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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _____ TO ______
COMMISSION FILE NUMBER 1-11154
ULTRAMAR DIAMOND SHAMROCK CORPORATION*
(Exact name of registrant as specified in its charter)
DELAWARE 13-3663331
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9830 COLONNADE BOULEVARD
SAN ANTONIO, TEXAS 78230
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (210) 641-6800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class: Name of each exchange on which registered:
----- -- ---- ------ ---- -- ---- -------- -- ----- -----------
COMMON STOCK, $.01 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 Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1997:
Common Stock, $.01 Par Value $2,266,462,381
The number of shares outstanding of the registrant's common stock as of
February 28, 1997:
Common Stock, $.01 Par Value-- 74,761,739 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the annual stockholders' meeting to be held
on May 6, 1997 are incorporated by reference into Part III.
* The Registrant was formerly known as Ultramar Corporation. Following
the merger of Diamond Shamrock, Inc. with and into Ultramar Corporation,
the Registrant was renamed Ultramar Diamond Shamrock Corporation.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I 1 BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2 PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . 17
PART II 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6 SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 20
8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . 31
9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . 56
PART III 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . 56
11 EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . 56
PART IV 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
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CERTAIN FORWARD-LOOKING STATEMENTS
This Annual Report (including the documents incorporated by reference herein)
contains certain forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) and information relating to
the Company that are based on beliefs of, as well as assumptions made by and
information currently available to, the management of the Company. When used
in this Annual Report, the words "anticipate," "believe," "estimate," "expect,"
"intend" and similar expressions identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions relating
to, among other things, the operations and results of operations of the
Company, competitive factors and pricing pressures, shifts in market demand and
general economic conditions, and assumed cost savings and other synergistic
benefits of the Merger. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
or outcomes may vary materially from those described herein.
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
PART I
ITEM 1. BUSINESS
Ultramar Diamond Shamrock Corporation (the "Company" or "UDS", formerly
Ultramar Corporation), was formed in April 1992 to acquire the United States
and Canadian refining and marketing operations of Ultramar PLC from LASMO plc,
a U.K. oil and gas exploration and production company. On December 3, 1996,
Diamond Shamrock, Inc. ("Diamond Shamrock") merged with and into the Company
(the "Merger"). In connection with the Merger, the Company issued 29,876,507
shares of its Common Stock and 1,725,000 shares of its newly created 5%
Cumulative Convertible Preferred Stock in exchange for all the outstanding
Common Stock and 5% Cumulative Convertible Preferred Stock of Diamond Shamrock.
The shareholders of Diamond Shamrock received 1.02 shares of UDS Common Stock
for each share of Diamond Shamrock Common Stock and one share of UDS 5%
Cumulative Convertible Preferred Stock for each share of Diamond Shamrock 5%
Cumulative Convertible Preferred Stock. The Company also amended its
certificate of incorporation to change its name from Ultramar Corporation to
Ultramar Diamond Shamrock Corporation. The Common Stock is listed on the New
York and Montreal stock exchanges under the symbols "UDS" and "ULR,"
respectively. UDS has approximately 17,200 employees and its principal
executive offices are located at 9830 Colonnade Boulevard, San Antonio, Texas
78230, (210) 641-6800.
The Company is a leading independent refiner and marketer of petroleum products
in the southwest United States (the "Southwest") and the northeast United
States and eastern Canada (collectively, the "Northeast"). In 1996, the
Company sold over 400,000 barrels per day ("BPD") of petroleum products and had
total revenues of $10.2 billion. The Company is one of the largest independent
refining and marketing companies in the United States and the largest retail
marketer of gasoline in the state of Texas. The Company owns and operates a
150,000 BPD refinery near Amarillo, Texas (the "McKee Refinery"), a 100,000 BPD
refinery in Los Angeles County, California (the "Wilmington Refinery") and an
90,000 BPD refinery near San Antonio, Texas (the"Three Rivers Refinery"). The
Company markets petroleum products and a broad range of convenience store items
and other merchandise in the Southwest under the Diamond Shamrock(R),
Beacon(R), and Ultramar(R) brand names through a network of 2,972 outlets
located across ten states. The Company also stores and markets natural gas
liquids, manufactures and markets anhydrous ammonia and polymer-grade propylene
at its facilities at Mont Belvieu, near Houston, and operates certain other
related businesses in the Southwest.
The Company is also one of the largest independent petroleum refining and
marketing companies in the Northeast. The Company owns and operates a 160,000
BPD refinery in St. Romuald, Quebec (the "Quebec Refinery") and markets
petroleum products through 1,320 retail outlets and 84 cardlocks. The Company
is also one of the largest retail home heating oil companies in the Northeast,
selling heating oil to approximately 210,000 households.
THE COMPANY'S OPERATIONS
See Note 17 to the financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for financial
information regarding the Company and its domestic and foreign operations.
Southwest Refining
The Company owns and operates three modern refineries strategically located
near its key markets. Two of the refineries are located in Texas, serving
markets in Texas and surrounding states. The other southwestern refinery is
located in Wilmington, near Los Angeles, serving markets primarily in
California and Arizona.
The McKee Refinery, located near Amarillo, Texas, and the Three Rivers
Refinery, located near San Antonio, Texas, have an aggregate refining capacity
of approximately 225,000 BPD of throughput. The Three Rivers Refinery relies
primarily on foreign crude oil for feedstock while the McKee Refinery uses a
varying blend of domestically produced
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crude oils. In 1996, the crude oil processed at the McKee Refinery had an
average gravity of 39.5degreesAPI, and a 0.25wt% sulfur content. Crude oil
processed at the Three Rivers Refinery had an average gravity of 37.2 degrees
API and a 0.25wt% sulfur content. The Company operated the McKee and Three
Rivers refineries at levels which averaged 96% of capacity in 1996.
Approximately 94% of the refinery output was light end products, including
gasoline, diesel, jet fuels, and liquefied petroleum gases. The refineries also
produce sulfur, sulfuric acid, ammonium thiosulfate, refinery grade propylene,
fuel oil, asphalt and carbon black oil.
The Wilmington Refinery is capable of processing over 100,000 BPD of total
throughput, including over 70,000 BPD of crude oil and, because of additional
capacity in its downstream units, over 30,000 BPD of partially refined
feedstocks and blendstocks. Like other California refineries, the Wilmington
Refinery operates principally on a blend of Californian and Alaskan North Slope
crude oils, supplemented, to a limited extent, by foreign crude oils. Given
its coking and desulfurizing capabilities, the Wilmington Refinery is
particularly well suited to process heavy, high-sulfur crude oils, which
historically have cost less than other crude oils. In 1996, the Wilmington
Refinery's processing stream was comprised of approximately 32% heavy sour
crude oil, 40% heavy crude oil and 28% of the more expensive Alaskan North
Slope crude oil (or its equivalent). In 1996, the crude oil processed at the
Wilmington Refinery had an average gravity of 22 degrees API and a 2.1wt% sulfur
content.
The McKee Refinery supplies conventional gasoline and, since 1994, Federal
specification reformulated gasoline ("RFG") and other oxygenated gasoline, to
markets in Texas and surrounding states. A portion of the oxygenates used in
manufacturing RFG and other oxygenated gasoline is manufactured at the McKee
Refinery and the balance is obtained from other manufacturers. The McKee plant
also manufactures low-sulfur diesel meeting governmental specifications for
on-road use.
During 1995 and 1996, the Company completed work on several expansion projects
at its Three Rivers Refinery which allow the refinery to be more flexible in
selecting its crude oil feedstock, to upgrade its product slate and to expand
its throughput capacity to approximately 90,000 BPD. The projects included a
demetalized oil hydrotreater, a hydrogen plant, a sulphur recovery plant and
expansion of the crude unit. The final phase of the expansion, the heavy
gasoil hydrotreater, was completed during the third quarter of 1996.
The Three Rivers Refinery began processing natural gas liquids ("NGL") from
local gas processing plants in early 1995. A 50-mile pipeline and
modifications to existing equipment were completed in March 1996 to enable the
Three Rivers plant to produce and transport a purity ethane product to a
commercial ethylene plant for processing.
The Company is nearing completion of a benzene/toluene/xylene ("BTX")
extraction and fractionation unit at the Three Rivers Refinery, which will
enable the Company to recover these valuable petrochemical feedstocks from the
refinery's gasoline pool. Completion of the BTX unit is scheduled for the
first quarter of 1997.
The Wilmington Refinery produces unleaded gasolines, diesel fuel, jet fuel,
petroleum coke and other unfinished products. In 1996, the Wilmington Refinery
had an average throughput of 102,700 BPD with a saleable yield of approximately
101%, including a light products yield of approximately 92%. In 1996, the
Wilmington Refinery produced 53,400 BPD of unleaded gasoline and 31,100 BPD of
distillate, of which 26,200 BPD was jet and diesel fuel.
The Wilmington Refinery is the newest refinery in California and one of the
most modern, technologically-advanced and energy-efficient refineries in North
America. The majority of its facilities were constructed in the early 1980s
and were built to comply with environmental regulations and permitting
requirements applicable to newly constructed facilities in California which
were in many respects more stringent than those applicable to then existing
facilities. In September 1994, the Company completed the construction of a
naphtha hydrotreating unit, enabling the Wilmington Refinery to produce 100%
Federal specification RFG. In the first quarter of 1996, the Company completed
a capital program which enabled the refinery to produce 100% California Air
Resources Board ("CARB") specification reformulated gasoline. The Company also
completed the construction of a high-pressure gasoil hydrotreating unit (the
"GOH") in 1996, which increased the capacity of the Wilmington Refinery to
produce finished product and enabled the refinery to run a lower cost, higher
sulfur gasoil and additional lower cost, heavy, higher sulfur crude oils.
Completion of these two projects
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increased throughput capacity at the Wilmington Refinery by 10,000 BPD to
100,000 BPD.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Capital Expenditures".
Southwest Supply and Distribution
The ability to supply the Company's refineries from a variety of sources is
essential to remain competitive. The Company's network of crude oil pipelines
gives the Company the ability to acquire crude oil from producing leases, major
domestic oil trading centers and Gulf and West Coast ports and to transport
crude oil to the Company's southwestern refineries at a competitive cost.
The McKee Refinery has access to crude oil from the Texas Panhandle, Oklahoma,
southwestern Kansas and eastern Colorado through approximately 1,223 miles of
crude oil pipeline owned or leased by the Company. This refinery is also
connected by common carrier pipelines to major crude oil centers in Cushing,
Oklahoma and Midland, Texas. The McKee Refinery also has access at Wichita
Falls, Texas to major pipelines which transport crude oil from the Texas Gulf
Coast and major West Texas oil fields into the Mid-Continent region. The
Company has tankage to store approximately 520,000 barrels of crude oil at the
McKee Refinery and tankage to store an additional 928,000 barrels throughout
the system supplying crude oil to the refinery.
