fiscal year ended with such quarter and (iii) the related
consolidated statement of cash flows for the portion of the fiscal year
ended with such quarter, setting forth, with respect to (iii), in
comparative form the figures for the corresponding portion of the
Borrower's previous fiscal year, all certified (subject to normal year-end
adjustments and not including
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footnotes or schedules required by generally accepted accounting
principles) by the chief financial officer or the chief accounting officer
of the Borrower to present fairly, in all material respects, the financial
position, results of operations and cash flows of the Borrower and its
Consolidated Subsidiaries in accordance with generally accepted accounting
principles (except as otherwise stated therein) applied on a basis
consistent with the financial statements referred to in paragraph (a)(1) of
this Section;
(b)(2) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each of its fiscal years, (i)
the balance sheet of LCR as of the end of such fiscal quarter, (ii) the
related statement of income for such fiscal quarter and for the portion of
the fiscal year ended with such quarter and (iii) the related statement of
cash flows for the portion of the fiscal year ended with such quarter,
setting forth, with respect to (iii), in comparative form the figures for
the corresponding portion of LCR's previous fiscal year, all certified
(subject to normal year-end adjustments and not including footnotes or
schedules required by generally accepted accounting principles) by the
chief financial officer or the chief accounting officer of LCR to present
fairly, in all material respects, the financial position, results of
operations and cash flows of LCR in accordance with generally accepted
accounting principles (except as otherwise stated therein) applied on a
basis consistent with the financial statements referred to in paragraph
(a)(2) of this Section;
(c) promptly after the same are sent to shareholders or filed, copies
of all (i) financial statements, notices, reports and proxy materials sent
by the Borrower to shareholders of the Borrower and (ii) registration
statements (other than exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Form 10-K, 10-Q and 8-K (or
their equivalents) filed by the Borrower with the Securities and Exchange
Commission (or any governmental agency succeeding to the functions of such
Commission);
(d) simultaneously with the delivery of the financial statements
referred to in paragraphs (a) and (b) above, (i) a certificate of the
Borrower signed by the Treasurer or any Assistant Treasurer of the Borrower
stating whether there exists to the knowledge of such officer of the
Borrower on the date of such certificate any Default, and, if any such
Default then exists, specifying the nature and period of existence thereof
and the action the Borrower is taking and proposes to take with respect
thereto and (ii) a certificate of the Borrower signed by the Treasurer or
any Assistant Treasurer of the Borrower stating that the Borrower is in
compliance with the provisions of Section 5.08 and setting forth all
computations relating thereto;
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(e) forthwith, if at any time any officer of the Borrower shall
obtain knowledge of any Default or Event of Default, a certificate of the
Treasurer or any Assistant Treasurer specifying the nature and period of
existence thereof and the action the Borrower is taking and proposes to
take with respect thereto;
(f) promptly upon obtaining knowledge thereof, a copy of each of the
following notices: if and when any member of the Controlled Group (i)
gives or is required to give notice to the PBGC of any "reportable event"
(as defined in Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of ERISA,
or knows that the plan administrator of any Plan has given or is required
to give notice of any such reportable event, a copy of the notice of such
reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA,
a copy of such notice; or (iii) receives notice from the PBGC under Title
IV of ERISA of an intent to terminate or appoint a trustee to administer
any Plan, a copy of such notice;
(g) in the event of any damage, loss or casualty to or destruction of
any portion of any facility of the Borrower, any Subsidiary or LCR, prompt
notice thereof, specifying the nature and extent of such damage, loss,
casualty or destruction and stating whether such damage, loss, casualty or
destruction, in the reasonable judgment of the Borrower, materially
adversely affects the production capacity of such facility or the economic
value of such facility; provided, however, that the Borrower shall have no
obligation to deliver such notice if the damage to the facility in the good
faith judgment of the Borrower will not cost in excess of $15,000,000 to
rebuild, replace or restore or if such damage does not materially adversely
affect such production capacity or the economic value of the facility;
(h) in the event of any total or partial shutdown of any production
or storage facility of the Borrower or any Consolidated Subsidiary in
connection with any Release, prompt notice thereof to the Administrative
Agent, specifying the reason for such shutdown; provided, however, that the
Borrower shall have no obligation to deliver such notice if in the good
faith judgment of the Borrower such shutdown will not result in a reduction
of Consolidated Net Income of $10,000,000 or more over a period of five
years beginning with the date of such shutdown;
(i) in addition to its obligations pursuant to Section 2.02, prompt
written notice of any Debt, other than Borrowings, incurred subsequent to
the Effective Date; and
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(j) from time to time such further information regarding compliance
with this Agreement or the business, operations, affairs, assets, condition
(financial or otherwise) or results of operations of the Borrower and its
Consolidated Subsidiaries as the Administrative Agent, at the request of
any Bank, may reasonably request.
SECTION 5.02. Maintenance of Property; Insurance.
(a) The Borrower will keep, and will cause each Subsidiary to keep, all
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.
(b) The Borrower will, and will cause each of its Subsidiaries to,
maintain insurance consistent either with the insurance practices of the
Borrower and its Subsidiaries in effect on the date hereof, or with then
existing industry practice, in either case to the extent available to the
Borrower and its Subsidiaries on commercially reasonable terms, and will furnish
to the Administrative Agent, upon request from the Administrative Agent,
information presented in reasonable detail as to the insurance so carried.
SECTION 5.03. Limitation on Liens. Except as otherwise specifically
provided in this Agreement, nothing contained in this Agreement shall in any way
restrict or prevent the Borrower or any Subsidiary from incurring any Debt;
provided, however, that neither the Borrower nor any Restricted Subsidiary will
issue, assume or guarantee any Debt secured by any Lien upon any Restricted
Property or grant any Lien on any such Restricted Property to secure any such
Debt without effectively providing that all of the Notes and the Letter of
Credit Outstandings (together with, if the Borrower so determines, any other
Debt then existing and any other Debt thereafter created ranking equally with
the Notes) shall be secured equally and ratably with (or prior to) such Debt so
long as such Debt shall be so secured. To the extent, if any, that the
following Liens would otherwise be prohibited by the foregoing provisions, the
foregoing provisions shall not apply to:
(a) Liens on any property of a corporation or other Person existing at the
time it becomes a Subsidiary or at the time it is merged into or consolidated
with the Borrower or a Subsidiary and not created in contemplation of such
event;
(b) Liens on any assets (i) existing at the time of acquisition thereof
and not created in contemplation of such event or (ii) incurred to secure
payment of all or part of the purchase price thereof or (iii) incurred to secure
Debt incurred prior to, at the time of or within 120 days after acquisition
thereof for the purpose of financing all or part of the purchase price thereof;
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(c) Liens on property of the Borrower or a Subsidiary existing or
contemplated on the date hereof and listed on Schedule 5.03(c) hereto;
(d) Liens on any new plant (including any processing unit or production or
storage facility) or the real estate on which such plant is situated or is to be
constructed securing Debt incurred or assumed either (i) at the time of or
within 24 months after commencement of improvement or construction or (ii)
within 120 days after completion of improvement or construction of such plant in
a principal amount not exceeding the cost of such improvement or construction
and the cost of acquisition of such plant and such real estate;
(e) Liens which secure only Debt owing by a Subsidiary to the Borrower or
another Subsidiary;
(f) Liens in favor of the United States of America or any state thereof or
any department, agency, instrumentality or political subdivision of any such
jurisdiction to secure partial, progress, advance or other payments pursuant to
any contract or statute or to secure any Debt incurred for the purpose of
financing all or any part of the purchase price or cost of constructing or
improving the property subject to such Lien, including, without limitation,
Liens to secure Debt of the pollution control or industrial revenue bond type;
(g) Liens required by any contract or statute in order to permit the