The Three Rivers Refinery has access to crude oil from foreign sources
delivered to the Texas Gulf Coast at Corpus Christi, Texas, as well as crude
oil from domestic sources. A new crude oil terminal in Corpus Christi, which
has a total storage capacity of 1.6 million barrels, was added in 1995 to
enhance its access to foreign crude oil. The addition of a fourth 400,000
barrel tank to the terminal in the first half of 1996 enables the Company to be
more flexible in taking delivery of and in blending crude oil feedstock for the
Three Rivers Refinery. The addition of the new tank should also reduce the
Company's demurrage expense (the charge assessed by a ship for the time it is
delayed in port to unload cargo) by allowing the Company to accept delivery of
larger crude oil cargos at the terminal, thereby decreasing the number of such
deliveries and reduce transportation expense by eliminating the need to
terminal a portion of the Company's crude oil receipts through facilities
located near Corpus Christi which are owned by other parties. The Corpus
Christi crude oil terminal is connected to the Three Rivers Refinery by a 92
mile pipeline which has the capacity to deliver 120,000 barrels of crude oil
per day to the refinery. The Three Rivers Refinery also has access to West
Texas Intermediate crude oil through common carrier pipelines and to crude oil
production in South Texas.
The Wilmington Refinery has 2.8 million barrels of storage capacity and is
connected by pipeline to marine terminals and associated dock facilities, which
can be utilized for movement and storage of crude oil, feedstocks, gasoline
blending components and fuel oil blendstocks. The Company operates a product
marine terminal and a dock facility which are leased from the Port of Los
Angeles and the Company owns tanks at the marine terminal with a storage
capacity of 980,000 barrels.
The Company acquires a portion of its crude oil requirements through the
purchase of futures contracts on the New York Mercantile Exchange. The Company
also uses the futures market to manage the price risk inherent in purchasing
crude oil in advance of the delivery date and in maintaining its inventories.
The Company has access to a large supply of crude oil from both domestic and
foreign sources, most of which is obtained under short-term supply agreements.
Although the Company has no crude oil reserves and therefore its operations
could be adversely affected by fluctuations in availability of crude oil and
other supplies, the Company believes that it is currently advantageous to
maintain short-term supply agreements to enable the Company to purchase crude
oil at attractive prices. Feedstocks are also obtained from a variety of
refineries under short-term supply agreements. The Company believes that the
current sources of crude oil and feedstocks will be sufficient to meet
substantially all the Company's requirements for the foreseeable future.
The Company has a long-term contract for the supply of hydrogen to the
Wilmington Refinery which is sufficient to meet its increased need as a result
of the operation of the GOH and new environmental regulations which became
effective
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in 1996 and a long-term contract for the supply of hydrogen to the Three Rivers
Refinery hydrocracker which is sufficient to supply hydrogen to the
hydrocracker in quantities required beyond those produced at the Three Rivers
Refinery.
Refined products produced at the McKee and Three Rivers refineries are
distributed primarily through approximately 3,357 miles of refined products
pipelines and 14 terminals. The Company's refined products terminal at
Southlake, near Dallas, also receives products from the Explorer Pipeline, a
major common carrier of refined products from the Houston area.
Over the last several years, the Company has added significantly to its product
distribution system, in part by the construction of new product pipelines to
connect the Company's refineries to expanding markets and, in part, by adding
to or purchasing additional capacity in existing product pipelines.
In November 1995, the Company commenced operation of a newly-constructed,
408-mile, 10-inch pipeline from the McKee Refinery to El Paso, Texas, along
with a terminal in El Paso from which the Company distributes product delivered
via the pipeline. The pipeline can currently deliver 30,000 BPD of refined
products, including gasoline, diesel, jet fuels and propane, and the new
terminal provides storage capacity for approximately 500,000 barrels of
product. The pipeline gives the Company the ability to deliver refined
products from the McKee Refinery directly to the El Paso market, in which the
Company has established a significant market presence, and to deliver refined
products to markets in Arizona through a common carrier pipeline originating in
El Paso. The Company has announced plans to expand the delivery capacity of
the El Paso pipeline to 40,000 barrels per day in 1997.
Available capacity in the Amarillo-Tucumcari-Albuquerque products pipeline,
which carries products from the McKee Refinery, has been expanded both by the
purchase of the one-half interest of a pipeline partner and by construction
projects that expanded the capacity of that line by an additional 2,000 BPD,
giving the line a total product delivery capacity from the McKee Refinery of
12,600 BPD. The Company has announced plans to cooperate with the other joint
owner of the pipeline to expand its total carrying capacity from 23,000 BPD to
32,000 BPD in 1997.
In 1994, the Company completed construction of a products pipeline from the
McKee Refinery to the Colorado Springs, Colorado area. The project included a
10-inch pipeline to Colorado Springs, Colorado with an initial capacity of
32,000 BPD, covering approximately 258 miles, which connects to a new terminal
facility with a total product storage capacity of 320,000 barrels. In 1996,
the Company extended the pipeline to its Denver terminal.
Refined petroleum products are distributed from the Wilmington Refinery by
pipeline to a network of product terminals owned by third parties in Southern
California, Nevada and Arizona, and then on to the Company's retail stations
and wholesale customers.
In addition to its product pipelines and terminals, the Company has
historically entered into product exchange and purchase agreements which enable
it to minimize transportation costs, balance product availability, broaden
geographical distribution capabilities and supply markets not connected to its
refined products pipeline system. Exchange agreements provide for the delivery
of refined products to unaffiliated companies at the Company's terminals in
exchange for delivery of a similar amount of refined products to the Company by
such unaffiliated companies at agreed locations. Purchase agreements involve
the purchase by the Company of refined products from unaffiliated companies
with delivery occurring at agreed locations. Products are currently received
on exchange or by purchase through 69 terminals and distribution points
throughout the Company's principal marketing areas. Most of the Company's
exchanges and purchase arrangements are long-standing arrangements, but
generally can be terminated on 30 to 90 days notice. The Company believes it
is unlikely that there will be an interruption in its ability to exchange
refined product in the foreseeable future.
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Southwest Marketing
The Company is one of the largest independent retail marketers of petroleum
products in the Southwest. The Company has a strong brand identification in
much of its ten-state marketing area, including Texas, California, Colorado,
Louisiana, New Mexico and Oklahoma. Gasoline and diesel fuel are sold under
the Diamond Shamrock(R), Beacon(R) and Ultramar(R) brand names through a
network of 2,972 company and dealer operated retail outlets. In 1996, the
Company's total marketing sales (wholesale and retail) of refined product in
its southwest market averaged 416,600 BPD. The Company has one of the highest
average sales volumes per service station in the southwest, with sales per
company-operated station averaging 74,500 gallons per month during 1996. The
volume of gasoline sold through the company-operated network of 1,600
southwestern retail outlets during 1996 equaled approximately 54% of the
gasoline the Company produced at its three southwestern refineries. The volume
of gasoline the Company sold to independent branded and unbranded dealers and
jobbers, commercial and end user accounts and other resellers exceeded the
remainder of the Company's gasoline production. To the extent the Company's
requirements exceed the production at its refineries, the Company purchases
product for resale.
Total retail outlets at the dates indicated below were as follows:
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December 31,
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1996 1995 1994
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Company owned and operated 783 857 496
Company leased and operated 817 802 314
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Total company operated 1,600 1,659 810
Dealer and jobber operated 1,372 1,403 1,406
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Total retail outlets 2,972 3,062 2,216
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During the three-year period ended December 31, 1996, the Company acquired or
constructed 957 retail outlets in the Southwest. The Company plans to acquire
or construct approximately 22 sites in 1997, most of which will be located in
Arizona. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Capital Expenditures."
In December 1995, the Company acquired National Convenience Stores Incorporated
("NCS"), which became a wholly owned subsidiary of the Company. At the time of
its acquisition, NCS operated 661 specialty convenience stores, over 90% of
which sold gasoline in four cities in the state of Texas under the name Stop N
Go. During 1996, the Company began integrating the NCS stores with the rest of
the Company's retail operations and began selling Diamond Shamrock branded
gasoline through most of its Stop N Go outlets. The Company continues to use
the Stop N Go name for most of the NCS convenience stores.
As of December 31, 1996, company-operated retail outlets in the southwestern
market were located in Texas (1,203), California (170), Colorado (129), New
Mexico (45), Louisiana (35) and Arizona (18). Most of the Company's company-
operated retail outlets are modern, attractive, high-volume gasoline outlets.
In addition, these outlets sell a wide variety of products such as groceries,
health and beauty aids, fast foods and beverages.
The Company has an ongoing program to modernize and upgrade the retail outlets
it operates. These efforts are designed to improve appearances and to create a
uniform look easily recognizable by customers. Exterior improvements generally
include the installation of new price signs, lighting and canopies over the
gasoline pumping areas. The program also includes the installation of
computer-controlled pumping equipment and the renovation of interiors.
The Company is continuing its program of closing and selling retail outlets
which have marginal profitability or which are situated outside its principal
marketing areas. During 1996, the Company closed or sold 102 such outlets.
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As of December 31, 1996, independent dealers and jobbers operated 1,372 Diamond
Shamrock(R), Beacon(R) or Ultramar(R) branded retail outlets. The Company
enjoys long-term relationships with many of its independent dealers.
The Company's competitive position is supported by its own proprietary credit
card programs, which had approximately 965,000 active accounts at the end of
1996. The Company currently utilizes electronic point-of-sale credit card
processing ("POS") at most of its Company and dealer operated stores. POS
reduces transaction time at the sales counter and lowers the Company's credit
card program costs by reducing float, reducing charges paid by the Company to
accept other companies' credit cards for purchases, eliminating postage and
insurance costs and reducing bad debts. The Company has instituted a program of
installing dispenser-mounted credit card readers at high volume company
operated retail locations.
In June 1994, the Company completed the installation of a computer based,
intelligent retail information system ("IRIS") at its company-operated Diamond
Shamrock(R) stores. IRIS incorporates an enhanced POS system and will automate
inventory control, pricing and sales tracking. IRIS interfaces with the
Company's new dispenser-mounted credit card readers and the continuous
underground storage tank monitoring system now being installed by the Company.
During 1996, the Company integrated its NCS stores into the electronic data
processing system and, during 1997, plans to begin integrating its Beacon(R)
and Ultramar(R) company-operated sites.
Southwest Petrochemical and Allied Businesses
In addition to its core refining and marketing businesses, the Company is
engaged in several related businesses. The most significant are described
below.
The Company owns and operates large underground natural gas liquids and
petrochemical storage and distribution facilities located at the Mont Belvieu
salt dome, northeast of Houston. The facilities have total permitted storage
capacity of approximately 77 million barrels and consist of 30 wells. The
facilities are used for storing and distributing ethane, ethane/propane mix,
ethylene, propane, natural gasoline, butane and isobutane, as well as refinery,
chemical-grade and polymer-grade propylene. The Mont Belvieu facilities
receive products from the McKee Refinery through the Skelly-Belvieu pipeline
(which the Company operates and in which it owns a 50% interest), as well as
from local fractionators and through major pipelines coming from the
Mid-Continent region, West Texas and New Mexico. In 1996, an average of
approximately 261,700 BPD of natural gas liquids and petrochemicals moved
through the facilities and were distributed via an extensive network of
pipeline connections to various refineries and petrochemical complexes on the
Texas and Louisiana Gulf Coasts, earning various storage and distribution fees
for the Company.
During the third quarter of 1996, the Company completed construction of a
second propane/propylene splitter at its Mont Belvieu hydrocarbon storage
facility. A subsidiary of American PetroFina, Inc. ("Fina") has a one-third
interest in the two splitters. The Company and Fina each pay their
proportionate share of the costs and receive in kind their proportionate share
of the products produced at the plant.
The two splitters are capable of producing approximately 1.6 billion pounds of
polymer-grade propylene per year. Polymer-grade propylene is a feedstock used
in the manufacture of plastics. The plant utilizes refinery-grade propylene
produced by the McKee and Three Rivers Refineries and other refineries for
feedstock. The Company's storage facilities at Mont Belvieu are used to store
feedstock for the splitters and polymer-grade propylene after it is produced.
The product is distributed by pipeline to purchasers in the Houston Ship
Channel area and to export facilities. In 1996, the Company's share of
production from the splitters totaled over 736 million pounds of polymer-grade
propylene and the Company was successful in marketing product in excess of that
amount.
A petrochemical export terminal located on the Houston Ship Channel in which
the Company has a joint venture interest was completed and commenced operation
in August 1992. The terminal is connected by pipeline to the Company's
splitters and petrochemical storage facilities at Mont Belvieu. The terminal
provides the Company with access to international petrochemical markets.
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The Company indirectly owns approximately 34% of the outstanding shares of Sol
Petroleo, S.A. ("Sol"), an Argentine company headquartered in Buenos Aires,
whose shares are publicly traded on the Argentine stock exchange. Sol
currently markets gasoline under the Sol brand through 102 retail gasoline
outlets and convenience stores in Argentina, 12 of which are Sol-operated and
90 of which are operated by independent dealers. In May 1996, Sol purchased
Carboclor Industrias Quimicas S.A., an Argentine corporation in the business of
manufacturing petrochemicals.
In January 1997, the Company sold its 75% interest in a Bolivian oil and gas
exploration and production operation. The Bolivian operations were owned
jointly by a wholly-owned subsidiary of the Company and Phoebus Energy, Ltd., a
Bermuda corporation in which the Company owns a 50% interest.
The Company also sold a substantial portion of its wholly-owned subsidiary,
North American InTeleCom, Inc. ("NAI"), during 1996 and sold its remaining
interest in early 1997. NAI operates telephone systems for use by inmates in
correctional facilities, provides pay telephone services, manages the pay
telephone accounts of several regional retailers and provides prepaid calling
card services.
Northeast Refining
The Quebec Refinery has a capacity of 160,000 BPD and is one of the most modern
and efficient refineries in Canada. The refinery's capacity has been expanded
by 40,000 BPD over the last four years as the result of a relatively low cost
debottlenecking and reconfiguration of the crude and fluid catalytic cracking
units. In 1996, the Quebec Refinery's processing stream was comprised of
approximately 56.2% light, sweet crude oil (including Heidrun crude oil), 41.5%
medium crude oil, 1.3% heavy, asphaltic crude oil and 1.0% condensate. The
crude oil processed at the refinery had an average gravity of 33.5 degrees API
and a 0.29wt% sulfur content.
In 1996, the Quebec Refinery had an average throughput of 143,900 BPD with a
saleable yield of approximately 99.6%, including a light products yield of
approximately 87.0%. In 1996, the refinery manufactured 142,300 BPD of product
of which 61,100 BPD was gasoline, 60,100 BPD was distillate, including diesel
fuel and home heating oil and 21,100 BPD was other products, principally heavy
fuel oil and asphalt. In 1996, the total sales of refined products for the
Northeast averaged 159,000 BPD.
Northeast Supply and Distribution
The Quebec Refinery receives crude oil by ship at its deep-water dock. The
location of the refinery and the water depth of the St. Lawrence River at the
dock allow the refinery to receive year-round shipments of crude oil on large
crude oil tankers. The Company's ability to receive one million barrel cargoes
offers a significant advantage over the two other Quebec Province refiners,
which are located in Montreal and typically receive crude oil by pipeline from
Portland, Maine, following ocean shipment in smaller cargo sizes. The Company
has time charters on three large crude oil carrying vessels which are
double-bottomed and double-hulled and are capable of navigating the St.
Lawrence River in the winter. They provide the base shipping requirements for
transportation to the Quebec Refinery and are supplemented by short-term and
single voyage charters. The Quebec Refinery has storage capacity for more than
eight million barrels of crude oil, intermediate and refined products as well
as pressurized storage for liquefied petroleum gas.
The Company has supply contracts with major international oil companies which
supply the Quebec Refinery's requirements for light, sweet crude oils from the
North Sea and West Africa, principally on a spot market price basis. The
Company obtains the majority of its heavy asphaltic crude oils from Venezuela.
In addition, the Company purchases crude oils and feedstocks on the spot market
when it is economically advantageous to do so. The Company believes that there
are extensive supplies of light, sweet crude oils available to it in the
foreseeable future. While the Company has no crude oil reserves and therefore
its operations could be adversely affected by fluctuations in availability of
crude oil and other supplies, the Company believes that, given the wide
availability of North Sea and West African crude oils in the international
market, its operations would not be materially adversely affected if its
existing supply contracts were canceled.
9
<PAGE> 10
Refined product is transported from the Quebec Refinery by coastal ship, truck
and railroad tank car. The Company operates a distribution network of
approximately 71 bulk storage facilities throughout the Northeast, including 23
terminals. Reciprocal product exchange arrangements with other refiners are
used to minimize transportation costs, optimize refinery utilization and
balance product availability in particular locations with marketing demands.
About 40% of the Quebec Refinery's light products yield is exchanged with major
Canadian refining and marketing companies, with the Company supplying product
at the Quebec Refinery and, to a lesser extent, in Montreal, and receiving
product at multiple locations in the Provinces of Quebec, Ontario, the
Maritimes and Newfoundland.
Northeast Marketing
The Company is a major supplier of refined petroleum products in eastern
Canada, serving Quebec, Ontario and the Atlantic Provinces of Newfoundland,
Nova Scotia, New Brunswick and Prince Edward Island. In addition, during 1996,
the Company expanded its home heating oil business into the northeastern United
States by acquiring several home heating oil operations in Massachusetts, New
York and Vermont. In 1996, the Company's total marketing sales (wholesale and
retail) of refined product averaged 159,000 BPD. Motorist sales volume at
company and dealer operated sites averaged 39,500 gallons per month per station
in 1996.
The Company sold gasoline and diesel fuel through a network of 1,320 branded
service stations and 84 cardlocks located throughout eastern Canada in 1996.
Approximately 78.0% of these facilities are branded Ultramar(R), with the
Sergaz(R), XL(R) and Pipeline(R) brands also used. During 1995, the Company
initiated a program to convert a major portion of its retail network from
lessee and agent-operated to company-operated sites and to add approximately
450 convenience stores to its network over the next several years. At December
31, 1996, Ultramar operated 139 of the 617 service stations it owned or
controlled under long-term lease. In addition, the Company distributed
gasoline through another 703 branded dealer locations throughout this market
which are owned or controlled by independent business people. The remaining
service station sites in the Canadian network are owned or leased by station
operators and are supplied under independent dealership agreements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Capital Expenditures."
The Company has one of the largest home heating oil operations in North
America. In 1996, Ultramar sold home heating oil to approximately 210,000
households in eastern Canada and the United States. The development of the
Company's Northeast heating oil business is progressing slightly ahead of the
plan adopted in the Fall of 1995. During 1996 acquisitions added approximately
35,000 heating oil customers. The Company has one of the largest cardlock
operations in the Northeast, servicing approximately 6,400 accounts through
eighty-four cardlocks. A cardlock is a card or key- activated, self-service,
unattended pump installation that allows commercial fleets, trucking companies
and government fleets to buy transportation fuels on account twenty-four hours
per day. In addition, the Company supplies more than 2,160 commercial and
industrial accounts and approximately 260 branded and unbranded wholesale
customers.
COMPETITIVE CONSIDERATIONS
The Company's refineries and supply and distribution networks are strategically
found to serve its markets. The Company consistently sells more a refined
product than its refineries produce, purchasing its additional requirements in
the spot market. This strategy has enabled the Company to operate its
refineries at high rates while allowing for incremental refinery capacity
expansions to be quickly utilized upon completion.
Quality products and strong brand identification have positioned the Company as
the largest marketer of motor fuels in Texas, with a market share of
approximately 15%, and the second largest independent marketer in California,
with a market share of approximately 7%. The Company also has significant
branded gasoline market shares in Colorado, New Mexico and Louisiana. In
Quebec, the Company is the largest independent marketer of motor fuels with a
market share in excess of 23%. The Company also has a substantial share of the
motor fuels market in the Atlantic Provinces.
10
<PAGE> 11
The retail markets have historically been highly competitive. Competitors
include a number of well capitalized and fully-integrated major oil companies
and both large and small independent operators. Industry studies indicate that
over the past several years, the retail markets have been characterized by
several significant trends including (i) increased store rationalization by
retailers to fewer geographic regions and (ii) increased consumer emphasis on
convenience. Additionally, operators have closed marginal and unprofitable
locations as a result of increasing environmental regulations requiring
replacement of underground storage tanks. Industry studies indicate that
consumer buying behavior continues to reflect the effect of increasing demands
on consumer time. Convenience and the time required to make a purchase are
increasingly important considerations in buying decisions. The Company
believes these two trends may result in opportunities to increase market share
in the Company's core markets.
The Company's earnings and cash flow from operations are primarily dependent
upon processing crude oil and selling quantities of refined products at
refining and retail marketing margins sufficient to cover fixed and variable
expenses. Crude oil and refined products are commodities. Crude oil costs and
refined product prices depend on numerous factors beyond the Company's control,
including the supply of and demand for crude oil, gasoline and other refined
products which in turn depend on, among other factors, changes in domestic and
foreign economies and production levels, the availability of imports, the
marketing of competitive fuels, political affairs and the extent of government
regulation. The prices received by the Company for its refined products are
affected by regional factors, such as product pipeline capacity, local market
conditions and the level of operations of competing refineries. A large, rapid
increase in crude oil prices would adversely affect the Company's operating
margins if the increased cost of raw materials could not be passed on to the
Company's customers. In recent years, crude oil costs and prices of refined
products have fluctuated substantially. The industry also tends to be seasonal
with increased demand for gasoline during the summer driving season and, in the
Northeast, for home heating oil during the winter.
REGULATORY MATTERS
Environmental
The Company's refining and marketing operations are subject to a variety of
laws and regulations in the U.S. and Canada governing the discharge of
contaminants into, or otherwise relating to, the environment. The Company
believes that its operations are in substantial compliance with all applicable
environmental laws.
The principal environmental risks associated with the Company's operations are
emissions into the air and releases to soil or groundwater. The unintended
release of emissions at refineries, terminals and service stations and from
ships, trains, pipelines and trucks may occur despite stringent operational
controls and the best management practices. Such releases may give rise to
liability under environmental laws and regulations in the U.S. and Canada
relating to contamination of air, soil, groundwater and surface waters. The
Company employs personnel specifically trained to prevent occurrences and to
address and remediate these problems in the event they arise. In addition, the
Company has adopted policies, practices and procedures in the areas of
pollution control, product safety and occupational health; the production,
handling, storage, use and transportation of refined petroleum products; and
the storage, use and disposal of hazardous materials, designed to prevent
material environmental or other damage and the material financial liability
which could result from such events.