Borrower or a Subsidiary to perform any contract or subcontract made by it with
or at the request of the United States of America, any state or any department,
agency or instrumentality or political subdivision of either; or
(h) Liens securing taxes, assessments, governmental charges or levies,
statutory Liens of landlords and Liens of carriers, warehousemen, materialmen,
mechanics and other like Persons not yet due or the payment of which is not then
required; provided, however, that this paragraph (h) shall not be deemed to
permit any Liens which may be imposed pursuant to Section 4068 of ERISA;
(i) Liens of or resulting from any judgment or award not in excess of
$25,000,000, the time for the appeal or petition for rehearing of which shall
not have expired, or in respect of which the obligor shall at any time in good
faith be prosecuting an appeal or proceeding for a review and in respect of
which a stay of execution pending such appeal or proceeding for review shall
have been secured;
(j) Liens incurred or deposits made in the ordinary course of business (i)
in connection with workers' compensation, unemployment insurance and other types
of social security, or (ii) to secure reimbursement obligations in respect of
documentary letters of credit secured by collateral customarily and normally
provided to banks
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issuing documentary letters of credit; provided, however, that any obligation
secured by any such Lien shall not be overdue or, if overdue, is being contested
in good faith by appropriate actions or proceedings during which there is no
right to exercise remedies and adequate book reserves have been established;
provided further, that paragraph (j) shall not be deemed to permit any Liens
which may be imposed pursuant to Section 4068 of ERISA;
(k) Minor survey exceptions and minor encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and other similar
purposes, or zoning or other restrictions as to the use of real properties,
which are necessary for the conduct of the activities of Borrower or any
Subsidiary or which customarily exist on properties of corporations or other
Persons engaged in similar activities and similarly situated;
(l) any extension, renewal or replacement (or successive extensions,
renewals or replacements), in whole or in part, of any Lien referred to in the
foregoing paragraphs (a) to (k) inclusive or of any Debt secured thereby,
provided that the principal amount of Debt secured thereby shall not exceed the
principal amount of Debt so secured at the time of such extension, renewal or
replacement, and that such extension, renewal or replacement Lien shall be
limited to all or part of substantially the same property which secured the Lien
extended, renewed or replaced (plus improvements on such property);
provided, however, that the Borrower and any one or more Restricted Subsidiaries
may issue, assume or guarantee Debt secured by Liens which would otherwise be
subject to the foregoing restrictions or grant any such Lien to secure any such
Debt in an aggregate principal amount which, together with the aggregate
outstanding principal amount of all Debt of the Borrower and the Restricted
Subsidiaries which would otherwise be subject to the foregoing restrictions (not
including Debt permitted to be secured under paragraphs (a) to (l) inclusive
above), does not at any one time exceed the greater of $50,000,000 or 10 percent
of Consolidated Net Tangible Assets of the Borrower and its Consolidated
Subsidiaries.
SECTION 5.04. Consolidation, Merger, Disposition of Assets. (a) Subject
to the provisions of Section 5.04(b) hereof, nothing contained in this Agreement
shall prevent any consolidation or merger of the Borrower with or into any other
corporation or corporations (whether or not affiliated with the Borrower), or
successive consolidations or mergers in which the Borrower or its successor or
successors shall be a party or parties, or shall prevent any sale or conveyance
of all or substantially all the property of the Borrower, to any other Person
(whether or not affiliated with the Borrower) authorized to acquire and operate
the same; provided, however, that upon any such consolidation, merger, sale or
conveyance, other than a consolidation or merger in which the Borrower is the
continuing corporation, the surviving entity must
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be chartered under the laws of the United States or one of its states and the
due and punctual payment of the principal of and interest on all of the Notes,
according to their tenor, and the due and punctual performance and observance of
all of the covenants and conditions of this Agreement, shall be expressly
assumed by instrument reasonably satisfactory in form to the Required Banks and
executed and delivered to the Administrative Agent by the corporation (if other
than the Borrower) formed by such consolidation or into which the Borrower shall
have been merged or by the Person which shall have acquired such property; and
provided further that no Default or Event of Default shall exist hereunder after
giving effect to such consolidation, merger or sale of assets.
(b) If, upon any consolidation or merger of the Borrower with or into any
other corporation, or upon the sale or conveyance of all or substantially all
the property of the Borrower to any other Person or if any of the remaining
property of the Borrower or of any Restricted Subsidiary would thereupon become
subject to any Lien, the Borrower, prior to or simultaneously with such
consolidation, merger, sale or conveyance, will secure the Notes, the Letter of
Credit Outstandings and all other obligations of the Borrower under this
Agreement equally and ratably with any other obligations of the Borrower (or any
Restricted Subsidiary if applicable) then entitled thereto, by a direct Lien on
all such property prior to all Liens other than any theretofore existing
thereon.
SECTION 5.05. Use of Proceeds. The proceeds of the Loans made and
Letters of Credit issued under this Agreement will be used by the Borrower and
its Subsidiaries for general business purposes. None of such proceeds will be
used in violation of Regulation U, Regulation X, Regulation G or of any similar
laws or regulations.
SECTION 5.06. Payment of Taxes. The Borrower will, and will cause each
Consolidated Subsidiary to, pay and discharge, or make adequate provision for,
all material taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits, or upon any properties belonging to it;
provided, however, that neither the Borrower nor any Consolidated Subsidiary
shall be required to pay or discharge or cause to be paid or discharged any such
taxes, assessments, charges or levies whose amount, applicability or validity is
being contested in good faith by appropriate actions or proceedings and as to
which reserves have been established if required by generally accepted
accounting principles.
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SECTION 5.07. LCR Matters.
(a) The Borrower will cause LRC to not permit any amendment or
modification to the Company Regulations, or take any other action, that would in
each case result in LRC's Participation Percentage (as defined in the Company
Regulations) to be less that 50 percent, without the consent of Banks having at
least 70 percent of the aggregate amount of the Commitments.
(b) Unless the Banks having at least 70 percent of the aggregate
Commitments agree otherwise, the Borrower shall cause LRC (within the bounds of
good business judgment and its legal obligations under or in connection with the
Company Regulations), as an Owner of LCR, to withhold its consent, which is
required under Section 3.8 of the Company Regulations, with respect to any
action that would cause or permit LCR (or any Person acting in the name or on
behalf of LCR), directly or indirectly, to undertake any of the following:
(1) to incur Debt; provided, however, that this covenant shall not be
applicable to (i) any Debt for which the Borrower or LRC is the obligee,
(ii) any Debt resulting from the Credit Agreement dated as of July 1, 1993
(as the same may be amended or otherwise modified from time to time)
between LCR and Continental Bank N.A. as Agent, or any renewal or
replacement of such Credit Agreement; provided, however, that such renewal
or replacement does not result in an increase in the aggregate principal
amount of such credit facility, (iii) any Debt which CITGO Refining is
contractually or otherwise liable to pay or to provide reimbursement for
pursuant to the Company Regulations, as the same may be amended or
otherwise modified from time to time, or (iv) any Debt that is non-recourse
to the Borrower and LRC either existing on the In-Service Date (as defined
in the Company Regulations) or incurred by LCR subsequent to the In-Service
Date;
(2) to fail to maintain insurance consistent either with the
insurance practices of the Borrower and its Subsidiaries in effect on the
date hereof or with then existing industry practice, in either case to the
extent available to LCR on commercially reasonable terms; and
(3) to amend, or alter the Company Regulations in any way that would
materially adversely affect (i) the Borrower's access to its share of
distributable cash from LCR or (ii) other material rights and obligations
of the Borrower or LRC under the Company Regulations (including without
limitation materially increasing an obligation of the Borrower or LRC to
make contributions to LCR or materially decreasing an obligation of CITGO
or CITGO Refining to make contributions to LCR), provided, however, that in
any event the Borrower will
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provide promptly thereafter to the Administrative Agent notice and copies
of all amendments to the Company Regulations.
SECTION 5.08. Financial and Other Covenants. The Borrower will comply
with the covenants described in this Section.
a. Debt Incurrence Test. If the aggregate outstanding principal amount
of all Debt of the Borrower and its Consolidated Subsidiaries incurred
subsequent to the Effective Date exceeds $75,000,000, then the Borrower and its
Subsidiaries will not be permitted to incur any additional Debt unless, after
giving effect thereto, the ratio of EBITDA to Consolidated Interest Expense, for
the four-fiscal-quarter period most recently ended, is greater than or equal to
the ratio set forth below with respect to the period that includes the last
quarter of such four-fiscal-quarter period; provided, however, that each such
determination shall be made by giving effect to all Debt of the Borrower and its
Consolidated Subsidiaries actually outstanding during any portion of such four-
fiscal-quarter period and by assuming that such proposed Debt had been incurred
on the first day of such four-fiscal-quarter period:
<TABLE>
<CAPTION>
Period Ratio
- ---------- ---------
<S> <C>
From the Effective Date 1.75 to 1
through December 31, 1994
From January 1, 1995 2.00 to 1
through December 31, 1995
Thereafter 2.25 to 1
</TABLE>
b. Fixed Charge Coverage Ratio. The Borrower will not permit, as of the end
of any fiscal quarter, the ratio of (i) EBITDA less Consolidated Capital
Expenditures (provided, however, that in determining Consolidated Capital
Expenditures for purposes of this covenant all items attributable to the
activities or business of LCR shall be excluded), to (ii) Consolidated Interest
Expense, computed in each case for the four-fiscal-quarter period ending during
each of the following periods, to be less than the designated ratio set forth
below with respect to each such period:
<TABLE>
<CAPTION>
Period Ratio
- ------- ---------
<S> <C>
From the Effective Date 1.15 to 1
through December 31, 1994
From January 1, 1995 1.30 to 1
through December 31, 1995
Thereafter 2.00 to 1
</TABLE>
c. Leverage Ratio. The Borrower will not permit, as of the end of any
fiscal quarter, the ratio of Consolidated Debt to EBITDA, computed in each case
for the four-
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fiscal-quarter period ending during each of the following periods, to be greater
than the designated ratio set forth below with respect to each such period:
<TABLE>
<CAPTION>
Period Ratio
- ------ ---------
<S> <C>
From the Effective Date 6.50 to 1
through December 31, 1994
From January 1, 1995 5.50 to 1
through December 31, 1995
From January 1, 1996 4.50 to 1
through December 31, 1996
Thereafter 4.00 to 1
</TABLE>
d. Dividend Payments. The Borrower will not at any time declare, make or
pay, or incur any liability to make or pay, or cause or permit to be declared,
made or paid any Dividend unless at the time of declaring such Dividend, and
after giving effect thereto, the aggregate amount of all such Dividends declared
or paid on or after January 1, 1994 shall not exceed an amount equal to the sum
of $72,000,000 plus 100 percent of Consolidated Net Income or Loss, excluding
non-cash Non-Operating Special Items used in determining Consolidated Net Income
or Loss, for the period commencing October 1, 1993 and ending with the most
recently completed fiscal quarter of the Borrower.
e. Restricted LCR Investments. From and after the Effective Date, the
aggregate of all Investments shall not exceed $200,000,000; provided, however,
that the Borrower or LRC may invest in LCR, in excess of such $200,000,000, all
or a portion of the proceeds from any capital markets offering consisting solely
of equity securities.
f. Methodology for Determining Covenant Compliance. Notwithstanding any
contrary provision of this Agreement, the Borrower's compliance with each of the
covenants described in this Section shall be determined in accordance with the
following methodology:
(1) All calculations shall be made without taking into account any
Debt or Interest Expense of LCR or CITGO Refining, or any Debt or Interest
Expense which CITGO Refining, pursuant to the Company Regulations as the
same may be amended or otherwise modified from time to time, is
contractually or otherwise liable to pay or provide reimbursement for;
(2) In the event the Borrower issues Debt ("Replacement Debt") for
the purpose of refinancing Debt outstanding under any of the Borrower's
public indentures or medium-term note programs ("Replaced Debt"), the
aggregate principal amount of such Replacement Debt shall be substituted in
place of the Replaced Debt for purposes of all determinations and the
calculations, in
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paragraphs (a) and (c) of this Section; provided, however, that the Net
Interest associated with such Replacement Debt shall be included in
Interest Expense for purposes of the calculation in paragraph (b) of this
Section; and further provided, that the treasurer of the Borrower shall
certify to the Administrative Agent that such Replacement Debt will be used
to refinance Replaced Debt.
(3)(A) From the Effective Date until the Borrower's public
announcement of its Consolidated Net Income or Loss for the fiscal quarter
ended June 30, 1994, the results of operations for, and all information
pertaining to, the Borrower's most recently completed quarter or four-
fiscal-quarter period, as applicable, shall be determined by converting to
an annualized four-fiscal-quarter period, information publicly announced by
the Borrower as its Consolidated Net Income or Loss for the most recent
three month, six month or nine month period, as available, from and
including the fiscal quarter ended September 30, 1993; and
(3)(B) From the date of the Borrower's public announcement of its
Consolidated Net Income or Loss for the fiscal quarter ended June 30, 1994
and during the remainder of the term of this Agreement, the results of
operations for, and all information pertaining to, the Borrower's most
recently completed quarter or four-fiscal-quarter period, as applicable,
shall be determined based upon the last quarter, or the four-fiscal-quarter
period (the last quarter of which is the most recent quarter), for which
the Borrower has made a public announcement of its Consolidated Net Income
or Loss.
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01. Defaults. If one or more of the following events (herein
called "Events of Default") shall occur and be continuing:
(a) the Borrower shall default in the payment when due of any
principal of any Loan or any reimbursement obligation in respect of any
Letter of Credit, or shall default in the payment within five days of the
due date thereof of any interest on any Loan or any other amount payable
hereunder;
(b) the Borrower shall fail to perform or observe any covenant or
agreement to be performed by it contained in Section 5.01(e), Section
5.02(b) or Sections 5.03 through 5.08;
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<PAGE>
(c) the Borrower shall fail to perform or observe any covenant or
agreement to be performed by it contained in this Agreement (other than
those covered by paragraphs (a) or (b) above) for 30 days after written
notice of such failure is given to the Borrower by the Administrative Agent
at the request of any Bank;
(d) the Borrower shall have made, or be deemed to have made pursuant
to Section 3.02, any representation or warranty in this Agreement, or in
any certificate, financial statement or other document delivered pursuant
hereto, which shall prove to have been incorrect in any material respect
when so made or deemed to have been made;
(e) the Borrower or any Subsidiary shall fail to pay any indebtedness
for borrowed money (other than the Loans or any reimbursement obligation in
respect of any Letters of Credit) payable or guaranteed by it, or any
interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure
shall continue after the applicable grace period, if any, specified in the
agreement or instrument relating to such indebtedness or guarantee;
provided, however, that the aggregate amount of such indebtedness or
guarantee, including any interest or premium thereon, shall exceed
$15,000,000;
(f) LRC shall be determined (upon exhaustion of all appeals and
expiration of all cure periods as provided in the Company Regulations) to
be in default of any of its material obligations pursuant to the Company
Regulations;
(g) the Borrower or any Restricted Subsidiary or LCR shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent to
any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall
take any corporate action to authorize any of the foregoing, or shall fail
generally to pay its debts as they become due, or shall admit in writing
its inability to pay its debts as they become due;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Restricted Subsidiary or LCR 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
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<PAGE>
official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed
for a period of 60 days; or an order for relief shall be entered against
the Borrower or any Restricted Subsidiary or LCR under the federal
bankruptcy laws as now or hereafter in effect;
(i) any member of the Controlled Group shall fail to pay when due an
amount or amounts aggregating in excess of $25,000,000 which it shall have
become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or
notice of intent to terminate a Plan or Plans having aggregate Unfunded
Vested Liabilities in excess of $25,000,000 (collectively, a "Material
Plan") shall be filed under Title IV of ERISA by any member of the
Controlled Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA
to terminate or to cause a trustee to be appointed to administer any
Material Plan or a proceeding shall be instituted by a fiduciary of any
Material Plan against any member of the Controlled Group to enforce Section
515 of ERISA and such proceeding shall not have been dismissed within 30
days thereafter; or a condition shall exist by reason of which the PBGC
would be entitled to obtain a decree adjudicating that any Material Plan
must be terminated; or
(j) a final, non-appealable judgment or order for the payment of
money in excess of $15,000,000 shall be rendered against the Borrower or
any Restricted Subsidiary or LCR and such judgment or order shall continue
unsatisfied for a period of 30 days;
then, and without notice upon the occurrence of an Event of Default
specified in Section 6.01(g) or Section 6.01(h), or, by notice to the
Borrower upon the occurrence and during the continuation of any other Event
of Default, the Administrative Agent may and, upon the written request of
the Required Banks shall, take any or all of the following actions: (i)
declare the Banks' Commitments terminated, whereupon the Commitments of the
Banks shall forthwith terminate immediately and any Commitment Fee shall
forthwith become due and payable without any other notice of any kind; (ii)
declare the principal of and any accrued interest in respect of all Loans
and all Obligations owing hereunder, to be, whereupon the same shall
become, forthwith due and payable without further presentment, demand,
notice of demand or of dishonor and non-payment, protest, notice of
protest, notice of intent to accelerate, declaration or notice of
acceleration or any other notice of any kind, all of which are hereby
waived by the Borrower; and (iii) direct the Borrower to pay, and the
Borrower agrees that upon receipt of such notice (or upon the occurrence of
an Event of Default specified in Section 6.01(g) or Section 6.01(h)), it
will pay to the Administrative Agent such additional amount of cash as is
equal to the
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<PAGE>
aggregate Stated Amount of all Letters of Credit then outstanding to be
held in an interest bearing account with the Administrative Agent, all such
cash and interest to be held by the Administrative Agent as security for
the Obligations of the Borrower hereunder and under the Notes and the other
Loan Documents.