The total cost for environmental assessment and remediation depends on a
variety of regulatory standards, some of which cannot be anticipated. The
Company establishes environmental accruals when site restoration and
environmental remediation and clean up obligations are either known or
considered probable and can be reasonably estimated. Accruals for
environmental matters amounted to approximately $151.4 million at December 31,
1996. These accruals include Southwest Operations - $129.6 million and
Northeast Operations - $21.8 million.
The Company believes that its environmental risks will not, individually or in
the aggregate, have a material adverse effect on its financial or competitive
position. See "Legal Proceedings--Environmental" for a discussion of legal
11
<PAGE> 12
proceedings involving the Company relating to environmental matters.
Southwest Operations
During 1996, two Agreed Orders were entered into with the Texas Natural
Resource Conservation Commission for the McKee and Three Rivers refineries.
The McKee Order resolved alleged violations concerning the injection of treated
refinery wastewater. The Three Rivers Order dealt with alleged solid and
hazardous waste violations. The Company has met the terms and conditions of
and is in compliance with both Orders. The estimated ongoing costs associated
with these items have been accrued.
In December 1996, the United States Environmental Protection Agency filed
Requests for Information from the McKee and Three Rivers Refineries. The
Requests for Information, relating to hazardous waste and Clean Air Act
compliance issues, substantially reflected the Company's disclosures to the
Texas Natural Resource Conversation Commission upon completion of audits at
those facilities conducted pursuant to the Texas Environmental, Health and
Safety Audit Privilege Act (the "Audit Act").
Regulations issued by the EPA require underground storage tanks to be upgraded
by December 1998. The Company has met all interim deadlines and has upgraded
approximately 90% of its systems to the 1998 standards and plans to complete it
upgrade program by December 1998. The anticipated assessment and remediation
costs associated with the program are included in the liability reserve
previously mentioned.
The Company has accrued liabilities for environmental remediation obligations
at various sites, including four multiparty sites where the Company has been
identified as a potentially responsible party ("PRP"). The involvement of
other financially responsible parties mitigates the Company's exposure at
these sites.
In 1990, Ultramar Inc., a wholly owned subsidiary of the Company ("UI"), was
notified that it had been named as one of approximately 90 Potentially
Responsible Parties ("PRP") by the U.S. Environmental Protection Agency in
connection with the Purity Oil Superfund site in Fresno, California. The site
was allegedly used by the PRPs, including branches of the U.S. military, as a
waste disposal site and waste oil recycling facility. Preliminary
investigations of the site indicate that off-site groundwater contamination has
occurred. The EPA served an administrative order requiring certain of the PRPs
to undertake remediation of the site. No such order has been served on UI, nor
is the Company aware of any current intention on the part of the EPA to serve
such an order on UI, nor any intent on the part of any other PRP to assert
liability against the Company. The Company's review of the information on
which the EPA bases its claim of PRP status has revealed no facts to support
the claim that the Company disposed of waste at the site. At this point, the
remediation is in the second of three stages and the current estimate for
clean-up for the entire site is approximately $40.0 million. The Company is
participating in an alternative dispute resolution process with the EPA's
Department of Toxic Substances Control and many of the other PRPs as a means to
resolve each PRP's proportionate share of the liability. The Company's
expenditures to date have been minimal as the Company has not been one of the
parties against which the EPA has established liability.
In 1985, UI was named as one of four responsible parties at the Kings County
Dump site, a former municipal landfill. The primary responsible party is the
Kings County Waste Management Authority, which owns the site and whose
predecessor operated the site. The Company believes that UI's involvement with
this site stems from its predecessor's authorized disposal of spent refinery
caustic between 1954 and 1964. The Company is cooperating with the Kings
County Waste Management Authority to assess the contamination at the site.
Preliminary findings indicate that this site was used for municipal solid waste
disposal and for disposal of industrial and agricultural waste which are
unrelated to the Company's operations. To date, the Company has spent
approximately $1.0 million in its collaborative efforts with the Kings County
Waste Management Authority to assess and partially remediate the site.
However, there is no current estimate of the total cost of remediation.
12
<PAGE> 13
In February 1994, UI received notification from the California Environmental
Protection Agency, Department of Toxic Substances Control ("DTSC") that UI may
be a PRP with respect to a state Superfund site involving a former waste
management company known as TCL Industries (the "TCL Site"). During the 1950s
and 1960s, TCL Industries operated sumps that accepted oil field production and
other potentially hazardous wastes. The entire TCL Site is approximately 200
acres. UI owns approximately 24 acres that were acquired from the former owner
of the Wilmington Refinery that may be within the TCL Site. TCL Industries did
not operate on any portion of the 24-acre parcel, although the former owner
maintained sumps on that parcel in which oil field production wastes were
disposed. The acquisition agreement with the former owner provides that they
will be the PRP with respect to the TCL Site and that any liability UI incurs
in connection with the TCL Site will be covered by indemnification provisions
that limit UI's aggregate exposure through 2008 to $15.0 million for all costs
for contamination resulting from activities prior to the Company's acquisition
of the Wilmington Refinery to the extent the costs result from a study or
remediation that is required by a governmental directive. At this time, the
Company is unable to determine the extent of its liability, if any, on the TCL
Site or evaluate the extent or cost of clean up on its portion of the TCL Site.
Due to the indemnification arrangement with the former owner of the Wilmington
Refinery, the Company does not believe that liability arising out of the TCL
Site, if any, would have a material adverse effect on its operations or
financial position.
In Texas, the Freddie Harris State Superfund Site involves the cleanup of
acidic asphalt sludges which were disposed of at a sand and gravel operation by
an acquired company in the late 1960's. The Company is the lone remaining
viable party to handle this remediation.
The Waste Oil Tank Services State Superfund Site located in Houston, Texas, is
the site of a used oil recycling business which was sold by the Company in
1979. The Company, along with approximately 12 other parties, is responsible
for remediation of this site. Removal activities took place at the site in
1996.
In 1991, the Company, along with one other party, entered into a
Non-Interference Order with the EPA concerning alleged hydrocarbon
contamination from a 1968 pipeline release in Albuquerque. The Company is
working closely with the EPA and State of New Mexico and has installed a soil
venting system.
Northeast Operations
The Company has spent over $10.7 million during the past three years on capital
expenditures required to comply with various Canadian, Provincial and other
environmental rules and regulations and has budgeted approximately $19.4
million for environmental capital expenditures in 1997. As with its Southwest
operations, much of the capital spent by the Company in the Northeast for
environmental compliance is integrally related to projects that increase
refinery capacity or improve product mix and the Company does not specifically
identify capital expenditures related to such projects on the basis of
environmental as opposed to economic purpose.
The Company has ongoing projects to assess and remediate certain contamination
at its Northeast facilities, including contamination from the on-site disposal
of sludges, residues and tank bottoms at its Quebec Refinery and Halifax
terminal (the site of the Company's former Halifax Refinery). Based on
findings to date, the Company believes that the reserve previously mentioned is
appropriate in light of anticipated environmental assessment and remediation
costs for these facilities.
The Company voluntarily implemented an ongoing, comprehensive underground
storage tank upgrade program, which includes soil and groundwater remediation
where necessary. To date, the program has resulted in upgrading the
underground tanks at approximately 95% of the 617 company-owned and leased
service stations. The Company believes that the reserve previously mentioned
is sufficient to cover the costs of soil and groundwater remediation at the
remaining service stations. The Company anticipates that this program will
greatly reduce the likelihood of unanticipated releases of refined products in
the future.
The Company, together with the Quebec Ministry of Environment and the Montreal
Urban Community, is investigating the presence of free phase hydrocarbons
discovered in an area adjacent to underground pipelines serving the Company's
13
<PAGE> 14
Montreal East terminal. The Company has yet to determine if it is responsible
for the contamination as the pipelines are located in a corridor shared by
several other terminals and businesses operating in the area. In addition, the
Company has notified the Ministry of subsurface contamination in the vicinity
of an oil-water separator at the Quebec Refinery which exceeds the Ministry's
guidelines for oil and grease at commercial industrial sites. At this time,
the Company is unable to determine the extent of its liability, if any, at the
pipeline site or evaluate the extent or cost of clean up at the pipeline or
refinery sites. However, the Company does not believe that the resulting
liability, if any, would have a material adverse effect on its operations or
financial position.
The Company believes that the Quebec provincial government will issue new
refinery effluent regulations in 1998 that, if adopted, will require
modifications and additions to the Quebec Refinery's waste water treatment
facilities. The Company has prepared detailed process design plans and
estimates the cost of potential capital expenditure required to comply with the
expected regulations to be approximately $11.6 million. It is expected that
any required construction for the modifications and new equipment would begin
in 1998.
Health and Safety
The Company's operations are also subject to various laws and regulations
relating to occupational health and safety. The Company maintains
comprehensive safety, training and maintenance programs which it believes are
adequate to comply with these laws and regulations.
EMPLOYEES
As of December 31, 1996, the Company and its subsidiaries had approximately
17,200 employees, including salaried and hourly employees, 15,000 of whom were
employed in the United States and 2,200 of whom were employed in Canada.
Approximately 330 hourly paid workers at the McKee Refinery are affiliated with
the Oil, Chemical and Atomic Workers International Union, AFL-CIO, with which
the Company has a contract extending to April 1999. In California, the Company
has approximately 60 employees covered by ten collective bargaining agreements
that expire on July 1, 1997. In Canada, the Company has 202 employees covered
by four agreements expiring on various dates through December 1999. In
Springfield, Massachusetts, the Company has approximately 40 employees
affiliated with the New England Teamsters and Trucking Industry Union. The
Company believes that it maintains good relations with its employees.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the Company's executive officers, together with
their ages and positions as of February 28, 1997:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Roger R. Hemminghaus 60 Chairman of the Board and Chief Executive Officer
Jean Gaulin 54 Vice Chairman of the Board, President and Chief Operating Officer
Timothy J. Fretthold 47 Executive Vice President and Chief Administrative Officer
Patrick J. Guarino 54 Executive Vice President, General Counsel and Secretary
William R. Klesse 50 Executive Vice President, Refining, Product Supply and Logistics, Southwest
J. Robert Mehall 54 Executive Vice President, Corporate Development, Petrochemicals / NGL's and Crude Oil
Supply
H. Pete Smith 55 Executive Vice President and Chief Financial Officer
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C>
Robert S. Beadle 47 Senior Vice President, Retail Marketing, Southwest
W. Paul Eisman 41 Senior Vice President, Refining, Southwest
Alain Ferland 43 Senior Vice President, Refining, Product Supply and Logistics, Northeast
Christopher Havens 42 Senior Vice President, Marketing, Northeast and Wholesale
A.W. O'Donnell 64 Senior Vice President, Marketing, Southwest
</TABLE>
All executive officers were appointed to the positions above on December 3,
1996, following stockholder approval of the Merger.
Roger R. Hemminghaus is Chairman of the Board and Chief Executive Officer of
the Company, and has served in those capacities since the Merger. Previously,
he was Chairman of the Board, President and Chief Executive Officer of Diamond
Shamrock, Inc.
Jean Gaulin is Vice Chairman of the Board, President and Chief Operating
Officer of the Company, and has served in those capacities since the Merger.
Previously, he was Chairman of the Board and Chief Executive Officer of
Ultramar Corporation.
Timothy J. Fretthold is Executive Vice President and Chief Administrative
Officer of the Company. He has served in that capacity since the Merger.