SECTION 6.02. Other Remedies. Upon the occurrence and during the
continuance of any Event of Default, the Administrative Agent, acting at the
request of the Required Banks, may proceed to protect and enforce its rights,
either by suit in equity or by action at law or both, or may proceed to enforce
the payment of all amounts owing to the Agents and the Banks under the Loan
Documents and interest thereon in the manner set forth herein or therein; it
being intended that no remedy conferred herein or in any of the other Loan
Documents is to be exclusive of any other remedy, and each and every remedy
contained herein or in any other Loan Document shall be cumulative and shall be
in addition to every other remedy given hereunder and under the other Loan
Documents now or hereafter existing at law or in equity or by a statute or
otherwise.
SECTION 6.03. Rights of Setoff. If any Event of Default shall have
occurred and be continuing, each Bank is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Bank, or any
branch, subsidiary or Affiliate of such Bank, to or for the credit or the
account of the Borrower against any and all the Obligations of the Borrower now
or hereafter existing under this Agreement and the other Loan Documents
irrespective of whether or not such Bank or the Administrative Agent shall have
made any demand under this Agreement, such Note, or the Obligations and although
the Obligations may be unmatured. Each Bank agrees promptly to notify the
Borrower after any such setoff and application made by such Bank, but the
failure to give such notice shall not affect the validity of such setoff and
application. The rights of each Bank under this Section are in addition to
other rights and remedies (including other rights of setoff) which such Bank may
have.
ARTICLE VII
THE AGENTS
SECTION 7.01. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes each of the Administrative Agent and the Co-Agent to
take such action as Administrative Agent or Co-Agent, as the case may be, on its
behalf and to exercise such powers under this Agreement and the Notes as are
delegated to the Administrative Agent or the Co-Agent, as the case may be, by
the terms hereof or thereof, together with all such powers as are reasonably
incidental thereto.
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<PAGE>
SECTION 7.02. Agents and Affiliates. Each of the Administrative Agent
and the Co-Agent shall have the same rights and powers under this Agreement as
any other Bank and may exercise or refrain from exercising the same as though
they were not the Agents, and its Affiliates may accept deposits from, lend
money to, and generally engage in any kind of business with the Borrower or any
Subsidiary or LCR or any Affiliate thereof as if they were not the Agents
hereunder.
SECTION 7.03. Action by Agents. The obligations of the Agents hereunder
are only those expressly set forth herein. Without limiting the generality of
the foregoing, the Agents shall not be required to take any action with respect
to any Default, except as expressly provided in Article VI.
SECTION 7.04. Consultation with Experts. The Agents may consult with
legal counsel, independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken by it in
good faith in accordance with the advice of such counsel, accountants or
experts.
SECTION 7.05. Liability of Agents. NEITHER THE AGENTS NOR ANY OF THEIR
RESPECTIVE DIRECTORS, OFFICERS, AGENTS OR EMPLOYEES SHALL BE LIABLE TO ANY BANK
FOR ANY ACTION TAKEN OR NOT TAKEN BY THEM IN CONNECTION HEREWITH (I) WITH THE
CONSENT OR AT THE REQUEST OF THE REQUIRED BANKS OR (II) IN THE ABSENCE OF ITS
OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. IT IS THE EXPRESS INTENTION OF THE
PARTIES HERETO THAT THE AGENTS, THEIR RESPECTIVE DIRECTORS, OFFICERS, AGENTS OR
EMPLOYEES SHALL BE INDEMNIFIED AND HELD HARMLESS BY THE BANKS FROM ALL COSTS,
EXPENSES (INCLUDING COUNSEL FEES AND DISBURSEMENTS) CLAIMS, DEMANDS, ACTIONS,
LOSSES OR LIABILITIES ARISING OUT OF THE NEGLIGENCE (WHETHER SOLE OR
CONTRIBUTORY) OF SUCH PERSONS. Neither the Agents nor any of their directors,
officers, agents or employees shall be responsible for or have any duty to
ascertain, inquire into or verify (i) any statement, warranty or representation
made in connection with this Agreement or any Credit Event hereunder; (ii) the
performance or observance of any of the covenants or agreements of the Borrower;
(iii) the satisfaction of any condition specified in Article III, except receipt
of items required to be delivered to the Administrative Agent; or (iv) the
validity, effectiveness or genuineness of this Agreement, the Notes or any other
instrument or writing furnished in connection herewith. The Agents shall not
incur any liability to any Bank by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a bank wire, telex or
similar writing) reasonably believed by it to be genuine or to be signed by the
proper party or parties.
SECTION 7.06. INDEMNIFICATION. EACH BANK SHALL RATABLY IN ACCORDANCE
WITH ITS COMMITMENT, INDEMNIFY EACH OF THE AGENTS (TO THE EXTENT NOT REIMBURSED
BY THE BORROWER) AGAINST ANY COST, EXPENSE (INCLUDING COUNSEL FEES AND
DISBURSEMENTS), CLAIM, DEMAND, ACTION, LOSS OR LIABILITY INCLUDING ANY LIABILITY
FOR EITHER OF THE AGENTS' OWN NEGLIGENCE (EXCEPT SUCH AS RESULT FROM SUCH
AGENT'S GROSS NEGLIGENCE OR WILLFUL
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<PAGE>
MISCONDUCT) THAT SUCH AGENT MAY SUFFER OR INCUR IN CONNECTION WITH THIS
AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY SUCH AGENT HEREUNDER. IT IS THE
EXPRESS INTENTION OF THE PARTIES HERETO THAT THE AGENTS, THEIR RESPECTIVE
DIRECTORS, OFFICERS, AGENTS OR EMPLOYEES SHALL BE INDEMNIFIED AND HELD HARMLESS
BY THE BANKS FROM ALL COSTS, EXPENSES (INCLUDING COUNSEL FEES AND DISBURSEMENTS)
CLAIMS, DEMANDS, ACTIONS, LOSSES OR LIABILITIES ARISING OUT OF OR RESULTING FROM
THE ORDINARY NEGLIGENCE (WHETHER SOLE OR CONTRIBUTORY) OF SUCH PERSONS.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agents or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agents or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.08. Successor Agents. Either of the Agents may resign at any
time by giving written notice thereof to the Banks and the Borrower, with such
resignation to be effective upon the acceptance by a successor Agent of its
appointment as agent hereunder, as set forth below. Further, upon vote of the
Required Banks, either of the Agents may be replaced by any other Bank consented
to by the Borrower (which consent shall not be unreasonably withheld) and which
Bank consents to assume the duties of the Agent being replaced; provided,
however, that upon any such resignation or removal, the remaining Agent may
assume the role and responsibilities of the resigning Agent, with the consent of
the Borrower, which consent shall not be unreasonably withheld. If the
remaining Agent chooses not accept to such appointment following a resignation,
the Required Banks shall have the right to appoint a successor Agent, with the
consent of the Borrower, which consent shall not be reasonably withheld. If no
successor Agent shall have been so appointed by the Required Banks, and shall
have accepted such appointment, within 30 days after the retiring Agent's giving
of notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a Bank or a commercial bank organized
under the laws of the United States of America or of any state thereof and
having a combined capital and surplus of at least $50,000,000. Upon the
acceptance of its appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the rights
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent.
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ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period for any Fixed Rate
Borrowing:
(1) the Administrative Agent is advised by the Reference Banks that
deposits in dollars (in the applicable amounts) are not being offered to
the Reference Banks in the relevant market for such Interest Period, or
(2) the Required Banks advise the Administrative Agent that the
Adjusted CD Rate or the Euro-Dollar Rate, as the case may, as determined by
the Administrative Agent will not adequately and fairly reflect the cost to
such Banks of funding their Fixed Rate Loans for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Administrative Agent notifies the Borrower that
the circumstances giving rise to such notice no longer exist: (A)(i) if such
circumstances relate to CD Loans, the obligations of the Banks to make CD Loans
shall be suspended or (ii) if such circumstances relate to the Euro-Dollar
Loans, the obligations of the Banks to make Euro-Dollar Loans shall be suspended
and (B) unless the Borrower notifies the Administrative Agent at least one
Domestic Business Day before the date of any Fixed Rate Borrowing for which a
Notice of Borrowing has previously been given that it elects not to borrow on
such date,
(i) if such Fixed Rate Borrowing is a CD Borrowing, such CD Borrowing
shall instead be made (x) as a Euro-Dollar Borrowing if the Borrower so
elects by notice to the Administrative Agent and all of the procedures set
forth herein for a Euro-Dollar Borrowing can be complied with at such time
or (y) if a Euro-Dollar Borrowing is not possible, then such CD Borrowing
shall instead be made as a Base Rate Borrowing, and
(ii) if such Fixed Rate Borrowing is a Euro-Dollar Borrowing, such
Euro-Dollar Borrowing shall be made (x) as a CD Borrowing if the Borrower
so elects by notice to the Administrative Agent and all of the procedures
set forth herein for a CD Borrowing can be complied with at such time or
(y) if a CD Borrowing is not elected or is not possible, then such Euro-
Dollar Borrowing shall instead be made as a Base Rate Borrowing.
SECTION 8.02. Illegality. If, after the Effective Date, the adoption of
any applicable law, rule or regulation, or any change therein, or any change in
the
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<PAGE>
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Euro-Dollar Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall make it unlawful
or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain
or fund its Euro-Dollar Loans and such Bank shall so notify the Administrative
Agent, the Administrative Agent shall forthwith give notice thereof to the other
Banks and the Borrower whereupon until such Bank notifies the Borrower and the
Administrative Agent that the circumstances giving rise to such suspension no
longer exist (which such Bank shall do forthwith) the obligation of such Bank to
make Euro-Dollar Loans shall be suspended. Before giving any notice to the
Administrative Agent pursuant to this Section, such Bank shall designate a
different Euro-Dollar Lending Office if such designation will avoid the need for
giving such notice and will not, in the reasonable judgment of such Bank, be
otherwise disadvantageous to such Bank. If such Bank shall determine that it
may not lawfully continue to maintain and fund any of its outstanding Euro-
Dollar Loans to maturity and shall so specify in such notice, the Borrower shall
immediately prepay in full the then outstanding principal amount of each such
affected Euro-Dollar Loan, together with accrued interest thereon. Concurrently
with prepaying each such affected Euro-Dollar Loan, the Borrower shall borrow a
Base Rate Loan (or, if the Borrower so elects by at least one Domestic Business
Day's notice to the Administrative Agent and such Bank, the Borrower shall
borrow a CD Loan from such Bank in a principal amount equal to the principal
amount of such affected Euro-Dollar Loan for an Interest Period coincident with
the remaining term of the Interest Period applicable to such affected Euro-
Dollar Loan of the Borrower, and such Bank shall make such a Base Rate (or
other) Loan.
SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after the
Effective Date, in the case of any Loan or any obligation to make Loans or any
obligations to issue or participate in any Letters of Credit, the adoption of
any applicable law, rule or regulation, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Parent or Applicable
Lending Office) with any request or directive (whether or not having the force
of law) of any such authority, central bank or comparable agency:
(i) shall subject any Bank (or its Applicable Lending Office) to any
tax, duty or other charge with respect to its Fixed Rate Loans or
participation in Letters of Credit, its Notes or its obligation to make
Fixed Rate Loans or issue Letters of Credit, or shall change the basis of
taxation of payments to any Bank (or its Applicable Lending Office) of the
principal of or interest on its Fixed Rate Loans or Letters of Credit or
any other amounts due under this Agreement in
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respect of its Fixed Rate Loans or Letters of Credit or its obligation to
make Fixed Rate Loans or issue or participate in Letters of Credit (except
for changes in the rate of tax on the income of such Bank or its Applicable
Lending Office or changes in franchise taxes imposed on it under applicable
law); or
(ii) shall impose, modify or deem applicable any reserve, special
deposit, deposit insurance assessment or similar requirement (including,
without limitation, any such requirement imposed by the Board of Governors
of the Federal Reserve System, but excluding (A) with respect to any CD
Loan any such requirement included in an applicable Domestic Reserve
Percentage and (B) with respect to any Euro-Dollar Loan any such
requirement with respect to which such Bank is entitled to compensation
during the relevant Interest Period under Section 8.05) against assets of,
deposits with or for the account of, or credit extended by, any Bank (or
its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or on the United States market for certificates
of deposit or the London interbank market any other condition affecting its
Fixed Rate Loans, its Notes or its obligation to make Fixed Rate Loans;
and the result of any of the foregoing is to increase the actual cost to such
Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate
Loan or issuing or participating in any Letter of Credit, or to reduce the
amount of any sum received or receivable by such Bank (or its Applicable Lending
Office) under this Agreement or under its Notes with respect thereto, by an
amount reasonably deemed by such Bank to be material, then, within 15 days after
demand by such Bank (with a copy to the Administrative Agent), the Borrower
shall pay to such Bank (without duplication of amounts otherwise payable
hereunder) such additional amount or amounts as will compensate such Bank for
such increased cost or reduction with respect to such affected Fixed Rate Loan
or Letter of Credit or such affected sum.
(b) If any Bank shall have reasonably determined that the adoption of any
applicable law, rule or regulation regarding capital adequacy or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Parent or Applicable Lending Office) with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or has had the effect of reducing the
rate of return on capital of such Bank (or its Parent) as a consequence of such
Bank's obligations hereunder to a level below that which such Bank or its Parent
could have achieved but for such adoption, change or compliance (taking into
consideration such Bank's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within 15
days after demand by such Bank (with a copy to the Administrative Agent), the
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Borrower shall pay to such Bank (without duplication of amounts otherwise
payable hereunder) such additional amount or amounts as will compensate such
Bank or its Parent for such reduction.
(c) Each Bank will promptly notify the Borrower and the Administrative
Agent of any event of which it has knowledge, occurring after the Effective
Date, which will entitle such Bank to compensation pursuant to this Section and
will designate a different Applicable Lending Office if such designation will
avoid the need for, or reduce the amount of, such compensation and will not, in
the reasonable judgment of such Bank, be otherwise disadvantageous to such Bank.
A certificate of any Bank claiming compensation under this Section, setting
forth the additional amount or amounts to be paid to it hereunder and setting
forth in reasonable detail the basis for such compensation shall be conclusive
in the absence of manifest error, and the amount set forth therein shall be
payable by the Borrower within five days after receipt of such certificate. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods.