Previously, he was Senior Vice President/Group Executive and General Counsel of
Diamond Shamrock, Inc.
Patrick J. Guarino is Executive Vice President, General Counsel and Secretary,
and has served in that capacity since the Merger. From April 1996 to the
Merger, he was Senior Vice President, General Counsel and Secretary of Ultramar
Corporation. Previously he was Vice President, General Counsel and Secretary
of Ultramar Corporation.
William R. Klesse is Executive Vice President, Refining, Product Supply and
Logistics Southwest. He has served in that capacity since the Merger.
Previously, he was Executive Vice President and prior thereto he was Senior
Vice President of Diamond Shamrock, Inc.
J. Robert Mehall is Executive Vice President, Corporate Development,
Petrochemicals / NGL's, and Crude Oil Supply. He has served in that capacity
since the Merger. Previously, he was Executive Vice President and, prior
thereto he was Senior Vice President of Diamond Shamrock, Inc.
H. Pete Smith is Executive Vice President and Chief Financial Officer. He has
served in that capacity since the Merger. From April 1996 to the Merger, he
was Senior Vice President and Chief Financial Officer of Ultramar Corporation.
Previously, he was Vice President and Chief Financial Officer of Ultramar
Corporation.
Robert S. Beadle is Senior Vice President, Retail Marketing of the Company and
has served in that capacity since the Merger in December 1996. Previously, he
was Vice President, Retail Marketing and Vice President, Wholesale Marketing of
Diamond Shamrock, Inc.
W. Paul Eisman is Senior Vice President, Refining, Southwest. He has served in
that capacity since the Merger. Previously, he was Vice President, Refining,
and Group Executive of Diamond Shamrock, Inc. Prior to his promotion to Vice
President, he served in various senior positions with Diamond Shamrock, Inc.
Alain Ferland is Senior Vice President Refinery, Product Supply and Logistics,
Northeast. He has served in that capacity since the Merger. He was appointed
President of Ultramar Canada Inc. in June 1996 and prior thereto he served as
Executive Vice President of Ultramar Canada Inc. since October 1993. From
October 1991 to October 1993, Mr. Ferland was Senior Vice President of Ultramar
Canada Inc.
Christopher Havens is Senior Vice President, Marketing, Northeast and
Wholesale. He has served in that capacity since
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<PAGE> 16
the Merger. He was appointed President of Ultramar Energy Inc. in March 1996.
From October 1993 to March 1996, he was Senior Vice President, Marketing, of
Ultramar Canada Inc. Prior to October 1993, Mr. Havens held a variety of
senior marketing positions with Ultramar.
A. W. O'Donnell is Senior Vice President, Marketing, Southwest. He has served
in that capacity since the Merger. Previously, he was Senior Vice
President/Group Executive and Vice President, Marketing of Diamond Shamrock,
Inc.
ITEM 2. PROPERTIES
The Company owns the McKee, Three Rivers, Quebec and Wilmington Refineries and
related facilities in fee. The Company also owned approximately 1,223 miles of
crude oil pipelines and 3,357 miles of refined product pipelines at the end of
1996. Forty-one miles of the Company's crude oil pipelines and 1,246 miles of
its refined products pipelines were owned jointly with one or more other
companies. The Company's interests in such pipelines were between 30% and 54%.
At December 31, 1996, the Company owned 71 bulk storage facilities in the
Northeast. The Company also owned 14 products terminals in the Southwest.
Thirteen of the terminals were 100% owned by the Company and one terminal was
owned 60% by the Company. The Company leases the property on which its Corpus
Christi crude oil terminal is situated, under a lease which has 17 years
remaining under its primary term, followed by six consecutive five year renewal
options.
The principal properties used in the Company's marketing operations at the end
of 1996 were 1,737 company-operated retail outlets, 881 of which were owned in
fee and 856 of which were leased. Of the leased outlets, 199 were leased to
the Company pursuant to a $190.0 million lease facility expiring in December
2003. At the end of the lease term, the Company may purchase the properties or
renew the lease with the lessor's consent or arrange for a sale of the outlets.
During 1996, the Company entered into a similar $100.0 million lease facility
expiring in July 2003. At December 31, 1996 only one site was leased under the
new facility. For a description of the company-operated retail outlets, see
"Southwest Marketing" and "Northeast Marketing" in Item 1. Business above.
The principal plants and properties used in the Company's Petrochemical and
Allied Businesses segment are the hydrocarbon storage facility at Mont Belvieu,
which the Company owns, and the jointly-owned propane splitters at Mont
Belvieu. See "Southwest Petrochemical and Allied Businesses" in Item 1.
Business above.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in a number of hydrocarbon remediation projects. While
such cleanup projects are typically conducted under the supervision of a
governmental authority, they do not involve proceedings seeking material
monetary damages from the Company and are not expected to be material to the
Company's operations or financial position. See Item 1. Business - Regulatory
Matters.
The Company is involved in various claims and lawsuits arising in the normal
course of business. In the opinion of the Company's management, based upon the
advice of counsel, the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial or competitive position.
16
<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Stockholders was held on December 3, 1996 at which the
following actions were taken:
1. The Agreement and Plan of Merger dated as of September 22, 1996 between
Ultramar Corporation and Diamond Shamrock, Inc. was approved:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
33,021,942 122,278 45,859
</TABLE>
2. The adoption of the Ultramar Diamond Shamrock Corporation 1996 Long
Term Incentive Plan was approved:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
23,629,920 7,908,020 1,652,139
</TABLE>
Broker non-votes were counted in the determination of the number of shares
present and voting for purposes of determining the presence of a quorum at the
Special Meeting but were not, however, counted for purposes of determining the
number of votes cast for a proposal.
17
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York and Montreal stock
exchanges under the symbols "UDS" and "ULR," respectively. The table below
sets forth, for the periods indicated, the high and low sales prices on the New
York Stock Exchange of the Company's Common Stock and dividends thereon.
<TABLE>
<CAPTION>
Sales Price Cash
----- ----- Dividends
High Low Declared
---- --- --------
<S> <C> <C> <C>
Year 1995
---- ----
1st Quarter 26 3/4 22 1/2 $.275
2nd Quarter 28 5/8 23 7/8 $.275
3rd Quarter 27 1/2 23 1/4 $.275
4th Quarter 26 5/8 22 1/2 $.275
Year 1996
---- ----
1st Quarter 29 1/2 26 1/8 $.275
2nd Quarter 32 7/8 28 3/4 $.275
3rd Quarter 30 1/2 25 7/8 $.275
4th Quarter 32 3/4 27 3/4 $.275
Year 1997
---- ----
1st Quarter (through February 28, 1997) 32 3/8 28 3/4 $.275
</TABLE>
In the first quarter of 1997, the Company also declared a dividend of $.625 per
share on its 5% Cumulative Convertible Preferred Stock.
The Company expects to continue its policy of paying regular cash dividends.
The timing, amount and form of future dividends, however, will be determined by
the Company's Board of Directors and will depend on, among other things, future
earnings, capital requirements, financial condition and the availability of
dividends and other payments from subsidiaries which are subject to the
limitations described in Note 10 to the financial statements and discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
As of February 28, 1997, there were 74,761,739 shares of Common Stock
outstanding which were held by 12,181 holders of record.
ITEM 6. SELECTED FINANCIAL DATA
The consolidated selected financial data for the five year period ended
December 31, 1996 has been derived from the audited consolidated financial
statements of the Company for the four years and six months ended December 31,
1996 and, with the exception of cash dividends per share on Common Stock, has
been restated to include the results of Diamond Shamrock for all periods
presented prior to the Merger on December 3, 1996. Net loss for the year
ended December 31, 1996 includes Merger and integration costs of $77.4 million
and approximately $50.4 million of one time non-cash charges principally to
conform accounting practices between Diamond Shamrock and Ultramar, including
the accrual of estimated future environmental and other obligations.
The consolidated selected financial data as of December 31, 1996 and 1995 and
for each of the three years in the period ended December 31, 1996 should be
read in conjunction with the audited consolidated financial statements and
related notes thereto included elsewhere herein and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
18
<PAGE> 19
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1996(2) 1995(2)(3) 1994 1993(4) 1992(5)(6)
---- ---- ---- ---- ----
(in millions, except per share data) PRO FORMA
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales and other revenues(1) . . . . . $10,208.4 $8,083.5 $7,418.3 $7,056.3 $5,746.6
Operating income . . . . . . . . . . 69.9 226.8 299.2 279.2 233.7
(Loss) Income before cumulative effect of
accounting change . . . . . . . . (35.9) 95.0 136.8 119.1 82.7
Net (loss) income . . . . . . . . . . (35.9) 117.0 136.8 104.9 65.0
(Loss) income per common and common
equivalent share:
Primary:
(Loss) income before cumulative effect of
accounting change: . . . . . . (.54) 1.30 1.93 1.71 1.23
Net (loss) income . . . . . . . . (.54) 1.61 1.93 1.50 .97
Fully-diluted:
(Loss) income before cumulative effect of
accounting change . . . . . . . (.54) 1.29 1.90 1.71 1.23
Net (loss) income . . . . . . . . (.54) 1.59 1.90 1.50 .97
Cash dividends per share:
Common . . . . . . . . . . . . . 1.10 1.10 1.10 1.10 .55
Preferred . . . . . . . . . . . 2.50 2.50 2.50 1.28
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents . . . . . . $ 197.9 $ 175.5 $ 82.5 $ 110.2 $ 151.8
Working capital . . . . . . . . . . . 265.4 385.7 361.3 395.3 518.8
Total assets . . . . . . . . . . . . 4,420.0 4,216.7 3,384.4 3,073.9 3,089.9
Long-term debt . . . . . . . . . . . 1,646.3 1,557.8 1,042.5 980.5 1,111.8
Stockholders' equity . . . . . . . 1,240.9 1,328.0 1,122.3 1,069.3 949.3
</TABLE>
(1) During 1996, the Company changed its presentation of sales and other
revenues to include Federal excise and state motor vehicle fuel taxes
collected on the sale of product which were previously reported as a
reduction of the corresponding tax expense. Sales and other revenues
for the four years ended December 31, 1995 has been adjusted to conform
to the presentation used in 1996.
(2) On December 14, 1995, Diamond Shamrock acquired National Convenience
Stores ("NCS"), which operated 661 speciality convenience stores, for a
net cost of approximately $280.0 million. The acquisition (the "NCS
Acquisition") was accounted for using the purchase method of accounting
and, accordingly, the results of operations of NCS are included from the
date of acquisition.
(3) During the second quarter of 1995, the Company changed its method of
accounting for refinery maintenance turnaround costs from an accrual
method to a deferral method. The change resulted in a cumulative
adjustment through December 31, 1994 of $22.0 million (after income
taxes of $13.4 million) or $.31 per share, which is included in net
income for the year ended December 31, 1995. The effect of the change
on the year ended December 31, 1995 was to increase income before
cumulative effect of accounting change by approximately $3.5 million
($.05 per share) and net income by $25.5 million ($.36 per share). Had
the change in accounting for refinery maintenance turnaround costs been
in effect since the beginning of 1992, net income for the years ended
December 31, 1994, 1993 and 1992 would have been $143.4 million ($2.03
per share), $115.0 million ($1.65 per share) and $77.0 million ($1.15
per share), respectively.
(4) In 1993, Diamond Shamrock changed its method of accounting for certain
liabilities resulting from an agreement with its former parent. The
change resulted in a cumulative adjustment through December 31, 1992 of
$14.2 million (after income tax benefit of $9.4 million), or $.14 per
share, which is reflected in net income for the year ended December 31,
1993.
(5) In 1992, Diamond Shamrock changed its method of accounting for
post-retirement benefits other than pensions and its method of
accounting for income taxes. The aggregate cumulative effect of these
changes as of January 1, 1992 of $17.7 million (after income tax benefit
of $10.3 million), or $.15 per share, is included in net income for the
year ended December 31, 1992.
(6) Historical data for the year ended December 31, 1992 has been adjusted
to reflect the Company's initial public offering of Common Stock and
debt and acquisitions of Ultramar Inc. ("UI) and Canadian Ultramar
Company ("CUC", formerly Canadian Ultramar Limited) in June 1992 as if
such transactions had been completed on January 1, 1992.
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
On December 3, 1996, the Company issued 29,876,507 shares of its Common Stock
and 1,725,000 shares of its newly created 5% Cumulative Convertible Preferred
Stock in exchange for all the outstanding Common and 5% Cumulative Convertible
Preferred Stock of Diamond Shamrock, Inc. ("Diamond Shamrock") pursuant to an
Agreement and Plan of Merger dated September 22, 1996. Common shareholders of
Diamond Shamrock received 1.02 shares of UDS Common Stock for each share of
Diamond Shamrock Common Stock and one share of UDS 5% Cumulative Convertible
Preferred Stock for each share of Diamond Shamrock 5% Cumulative Convertible
Preferred Stock. The Company also amended its certificate of incorporation to
change its name to Ultramar Diamond Shamrock Corporation. The Merger was
accounted for using the pooling of interests method.
The Company's operating results are affected by Company-specific factors, such
as its refinery utilization rates and refinery maintenance turnarounds;
seasonal factors, such as the demand for petroleum products and working capital
requirements in the Northeast, both of which vary significantly during the
year; and industry factors, such as movements in and the general level of crude
oil prices, the demand for and prices of refined products and industry supply
capacity. The effect of crude oil price changes on the Company's operating
results is determined, in part, by the rate at which refined product prices
adjust to reflect such changes. As a result, the Company's earnings have been
volatile in the past and may be volatile in the future.
During 1995, the Company changed its method of accounting for refinery
maintenance turnaround costs from an accrual method to a deferral and
amortization method to better match revenues and expenses. The change resulted
in a cumulative adjustment through December 31, 1994 of $22.0 million (after
income taxes of $13.4 million) or $.31 per share, which is included in net
income for the year ended December 31, 1995. To facilitate the comparison to
the results of operations for the years ended December 31, 1996 and 1995,
historical data for the year ended December 31, 1994 has been adjusted to
reflect the change in accounting for refinery maintenance turnaround costs as
if the new method had been applied from the inception of the Company.
RESULTS OF OPERATIONS - 1996 COMPARED TO 1995
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996(1) 1995(2)
--------------------------------- --------------------------------------
SOUTHWEST NORTHEAST TOTAL SOUTHWEST NORTHEAST TOTAL
--------- --------- ----- --------- --------- -----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Sales and other revenues . . . . . . $7,161.6 $3,046.8 $10,208.4 $5,432.2 $2,651.3 $8,083.5
Cost of products sold . . . . . . . . 4,728.9 1,821.1 6,550.0 3,324.3 1,538.8 4,863.1
Operating expenses . . . . . . . . . 802.4 125.7 928.1 553.4 118.9 672.3
Selling, general and
administrative expenses . . . . . . 128.8 173.2 302.0 89.6 165.1 254.7
Taxes other than income taxes . . . . 1,278.4 822.7 2,101.1 1,215.7 714.6 1,930.3
Depreciation and amortization . . . . 153.5 26.4 179.9 111.4 24.9 136.3
Merger and integration costs . . . . 77.4
-------- -------- --------- -------- -------- --------
Operating income . . . . . . . . 69.6 77.7 69.9 137.8 89.0 226.8
Interest expense, net . . . . . . . . 93.0 17.1 110.1 54.7 25.0 79.7
-------- -------- --------- -------- -------- --------
(Loss) income before income taxes
and cumulative effect of
accounting change . . . . . . . . $(23.4) $60.6 (40.2) $ 83.1 $ 64.0 147.1
======== ======== ======== ======== ========
Income tax (benefit) expense . . . . (4.3) 52.1
--------- --------
(Loss) income before cumulative
effect of accounting change . . . (35.9) 95.0
Cumulative effect, to December 31,
1994, of accounting change . . . . 22.0
--------- --------
Net (loss) income . . . . . . . . . . $ (35.9) $ 117.0
========= ========
</TABLE>
(1) On December 14, 1995, the Company acquired NCS, which operated 661
specialty convenience stores, in a transaction accounted for under the
purchase method. Accordingly, the results of operation of NCS are included
from the date of acquisition.
(2) During 1996 the Company changed its presentation of sales and other
revenues to include Federal excise and state motor vehicle fuel taxes
collected on the sale of product which were previously reported as a
reduction of the corresponding tax expense. Sales and other revenues and
taxes other than
20
<PAGE> 21
income taxes for the year ended December 31, 1995 reflect the reclassification
of such taxes to conform to the presentation used in 1996.
OPERATING DATA:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----- ----- -------- ---
1996 1995
---- ----
SOUTHWEST
<S> <C> <C>
McKee and Three Rivers Refineries
Throughput (BPD) . . . . . . . . . . . . . . . . . . . . . . . . 224,200 210,900
Margin (dollars per barrel) . . . . . . . . . . . . . . . . . . . 3.83 3.49
Wilmington Refinery
Throughput (BPD) . . . . . . . . . . . . . . . . . . . . . . . . 102,700 75,100
Margin (dollars per barrel) . . . . . . . . . . . . . . . . . . . 4.66 4.38
Retail Marketing - Company-operated only
Fuel volume (BPD) . . . . . . . . . . . . . . . . . . . . . . . . 102,100 79,800
Fuel margin (cents per gallon) . . . . . . . . . . . . . . . . . 12.7 13.8
Merchandise volume ($1,000/day) . . . . . . . . . . . . . . . . 2,416 1,114
Merchandise margin (%) . . . . . . . . . . . . . . . . . . . . . 30.6 30.0
NORTHEAST
Quebec Refinery (1)
Throughput (BPD) . . . . . . . . . . . . . . . . . . . . . . . . 143,900 135,000
Margin (dollars per barrel) . . . . . . . . . . . . . . . . . . . 3.15 2.33
Retail Marketing(2)
Fuel volume (BPD) . . . . . . . . . . . . . . . . . . . . . . . . 60,900 56,400
Fuel margin (cents per gallon) . . . . . . . . . . . . . . . . . 21.6 26.3
</TABLE>
(1) Effective January 1, 1996, the Company modified its policy for pricing
refined products transferred from its Quebec refinery to its Northeast
marketing operations to more closely reflect the spot market prices for
such refined products. To facilitate the comparison to the operating data
for the year ended December 31, 1996, the amounts reported for the year
ended December 31, 1995 have been adjusted to reflect the pricing policy
change as if it had occurred on January 1, 1995. The refining margin and
retail marketing fuel margin originally reported for the year ended
December 31, 1995 were $3.42 and 22.9c., respectively.
(2) Retail marketing fuel margins reported for the Northeast represent a blend
of gross margin from company and dealer operated service stations, heating
oil sales and the cardlock business segment.
Net loss for the year ended December 31, 1996 was $35.9 million. The loss
includes a pre-tax charge of $77.4 million ($53.0 million after taxes) for
transaction and integration costs associated with the Merger on December 3,
1996. In the Southwest, the loss before income taxes of $23.4 million was
$106.5 million below the income before income taxes and cumulative effect of
accounting change reported in 1995, principally due to increases in operating,
depreciation and interest expense. Operating expenses include approximately
$50.4 million of one time non-cash charges recorded in the fourth quarter of
1996, primarily to conform accounting practices between Diamond Shamrock and
Ultramar including the accrual of estimated future environmental and other
obligations. In the Northeast, income before income taxes of $60.6 million was
$3.4 million lower than income before income taxes and cumulative effect of
accounting change reported in 1995.
SOUTHWEST OPERATIONS
Sales and other revenues in the Southwest of $7.2 billion in 1996 were $1.7
billion or 31.8% higher than in 1995 as average product prices increased by
21.7% and product sales volume increased by approximately 13.6% to 416,600 BPD
in 1996. Product
21
<PAGE> 22
and merchandise sales volume increased substantially over 1995, primarily as a
result of the December 1995 acquisition of NCS. Cost of products sold in 1996
increased, as a percentage of sales, by 4.8% as compared to 1995.
Refining margin at the McKee and Three Rivers Refineries increased by 9.7% to
$3.83 per barrel in 1996, reflecting crude oil price volatility during the
year. Refining margin at the Wilmington Refinery increased by 6.4% to $4.66
per barrel in 1996 due to an improvement in the heavy, sour crude oil price
differential. Refinery throughput at the McKee and Three Rivers Refineries
during 1996 increased by 6.3% to 224,200 BPD as several upgrade and expansion
projects were completed during the year. Throughput at the Wilmington Refinery
in 1996 increased by 36.8% to 102,700 BPD, principally due to the operation of
the refinery's new gasoil hydrotreater. In addition, refinery throughput at the
Wilmington Refinery in 1995 was adversely affected as refinery units were down
on several occasions to tie in units required to make California Air Resource
Board specification gasoline and to replace the crude oil heater destroyed by a
1995 explosion and fire. Retail marketing fuel volume increased by 27.9%, to
102,100 BPD, principally as a result of the previously mentioned acquisition of
NCS. However, fuel margins decreased by 8.0% to 12.7 cents per gallon in 1996,
due to intense competitive pressures.
Merchandise sales at the Company's convenience stores more than doubled from
$1.1 million per day in 1995 to $2.4 million per day in 1996 as the result of
the NCS acquisition. Merchandise margins for the years 1996 and 1995 remained
relatively constant at 30.6% and 30.0%, respectively.
Refinery operating expenses, before depreciation, of $250.9 million were $23.9
million higher than in 1995, consistent with the increase in refinery
throughput and the commencement of GOH operations at the Wilmington Refinery.
Marketing and other operating expenses of $551.5 million were $225.1 million
higher than in 1995 principally due to the acquisition of NCS and one time non
cash charges recorded in the fourth quarter of 1996 principally to conform
accounting practices between Diamond Shamrock and Ultramar. Selling, general
and administrative expenses during 1996 of $128.8 million increased by
approximately $39.2 million or 43.8% from 1995, as a result of the acquisition
of NCS.
NORTHEAST OPERATIONS
Sales and other revenues in the Northeast for 1996 of $3.0 billion were 14.9%
higher than in 1995 as average product prices increased by 11.6% and product
sales volume increased by approximately 6.0% to 159,000 BPD in 1996. Cost of
products sold increased, as a percentage of sales, by 1.7% as compared to 1995.