SECTION 8.04. Substitute Loans. If (i) the obligation of any Bank to
make Euro-Dollar Loans has been suspended pursuant to Section 8.01 or 8.02 or
(ii) any Bank has demanded compensation under Section 8.03(a) and the Borrower
shall, by at least five Euro-Dollar Business Days' prior notice to such Bank
through the Administrative Agent, have elected that the provisions of this
Section shall apply to such Bank, then, unless and until such Bank notifies the
Borrower that the circumstances giving rise to such suspension or demand for
compensation no longer apply (which such Bank shall do forthwith):
(a) all Loans which would otherwise be made by such Bank as CD Loans
or Euro-Dollar Loans, as the case may be, shall be made instead as Base
Rate Loans or, if the Borrower shall so elect in its Notice of Borrowing,
CD Loans or Euro-Dollar Loans (whichever type is not affected by such
circumstances) for an Interest Period coincident with the related Fixed
Rate Borrowing, and
(b) after each of its CD Loans or Euro-Dollar Loans, as the case may
be, has been repaid, all payments of principal which would otherwise be
applied to repay such Fixed Rate Loans shall instead be applied to repay
its Loans made pursuant to Section 8.02 or clause (a) above.
SECTION 8.05. Regulation D Compensation. Each Bank may require the
Borrower to pay, contemporaneously with each payment of interest on Euro-Dollar
Borrowings, additional interest on the related Euro-Dollar Loan of such Bank at
a rate per annum equal to the excess of (i) (A) the applicable Euro-Dollar Rate
divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the rate
specified in clause (i)(A). Any Bank electing to require payment of such
additional interest (x) shall so
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notify the Borrower and the Administrative Agent, in which case such additional
interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at
the place indicated in such notice with respect to each Interest Period
commencing at least five Euro-Dollar Business Days after the giving of such
notice and (y) shall notify the Borrower at least five Euro-Dollar Business Days
prior to each date on which interest is payable on the Euro-Dollar Loans of the
amount then due it under this Section.
SECTION 8.06. Substitution of Bank. If (i) the obligation of any Bank to
make Euro-Dollar Loans has been suspended pursuant to Section 8.01 or 8.02 or
(ii) any Bank has demanded compensation under Section 8.03 or 8.05, or if any
Bank has notified the Borrower that it is not capable of receiving payments
without deduction or withholding pursuant to Section 2.18 the Borrower shall
have the right, with the assistance of the Administrative Agent and the Co-
Agent, to seek a mutually satisfactory substitute bank or banks (which may be
one or more of the Banks) to purchase the Notes for cash without recourse to
such Bank and assume the Commitment and participation in any Letters of Credit
of such Bank. Any such purchase shall be at par, shall be subject to the
provisions of Section 2.14, shall be without prejudice to the Borrower's
obligations under Section 9.04 and shall release such Bank from all further
obligations under this Agreement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. All notices and other communications provided for
herein shall be in writing (including bank wire, telex, telegraph, telecopy,
cable or similar writing) and shall be given to the intended recipient at the
"Address for Notices" specified, if the intended recipient is the Borrower or
any of the Agents, below its name on the signature pages hereof or, if the
intended recipient is a Bank, in such Bank's Administrative Questionnaire, or,
as to any party, at such other address as shall be designated by such party in a
notice to the Borrower and the Administrative Agent. All notices and other
communications shall be effective (i) if given by telex, when such telex is
transmitted to the telex number specified in this Section and the appropriate
answerback is received, (ii) if given by mail, 72 hours after such communication
is deposited in the mails with first class postage prepaid, addressed as
aforesaid, (iii) if given by telecopier, upon telephone confirmation that the
telecopied document has been received by the individual to whom it was
addressed, or (iv) if given by any other means, when delivered at the address
specified in this Section; provided, however, that notices to the Administrative
Agent under
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Article II or VIII hereof shall not be effective until received and notices to
the Borrower under Section 6.01 shall not be effective until such notice is
received.
SECTION 9.02. No Waiver. No failure on the part of any of the Agents or
any Bank to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under this Agreement or any Note shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement or any Note preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
SECTION 9.03. GOVERNING LAW. THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS,
WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES.
SECTION 9.04. Expenses; Documentary Taxes; Indemnification. (a) The
Borrower shall pay, within 30 days after receipt of a reasonably detailed
statement setting forth the amount and nature thereof, (i) all out-of-pocket
expenses of the Agents, including the reasonable fees and disbursements of one
firm serving as special counsel for both Agents, in connection with the
preparation of this Agreement, any waiver or consent hereunder or any amendment
hereof or any Default or alleged Default hereunder and (ii) if an Event of
Default occurs, all out-of-pocket expenses incurred by the Agents or any Bank,
including reasonable fees and disbursements of counsel (either outside counsel
or in-house counsel, as the case may be), in connection with such Event of
Default and collection and other enforcement proceedings resulting therefrom.
The Borrower shall indemnify each Bank against any transfer taxes, documentary
taxes, assessments or charges made by any governmental authority by reason of
the execution and delivery of this Agreement or the Notes.
(B) THE BORROWER AGREES TO INDEMNIFY EACH BANK (AND THEIR RESPECTIVE
DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES) AND EACH AGENT (AND THEIR RESPECTIVE
DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES) AND HOLD EACH BANK AND EACH AGENT
HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, DAMAGES, COSTS AND
EXPENSES OF ANY KIND (INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND
DISBURSEMENTS OF COUNSEL (EITHER OUTSIDE COUNSEL OR IN-HOUSE COUNSEL, AS THE
CASE MAY BE) FOR ANY BANK AND THE AGENTS IN CONNECTION WITH ANY INVESTIGATIVE,
ADMINISTRATIVE OR JUDICIAL PROCEEDING, WHETHER OR NOT SUCH BANK OR THE AGENT
SHALL BE DESIGNATED A PARTY THERETO) WHICH MAY BE INCURRED BY ANY BANK, OR BY
ANY AGENT IN CONNECTION WITH ITS ACTIONS AS AGENT HEREUNDER, RELATING TO OR
ARISING OUT OF ARTICLE VI OR VII OF THIS AGREEMENT OR ANY ACTUAL OR PROPOSED USE
OF PROCEEDS OF LOANS HEREUNDER.
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(C) EACH AGENT AND EACH BANK ENTITLED TO INDEMNITY FROM THE BORROWER UNDER
ANY PROVISION OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE INDEMNIFIED
AND HELD HARMLESS TO THE EXTENT PROVIDED THEREUNDER AGAINST ANY AND ALL LOSSES,
LIABILITIES, DAMAGES, CLAIMS, DEFICIENCIES, JUDGMENTS, COSTS OR REASONABLE
EXPENSES RELATING TO ENVIRONMENTAL LAWS OR RELEASES IF ANY OF SUCH LOSSES,
LIABILITIES, DAMAGES, CLAIMS, DEFICIENCIES, JUDGMENTS, COSTS OR EXPENSES RELATE
TO VIOLATIONS OF REQUIREMENTS OF ENVIRONMENTAL LAWS RESULTING FROM ANY OF THE
BORROWER'S AND ITS CONSOLIDATED SUBSIDIARIES' OPERATIONS (OTHER THAN AS A RESULT
OF AN INDEMNIFIED PERSON'S ACTS OR OMISSIONS IF SUCH INDEMNIFIED PERSON IS
DEEMED TO BE A "PERSON IN CONTROL" UNDER ANY STATE OR FEDERAL STATUTE OR
REGULATION).
(D) WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS BUT IN ALL EVENTS SUBJECT TO PARAGRAPH (E) OF THIS SECTION 9.04,
IT IS THE EXPRESS INTENTION OF THE BORROWER AND THE OTHER PARTIES HERETO THAT
EACH INDEMNIFIED PERSON ENTITLED TO INDEMNITY UNDER ANY PROVISION OF THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE INDEMNIFIED AND HELD HARMLESS TO
THE EXTENT PROVIDED THEREUNDER AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS,
DEFICIENCIES, JUDGMENTS OR REASONABLE EXPENSES ARISING OUT OF OR RESULTING FROM
THE ORDINARY NEGLIGENCE (WHETHER SOLE OR CONTRIBUTORY) OF SUCH INDEMNIFIED
PERSON.