Refining margins increased 35.2% to $3.15 per barrel in 1996 from $2.33 per
barrel in 1995, as a result of higher average Atlantic Basin crack spreads and
the ability to process lower cost Heidrun crude oil for all of 1996 as compared
to only one month in 1995. Throughput at the Quebec Refinery averaged 143,900
BPD in 1996 or 6.6% higher than in 1995 as 1995 throughput was adversely
affected by refinery downtime while work was performed to configure the
refinery to run lower cost acidic crude oils such as Heidrun. Retail fuel
margins decreased 4.7 cents per gallon, or 17.9%, to 21.6 cents from 1995 to
1996, reflecting continued competitive pressures on motorist margins and the
impact of higher distillate wholesale prices on both heating oil and cardlock
sales throughout the first ten months of the year. Retail marketing sales
volumes for 1996 increased 8.0% from 1995, to 60,900 BPD, as a result of the
Company expanding home heating oil operations and the implementation of the
"value plus" program in the Company's Canadian retail gasoline operations late
in the second quarter of 1996.
Refinery operating expenses, before depreciation, totaled $50.7 million or 96c.
per barrel in 1996 as compared to $46.1 million or 94c. per barrel in 1995.
Refinery operating expenses in 1996 reflect increased throughput as well as the
additive and chemical costs associated with running Heidrun crude oil.
Selling, general and administrative expenses of $173.2 million during 1996 were
$8.1 million higher than in 1995 principally due to the previously mentioned
acquisition of home heating oil and distribution operations in the Northeast
United States during 1996 and the one-time cost related to the roll out of the
"value plus" program.
COMBINED INTEREST AND TAXES
Net interest expense of $110.1 million in 1996 was $30.4 million higher than in
1995 as average borrowings increased from $1.2 billion in 1995 to $1.6 billion
in 1996, primarily as a result of amounts borrowed to finance the acquisition
of NCS. The average interest rate on the Company's borrowings approximated
8.2% in 1996 and 8.7% in 1995.
The effective income tax rate for 1996 was a 10.7% benefit as compared to a
35.4% expense for 1995. The decrease in the effective income tax rate was
principally due to nondeductible Merger and other costs recorded in 1996.
22
<PAGE> 23
RESULTS OF OPERATIONS - 1995 COMPARED TO 1994
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1995 (1) 1994 PRO FORMA (1)(2)(3)
------------------------------------------------------------------------
SOUTHWEST NORTHEAST TOTAL SOUTHWEST NORTHEAST TOTAL
--------- -------- -------- --------- --------- --------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Sales and other revenues . . . . . $5,432.2 $2,651.3 $8,083.5 $4,904.8 $2,513.5 $7,418.3
Cost of products sold . . . . . . . 3,324.3 1,538.8 4,863.1 2,816.0 1,454.3 4,270.3
Operating expenses . . . . . . . . 553.4 118.9 672.3 551.3 134.0 685.3
Selling, general and
administrative expenses . . . . . 89.6 165.1 254.7 89.3 179.9 269.2
Taxes other than income taxes . . . 1,215.7 714.6 1,930.3 1,128.9 637.9 1,766.8
Depreciation and amortization . . . 111.4 24.9 136.3 96.0 20.8 116.8
-------- -------- -------- -------- -------- --------
Operating income . . . . . . . 137.8 89.0 226.8 223.3 86.6 309.9
Interest expense, net . . . . . . . 54.7 25.0 79.7 49.3 29.2 78.5
-------- -------- -------- -------- -------- --------
Income before income taxes . . . .
and cumulative effect of
accounting change . . . . . . . . $ 83.1 $ 64.0 147.1 $ 174.0 $ 57.4 231.4
======== ======== ======== ========
Income tax expense . . . . . . . . 52.1 88.0
-------- --------
Income before cumulative
effect of accounting change . . . 95.0 143.4
Cumulative effect, to December 31,
1994, of accounting change . . . 22.0
-------- --------
Net income . . . . . . . . . . . . $ 117.0 $ 143.4
======== ========
</TABLE>
(1) During 1996, the Company changed its presentation of sales and other
revenues to include Federal excise and state motor vehicle fuel taxes
collected on the sale of product which were previously reported as a
reduction of the corresponding tax expense. Sales and other revenues and
taxes other than income taxes for the years ended December 31, 1995 and
1994 reflect the reclassification of such taxes to conform to the
presentation used in 1996.
(2) Results of operations for the year ended December 31, 1994, are reported
on a pro forma basis as if the change in accounting for refinery
maintenance turnaround costs adopted in 1995 was in effect from the
inception of the Company. Historical net income for the year ended
December 31, 1994 was $136.8 million.
(3) Certain marketing related costs, originally reported as a reduction of
sales revenues, have been reclassified to conform with the presentation
adopted in 1995.
OPERATING DATA:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------
1995 1994
---- ----
SOUTHWEST
<S> <C> <C>
McKee and Three Rivers Refineries
Throughput (BPD) . . . . . . . . . . . . . . . . . . . . . . . . 210,900 202,100
Margin (dollars per barrel) . . . . . . . . . . . . . . . . . . . 3.49 4.40
Wilmington Refinery
Throughput (BPD) . . . . . . . . . . . . . . . . . . . . . . . . 75,100 84,100
Margin (dollars per barrel) . . . . . . . . . . . . . . . . . . . 4.38 5.17
Retail Marketing - Company-operated Only
Fuel volume (BPD) . . . . . . . . . . . . . . . . . . . . . . . . 79,800 74,400
Fuel margin (cents per gallon) . . . . . . . . . . . . . . . . . 13.8 15.0
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C> <C>
Merchandise volume ($1,000/day) . . . . . . . . . . . . . . . . 1,114 1,026
Merchandise margin (%) . . . . . . . . . . . . . . . . . . . . . 30.0 29.8
</TABLE>
24
<PAGE> 25
OPERATING DATA:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1994
---- ----
<S> <C> <C>
NORTHEAST
Quebec Refinery (1)
Throughput (BPD) . . . . . . . . . . . . . . . . . . . . . . . . . 135,000 139,200
Margin (dollars per barrel) . . . . . . . . . . . . . . . . . . . . 2.33 2.51
Retail Marketing (2)
Fuel volume (BPD) . . . . . . . . . . . . . . . . . . . . . . . . . 56,400 56,500
Fuel margin (cents per gallon) (3) . . . . . . . . . . . . . . . . 26.3 26.9
</TABLE>
(1) Effective January 1, 1996, the Company modified its policy for pricing
refined products transferred from its Quebec Refinery to its Northeast
marketing operations to more closely reflect the spot market prices for
such refined products. To facilitate the comparison to the operating data
for the year ended December 31, 1996, the amounts reported for the years
ended December 31, 1995 and 1994 have been adjusted to reflect the pricing
policy change as if it had occurred on January 1, 1994. The refining
margin and retail marketing fuel margin originally reported for the years
ended December 31, 1995 and 1994 were $3.42 and 22.9c. and $2.94 and
26.9c., respectively.
(2) Retail marketing fuel margins reported for the Northeast represent a blend
of gross margin from company and dealer operated service stations, heating
oil sales and the cardlock business segment
(3) Certain marketing related costs, originally reported as a reduction of
fuel margin, have been reclassified as selling expenses to conform with
the 1995 presentation.
Net income before the cumulative effect of the change in accounting for
refinery maintenance turnaround costs totaled $95.0 million in 1995 as compared
to $143.4 million in 1994. In the Southwest, income before income taxes and
cumulative effect of accounting change for 1995 was $83.1 million or $90.9
million below 1994, principally due to weak refining margins and reduced
refinery throughput. In the Northeast, income before income taxes and
cumulative effect of accounting change of $64.0 million was $6.6 million higher
than in 1994.
SOUTHWEST OPERATIONS
Sales and other revenues in the Southwest of $5.4 billion in 1995 were $527.4
million or 10.8% higher than 1994 as average product prices increased by 7.4%
and product sales volume increased by approximately 3.9% to 366,700 BPD in
1995. Cost of products sold in 1995 increased, as a percentage of sales, by
3.8% as compared to 1994.
Refining margin at the McKee and Three Rivers Refineries and the Wilmington
Refinery decreased by 20.7% and 15.3%, respectively, to $3.49 per barrel and
$4.38 per barrel, respectively, from 1994 to 1995 as a result of a narrowing of
the price differential between light and heavy crude oil, increases in overall
Southwest crude oil costs, an oversupply of gasoline during the first half of
1995 attributable to the introduction of Federal specification reformulated
gasoline and, in the case of the Wilmington Refinery, the need to run higher
cost feedstocks following a June 1995 crude oil heater explosion and fire.
Throughput at the McKee and Three Rivers Refineries for 1995 decreased by 8,800
BPD or 4.4%. Throughput at the Wilmington Refinery decreased by 9,000 BPD or
10.7% as compared to 1994, as refinery units were down on several occasions
during 1995 in order to tie in units required to make California Air Resource
Board specification gasoline and to replace the crude oil heater destroyed by
the previously mentioned explosion and fire. Retail marketing sales volume
increased by 5,400 BPD, or 7.3%, from 1994 to 1995 as a result of an increase
in retail sites. However, retail marketing fuel margins decreased by 8.0% from
1994, to 13.8c. per gallon in 1995, partially due to rising wholesale prices
during the second half of 1995.
Merchandise sales and margins at the Company's convenience stores were
comparable from 1994 to 1995, averaging approximately $1.1 million per day and
30.0%, respectively.
Refinery operating expenses, before depreciation, of $227.0 million in 1995
were 3.0% lower than in 1994 while marketing
25
<PAGE> 26
and other operating expenses increased by 29% to $326.4 million due, in part,
to the addition of NCS in December 1995. Selling, general and administrative
expenses of $89.6 million in 1995 were comparable to those of 1994.
NORTHEAST OPERATIONS
Sales and other revenues in the Northeast for 1995 of $2.7 billion were 5.5%
higher than in 1994 as product sales volume increased by approximately 1.0% to
150,000 BPD and average product prices increased by 8.7% from 1994. Cost of
products sold, as a percentage of sales, remained relatively consistent from
1994 to 1995. Refining margins decreased 7.2% to $2.33 per barrel in 1995 from
$2.51 per barrel in 1994, as narrow price differentials between North Sea crude
oil and Gulf Coast based product prices, which began in 1994, continued
throughout most of 1995. Throughput at the Quebec Refinery decreased by 3.0%
from 1994 levels, to 135,000 BPD in 1995, due to downtime during the second
half of 1995 as work was performed to allow the refinery to run lower cost,
acidic crude oil such as Heidrun. Retail marketing fuel margins for 1995
averaged 26.3c. per gallon, a decrease of 2.2% from 1994, reflecting continued
competitive pressures on motorist margins and weak demand for heating oil
caused by mild weather during the first quarter of 1995. Retail marketing
sales volumes for 1995 were virtually unchanged from 1994 and averaged 56,400
BPD as increased motorist sales volume attributable to the August 1994
acquisition of the Sergaz service station network was offset by the previously
mentioned weak demand for heating oil during the first quarter of 1995.
Refinery operating expenses, before depreciation, totaled $46.1 million or 94c.
per barrel in 1995 as compared to $56.1 million or 93c. per barrel in 1994.