(E) NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR ANY OTHER DOCUMENT OR INSTRUMENT, IN NO EVENT SHALL THE
BORROWER BE LIABLE IN ANY MANNER WITH RESPECT TO ANY LIABILITIES DAMAGES,
LOSSES, CLAIMS, DEFICIENCIES, JUDGMENTS, COSTS OR EXPENSES OF ANY KIND FOR ANY
ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OR
VIOLATION OF LAW ON THE PART OF ANY INDEMNIFIED PERSON.
SECTION 9.05. Amendments, Etc.. Any provision of this Agreement or the
Notes may be amended or waived if, but only if, such amendment or waiver is in
writing and is signed by the Borrower and the Required Banks (and, if the rights
or duties of any Agent are affected thereby, by such Agent); provided, however,
that no such amendment, waiver or modification shall, unless signed by all the
Banks, (i) increase or decrease the Commitment of any Bank (except for increases
to the Commitment of any Bank pursuant to Section 8.06 to which such Bank has
agreed in writing), (ii) reduce the principal of or rate of interest on any Loan
or any fees hereunder, (iii) postpone the date fixed for any payment of
principal of or interest on any Loan or any fees hereunder or for any
termination of any Commitment, (iv) change the percentage of the Commitments or
of the aggregate unpaid principal amount of the Notes, or the number of Banks,
which shall be required for the Banks or any of them to take any action under
this Section or any other provision of this Agreement or (v) amend or waive any
provision of Section 3.01 or this Section 9.05.
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SECTION 9.06. Counterparts; Integration. This Agreement may be executed
in any number of counterparts, all of which taken together shall constitute one
and the same instrument, and any of the parties hereto may execute this
Agreement by signing any such counterpart. This Agreement constitutes the
entire agreement and understanding among the parties hereto and supersedes any
and all prior agreements and understandings, oral or written, relating to the
subject matter hereof.
SECTION 9.07. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans or any or all of its Commitment Percentage of Letter of
Credit Outstandings. In the event of any such grant by a Bank of a participating
interest to a Participant, whether or not upon notice to the Borrower and the
Agents, such Bank shall remain responsible for the performance of its
obligations hereunder, and the Borrower and the Agents shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. Any agreement pursuant to which any Bank may
grant such a participating interest shall provide that such Bank shall retain
the sole right and responsibility to enforce the obligations of the Borrower
hereunder including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement; provided, however,
that such participation agreement may provide that such Bank will not agree to
any modification, amendment or waiver of this Agreement described in clause (i),
(ii), (iii) or (iv) of Section 9.05 without the consent of the Participant. The
Borrower agrees that each Participant shall be entitled to the benefits of
Sections 2.14 and 9.04 and Article VIII with respect to its participating
interest; provided, however, that all amounts payable to a Bank for the account
of a Participant under Sections 2.14 and 9.04 and Article VIII shall be
determined as if such Bank had not granted such participation to the
Participant. An assignment or other transfer which is not permitted by
subsection (c) below shall be given effect for purposes of this Agreement only
to the extent of a participating interest granted in accordance with this
subsection (b).
(c) Any Bank may, upon 5 days notice to the Administrative Agent and the
Borrower, assign to one or more banks or other institutions (each an "Assignee")
all, or a proportionate part of all (in minimum amounts of $10,000,000 and in
multiples of $1,000,000), of its rights and obligations under this Agreement and
the Notes, and such Assignee shall assume such rights and obligations, pursuant
to an instrument executed by such Assignee and such transferor Bank, with (and
subject to) the written
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consent of the Borrower and the Administrative Agent; which shall not be
unreasonably withheld; provided, however, that if an Assignee is the local
Federal Reserve Bank branch for the region in which such Bank is located and is
receiving a collateral assignment or is an affiliate of such transferor Bank, no
such consent shall be required. Upon execution by the transferor Bank, the
Borrower, the Assignee and the Agents, and delivery of, such an instrument and
payment by such Assignee to such transferor Bank of an amount equal to the
purchase price agreed between such transferor Bank and such Assignee, such
Assignee shall be a Bank party to this Agreement and shall have all the rights
and obligations of a Bank with a Commitment as set forth in such instrument of
assumption, and the transferor Bank shall be released from its obligations
hereunder to the extent of such assignment, and no further consent or action by
any party shall be required. Upon the consummation of any assignment pursuant
to this subsection (c), the transferor Bank, the Agents and the Borrower shall
make appropriate arrangements so that, if required, new Notes are issued to the
Assignee. Prior to the issuance of any such new Note, the Assignee to which
such Note is issued shall pay to the Administrative Agent a fee of $2,000.00.
(d) No Assignee or other transferee of any Bank's rights shall be entitled
to receive any greater payment under Section 8.03 than such Bank would have been
entitled to receive with respect to the rights transferred, unless such transfer
is made with the Borrower's prior written consent or by reason of the provisions
of Section 8.02 or 8.03 requiring such Bank to designate a different Lending
Office under certain circumstances or at a time when the circumstances giving
rise to such greater payment did not exist.
(e) If any Reference Bank assigns its Notes to an unaffiliated
institution, the Administrative Agent shall, in consultation with the Borrower
and with the consent of the Required Banks, appoint another bank to act as a
Reference Bank hereunder.
SECTION 9.08. Survival. The obligations of the Borrower under Article
VIII and Section 9.04 shall survive the repayment of the Loans and the
satisfaction of the Letter of Credit Outstandings and the termination of the
Commitments.
SECTION 9.09. Acknowledgement. The Borrower acknowledges that the Banks
have entered into this Agreement in reliance on the Borrower's assurance that
the Borrower does not intend to use the proceeds of any Borrowings hereunder in
a manner which would violate any applicable law or governmental rule or
regulation.
SECTION 9.10. Headings. The Table of Contents and Article and Section
headings used herein shall not affect the interpretation of any provision of
this Agreement.
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SECTION 9.11. Sharing of Setoffs. Each Bank agrees that, if it shall, by
exercising any right of setoff or counterclaim or otherwise, receive payment of
a proportion of the aggregate amount of principal and interest due with respect
to any Note held by it or any Letter of Credit Outstandings which is greater
than the proportion received by any other Bank in respect of the aggregate
amount of principal and interest due with respect to any Note held by such other
Bank or any Letter of Credit Outstandings (other than disproportionate payments
to any Bank provided for by this Agreement), the Bank receiving such
proportionately greater payment shall purchase such participation in the Notes
held by, or the rights in respect of Letter of Credit Outstandings of, the other
Banks, and such other adjustments shall be made, as may be required so that all
such payments of principal and interest with respect to the Notes and Letter of
Credit Outstandings held by the Banks shall be shared by the Banks pro rata;
provided, however, that nothing in this Section shall impair the right of any
Bank to exercise any right of setoff or counterclaim it may have and to apply
the amount recovered thereby to the payment of indebtedness of the Borrower
other than its indebtedness under the Notes, or in respect of Letter of Credit
Outstandings. If under any applicable bankruptcy, insolvency or other similar
law, any Bank receives a secured claim in lieu of a setoff to which this Section
applies, such Bank shall, to the extent practicable, exercise its rights in
respect of such secured claim in a manner consistent with the rights of the
Banks entitled under this Section to share in the benefits of any recovery on
such secured claim.
SECTION 9.12. Collateral. Each of the Banks represents to the Agents and
each of the other Banks that it in good faith is not relying upon any "margin
stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
SECTION 9.13. CONSENT TO JURISDICTION. (a) THE BORROWER IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT SITTING IN HARRIS
COUNTY, TEXAS OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY NOTE OR ANY LETTER OF CREDIT. THE BORROWER IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. THE BORROWER AGREES THAT A FINAL, NONAPPEALABLE JUDGMENT IN ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH A COURT SHALL BE CONCLUSIVE AND
BINDING UPON THE BORROWER AND MAY BE ENFORCED IN ANY FEDERAL OF STATE COURT
SITTING IN THE STATE OF TEXAS (OR ANY OTHER COURTS TO THE JURISDICTION OF WHICH
THE BORROWER IS OR MAY BE SUBJECT) BY A SUIT UPON SUCH JUDGMENT; PROVIDED,
HOWEVER, THAT SERVICE OF PROCESS IS EFFECTED
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UPON THE BORROWER IN ONE OF THE MANNERS SPECIFIED IN SUBSECTION (b) OF THIS
SECTION OR AS OTHERWISE PERMITTED BY LAW.
(b) SERVICE OF PROCESS. THE BORROWER HEREBY CONSENTS TO PROCESS BEING
SERVED IN ANY SUIT, ACTION OR PROCEEDING REFERRED TO IN THE FIRST SENTENCE OF
SUBSECTION (a) OF THIS SECTION IN ANY FEDERAL OR STATE COURT SITTING IN HARRIS
COUNTY, TEXAS BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED AIR MAIL,
POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO THE BORROWER AT ITS ADDRESS
SPECIFIED IN SECTION 9.01 OR TO ANY OTHER ADDRESS OF WHICH THE BORROWER SHALL
HAVE GIVEN WRITTEN NOTICE TO THE ADMINISTRATIVE AGENT. THE BORROWER IRREVOCABLY
WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, ALL CLAIM OF ERROR BY REASON OF
ANY SUCH SERVICE IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY ANY AGENT OR ANY
BANK. THE BORROWER AGREES THAT SUCH SERVICE, TO THE FULLEST EXTENT PERMITTED BY
LAW, SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE
BORROWER IN ANY SUCH SUIT, ACTION OR PROCEEDING AND SHALL BE TAKEN AND HELD TO
BE VALID AND PERSONAL SERVICE UPON AND PERSONAL DELIVERY TO THE BORROWER.
(c) NO LIMITATION ON SERVICE OR SUIT. NOTHING IN THIS ARTICLE SHALL
AFFECT THE RIGHT OF ANY AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR LIMIT THE RIGHT OF ANY AGENT OR ANY BANK TO BRING
PROCEEDINGS OTHERWISE PERMITTED BY LAW AGAINST THE BORROWER IN THE COURTS OF THE
JURISDICTION OF ANY BANK'S LENDING OFFICE OR THE COURTS OF ANY JURISDICTION OR
JURISDICTIONS IN WHICH THE BORROWER HAS ANY ASSETS.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
LYONDELL PETROCHEMICAL COMPANY
By:
Title: Russell S. Young
Senior Vice President, Chief Financial Officer
and Treasurer
Address for Notices:
One Houston Center
Suite 1600
1221 McKinney Street
P.O. Box 3646
Houston, Texas 77253-3646
Attn: Treasurer
Telephone No.: (713) 652-7200
Telecopier No.: (713) 652-7430
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as
Administrative Agent
By:
Title: D. G. Mills
Vice President
Address for Notices:
712 Main Street
Houston, Texas 77002
Attn: Syndications Department
Telephone No.: (713) 216-4037
Telecopier No.: (713) 216-2339
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CONTINENTAL BANK N.A., as Co-Agent
By:
Title: R. R. Ingersoll
Managing Director
Address for Notices:
231 South LaSalle Street, 10th Floor
Chicago, IL 60697
Attn: Kathryn Rayford
Telephone No.: (312) 828-3488
Telecopier No.: (312) 984-5614
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EXHIBIT 22
SUBSIDIARIES
Lyondell Petrochemical de Mexico, a Delaware corporation
Lyondell Licensing, Inc., a Delaware corporation
ARCO Mont Belvieu Corporation, a Delaware corporation
Lyondell Refining Company, a Delaware corporation
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following registration
statements of Lyondell Petrochemical Company, Post-Effective Amendment No. 3 to
Registration Statement on Form S-8 (No. 33-26868), Post-Effective Amendment
No. 3 to Registration Statement on Form S-8 (No. 33-26866), Post-Effective
Amendment No. 3 to Registration Statement on Form S-8 (No. 33-26870), Post
Effective Amendment No. 3 to Registration Statement on Form S-8 (No.
33-26867), Registration Statement on Form S-8 (No. 33-31564), Registration
Statement on Form S-8 (No. 33-32683), of our report dated February 11, 1994 on
our audits of the consolidated financial statements and financial statement
schedules of Lyondell Petrochemical Company as of December 31, 1993 and 1992
and for each of the three years in the period ended December 31, 1993, which
report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND
Houston, Texas
March 16, 1994
<PAGE>
EXHIBIT 25
LYONDELL PETROCHEMICAL COMPANY
POWER OF ATTORNEY
-----------------
Each person whose signature appears below hereby constitutes and appoints
Bob G. Gower, Joseph M. Putz and Russell S. Young, and each of them, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, in connection with any outstanding securities of
Lyondell Petrochemical Company (the "Company"), or any public offering or other
issuance of any securities of the Company authorized by the Board of Directors
of the Company, or by the Executive Committee thereof pursuant to due
authorization by such Board, (1) to execute and file, or cause to be filed, with
the United States Securities and Exchange Commission (the "Commission"), (A)
Registration Statements and any and all amendments (including post-effective
amendments) thereto and to file, or cause to be filed, all exhibits thereto and
other documents in connection therewith as required by the Commission in
connection with such registration under the Securities Act of 1933,
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as amended, and (B) any report or other document required to be filed by the
Company with the Commission pursuant to the Securities Exchange Act of 1934, as
amended, (2) to execute and file, or cause to be filed, any application for
registration or exemption therefrom, any report or any other document required
to be filed by the Company under the Blue Sky or securities law of any of the
United States and to furnish any other information required in connection
therewith, (3) to execute and file, or cause to be filed, any application for
registration or exemption therefrom under the securities laws of any
jurisdiction outside the United States, including any reports or other documents
required to be filed subsequent to the issuance of such securities, and (4) to
execute and file, or cause to be filed, any application for listing such
securities on the New York Stock Exchange, or any other securities exchange in
any other jurisdiction where any such securities are proposed to be sold,
granting to such attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act required to be done as he or she
might or could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents, and each of them, may lawfully do or cause to be
done by virtue of this power of attorney. Each person whose signature appears
below may at any time revoke this power of attorney as to himself or herself
only by an instrument in writing specifying that this power of attorney is
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revoked as to him or her as of the date of execution of such instrument or at a
subsequent specified date. This power of attorney shall be revoked
automatically with respect to any person whose signature appears below effective
on the date he or she ceases to be a member of the Board of Directors or an
officer of the Company. Any revocation hereof shall not void or otherwise
affect any acts performed by any attorney-in-fact and agent named herein
pursuant to this power of attorney prior to the effective date of such
revocation.
Dated: March 4, 1994
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<CAPTION>
Signature Title
--------- -----
<S> <C>
MIKE R. BOWLIN Chairman of the Board and
------------------------------ Director
Mike R. Bowlin
BOB G. GOWER President, Chief Executive
------------------------------ Officer and Director
Bob G. Gower
(Principal Executive Officer)
RUSSELL S. YOUNG Senior Vice President,
------------------------------ Chief Financial Officer and
Russell S. Young Treasurer
(Principal Financial Officer)
JOSEPH M. PUTZ Vice President and
------------------------------ Controller
Joseph M. Putz
(Principal Accounting Officer)
</TABLE>
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<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
DR. WILLIAM T. BUTLER Director
------------------------------
Dr. William T. Butler
ALLAN L. COMSTOCK Director
------------------------------
Allan L. Comstock
TERRY G. DALLAS Director
------------------------------
Terry G. Dallas
STEPHEN F. HINCHLIFFE, JR. Director
------------------------------
Stephen F. Hinchliffe, Jr.
DUDLEY C. MECUM II Director
------------------------------
Dudley C. Mecum II
WILLIAM C. RUSNACK Director
------------------------------
William C. Rusnack
DAN F. SMITH Director
------------------------------
Dan F. Smith
PAUL R. STALEY Director
------------------------------
Paul R. Staley
WILLIAM E. WADE, JR. Director
------------------------------
William E. Wade, Jr.
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