The marginal increase in refinery operating cost per barrel reflects the
reduction in 1995 refinery throughput previously noted. Refinery operating
expenses in 1994 included the cost of the brief operation and then closure of
the Company's Halifax, Nova Scotia Refinery following the expiration of the
Company's processing agreement with Statoil North America Inc. Selling,
general and administrative expenses of $165.1 million during 1995 were $14.8
million lower than in 1994 as a result of reduced transportation and other
marketing related costs during 1995 and one-time non-officer employee bonuses
of $2.4 million recorded in 1994.
COMBINED INTEREST AND TAXES
Net interest expense was $79.7 million in 1995 compared to $78.5 million in
1994. Average borrowing increased from $1.0 billion in 1994 to $1.2 billion in
1995 and the average interest rate on the Company's borrowings approximated
8.7% in both 1995 and 1994. The impact of increased borrowings was partially
offset by an increase in capitalized interest to $11.0 million in 1995 from
$5.7 million in 1994 as a result of various major capital projects underway in
1995.
The provision for income taxes in 1995 of $52.1 million decreased, as a
percentage of pre-tax income, from 38.0% in 1994 to 35.4% in 1995, principally
as a result of non-taxable income recognized in 1995 from changes in accounting
estimates and the favorable settlement of previously accrued liabilities as
well as certain state income tax credits in the Southwest.
ENVIRONMENTAL MATTERS
The Company's operations are subject to environmental laws and regulations
adopted by various governmental authorities in the jurisdictions in which the
Company operates. The Company has accrued liabilities for estimated site
restoration costs to be incurred in the future at certain facilities and
properties. In addition, the Company has accrued liabilities for environmental
remediation obligations at various sites, including the multiparty sites in the
Southwest where the Company has been identified as a potentially responsible
party. Under the Company's accounting policy, liabilities are recorded when
site restoration and environmental remediation and cleanup obligations are
either known or considered probable and can reasonably be estimated. At
December 31, 1996 and 1995, accruals for environmental matters amounted to
$151.4 million and $122.2 million, respectively. Charges to income during 1996
for environmental matters, principally to conform the accounting of Diamond
Shamrock and Ultramar, totaled $41.7 million. Environmental charges during the
two years ended December 31, 1995 were not significant.
Total future environmental costs cannot be reasonably estimated due to unknown
factors such as the magnitude of possible contamination, the timing and extent
of remediation, the determination of the Company's liability in proportion to
other parties, improvements in clean-up technologies and the extent to which
environmental laws and regulations may change in the future. Although
environmental costs may have a significant impact on results of operations for
any single period, the Company believes
26
<PAGE> 27
that such costs will not have a material adverse effect on the Company's
operations or financial position. See Item 1. "Business--Regulatory
Matters--Environmental" for further discussion of these matters.
CAPITAL EXPENDITURES
The refining and marketing of petroleum products is a capital intensive
business. Significant capital requirements include expenditures to upgrade or
enhance operating facilities to meet environmental regulations and maintain the
Company's competitive position as well as to acquire, build and maintain
broad-based retail networks. The capital requirements of the Company's
operations consist primarily of (i) non-discretionary expenditures, such as
those required to maintain reliability and safety and to address environmental
regulations (including reformulated fuel specifications, stationary source
emission standards and underground storage tank regulations); and (ii)
discretionary opportunity expenditures, such as those planned to expand and
upgrade its retail marketing business and to increase the capacity of certain
refinery processing units and pipelines.
During 1996, capital expenditures totaled $343.1 million and included the
completion of a high-pressure gasoil hydrotreater at the Wilmington Refinery
and a heavy gasoil hydrotreater at the Three Rivers Refinery. The addition of
the gasoil hydrotreaters increases each refinery's ability to upgrade
unfinished product into finished product and to process lower cost, heavy crude
oil and less expensive feedstocks. Other capital projects included
modifications to the Quebec Refinery to enhance its ability to process acidic
crude oils and modifications to accommodate a unit train to transport product
from the refinery to Montreal. Capital expenditures also included construction
of a second 730 million pound per year propylene splitter at Mont Belvieu which
was completed in August 1996.
Marketing related capital expenditures in 1996 included construction of new
retail stores, principally in Arizona, and the acquisition of home heating oil
and wholesale distribution operations in the northeast United States.
Additional capital projects included the rebranding and integration of the
acquired NCS stores into the Company's Southwest system. The rebranding and
integration program included signage on the street and at the service station
pumps and upgraded security, computerization and store interiors.
Although the Company intends to continue to pursue acquisitions and other
capital investment opportunities, the Company's objective is to reduce capital
expenditures on presently operating assets. Capital expenditures budgeted for
1997 total $285.0 million, a substantial decrease from the Company's four year
annual average through 1996 of $440.0 million.
Over the next five years the Company plans to invest approximately $430.0
million to expand and upgrade its retail and wholesale marketing operations in
the Southwest and Northeast. The Company plans to expand its retail marketing
presence through the acquisition and construction of approximately 125
company-owned and operated stations with convenience stores. The current
estimated cost of the Southwest retail growth program for the next several
years is $250.0 million. In the Northeast, the Company plans to continue a
program begun in 1994 to operate up to 600 of the sites it owns or controls in
its eastern Canadian retail marketing network. In connection with the program,
the Company intends to invest approximately $100.0 million over the next five
years by adding approximately 400 convenience stores to existing and new
company-operated locations. In addition, the Company plans to spend
approximately $80 million over the next five years to expand its retail home
heating oil business, primarily through acquisitions in eastern Canada and the
northeastern United States.
The following table sets forth a summary of the growth capital projects planned
by the Company for the next several years at its refineries. Many of the
projects contain both a non-discretionary component and a discretionary
component intended to take advantage of opportunities to achieve a high return
on investment. The estimates of the level of expenditures set forth below, are
based upon the Company's current expectations. It should be noted that
investment plans are subject to change depending on further detailed
engineering and economic studies and that construction costs, which are
particularly difficult to anticipate, could change substantially if the demand
for construction outstrips supply. The effect of these uncertainties upon the
estimates set forth below could be material and there can be no assurance that
actual costs will not exceed these estimates.
27
<PAGE> 28
<TABLE>
<CAPTION>
ESTIMATED
FUTURE
PROJECT PURPOSE PROJECT COSTS
- -------------------------- ---------------------------------------------------- -------------
(IN MILLIONS)
<S> <C> <C>
Crude Oil and Conversion
Unit Capacity Increases Modifications to increase the capacity to process
available feedstocks and improve light product yields $85
Heavy Crude Oil Processing
Improvements Modifications to increase heavy crude oil processing
capability 50
Advanced Computer Controls Modifications to improve process control and
increase light product yields 15
Light Products Distribution
Expansion Modifications to increase pipeline, terminal and
railcar distribution capacity 35
</TABLE>
The Company believes that the Quebec provincial government will issue new
refinery liquid effluent regulations during 1998 that, if adopted, will require
modifications and additions to the Quebec Refinery's waste water treatment
facilities. The Company has completed a detailed process design and estimates
the cost of potential capital expenditures required to comply with the expected
regulations to be approximately $11.6 million. It is expected that any
required construction for the modifications and new equipment would begin in
1998 and be completed to meet the anticipated new regulations. See Item 1.
"Business - Regulatory Matters - Environmental-Canadian Operations."
The Company is continually investigating strategic acquisitions and other
business opportunities, some of which may be material, that will complement its
current business activities.
The Company expects to fund its capital expenditures over the next several
years from cash provided by operations and, to the extent necessary, from the
proceeds of borrowings under its bank credit facilities and its commercial
paper and medium-term note programs discussed below. In addition, depending
upon its future needs and the cost and availability of various financing
alternatives, the Company may, from time to time, seek additional debt or
equity financing in the public or private markets.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash position of $197.9 million at December 31, 1996.
Following the Merger, the Company negotiated new committed, unsecured bank
facilities which provide a maximum of $500.0 million of available credit to the
Company (the "U.S. Facility") and Cdn. $200.0 million of available credit to
Canadian Ultramar Company ("CUC", formerly Canadian Ultramar Limited). In
addition, the Company has a $200.0 million commercial paper program supported
by the U.S. Facility. The bank facilities extend through 2001 and reflect a
reduction in interest rates compared to the facilities they replaced. The
Company's bank facilities and certain of its other debt instruments require the
maintenance of certain financial ratios and contain covenants that must be
complied with to maintain borrowing privileges. The Company believes these
covenants will not have a significant impact on the Company's liquidity and
ability to borrow funds as needed. At December 31, 1996, the Company had
approximately $574.2 million of borrowing capacity under the bank facilities
and commercial paper program and approximately $240.0 million of borrowing
capacity under uncommitted short-term lines of credit with a number of
financial institutions.
28
<PAGE> 29
The Company also has the ability to issue an additional $50.0 million of medium
term notes under a $200.0 million shelf registration filed with the Security
and Exchange Commission in August 1994.
In 1996, the Company entered into a long-term lease agreement (the "Jamestown
Lease") to accommodate its retail outlet construction program. Pursuant to the
terms of the lease, the lessor has agreed to finance the acquisition and/or
construction of retail marketing sites up to $100.0 million and to lease these
sit`es to the Company. After the non-cancelable lease term, which expires in
July 2003, the Jamestown Lease may be extended by agreement of the parties, or
the Company may purchase or arrange for the sale of the retail outlets.
Substantially all of the $100.0 million commitment is presently available to
the Company.
The Company believes its current sources of funds will be sufficient to satisfy
its capital expenditure, working capital, debt service and dividend
requirements for at least the next twelve months.
In February 1997, the Company's Board of Directors declared a Common Stock
dividend of $.275 per share payable on March 7, 1997, to holders of record on
February 20, 1997. In addition, the Board of Directors declared a quarterly
dividend of $.625 per share on its 5% Cumulative Convertible Preferred Stock,
payable on March 14, 1997, to holders of record on February 20, 1997.
Cash Flow
Net cash provided by operating activities, consisting principally of net (loss)
income adjusted for depreciation and amortization, provisions for losses on
receivables, changes in deferred income taxes and changes in working capital
accounts, amounted to $293.6 million, $245.5 million and $329.2 million in the
years ended December 31, 1996, 1995 and 1994, respectively.
Net cash used in investing activities amounted to $308.2 million, $636.6
million and $356.5 million in the years ended December 31, 1996, 1995 and 1994,
respectively. Investment activities consist principally of refining and
marketing capital expenditures and acquisitions, net of the proceeds of asset
disposals in the ordinary course of business and, beginning in 1995, deferred
refinery maintenance turnaround costs.
Net cash provided by financing activities in the year ended December 31, 1996
amounted to $37.8 million. In June 1996, Diamond Shamrock issued $100.0
million of 7.65% debentures due in July 2026. In addition, the Company had
borrowings under its various bank credit facilities and commercial paper
program aggregating $478.9 million during the year ended December 31, 1996.
During 1996 the Company repaid $490.5 million of long-term debt consisting of
$275.7 million of scheduled debt maturities and $214.8 million under its
various bank credit facilities. Other financing activity in 1996 included
$14.0 million of proceeds received principally from the exercise of employee
stock options and dividend reinvestment, $5.2 million received from Diamond
Shamrock's ESOPs and from the sale of treasury stock and the payment of $69.8
million in Preferred and Common Stock dividends. For the year ended December
31, 1995, net cash provided by financing activities totaled $483.6 million
including $128.0 million of proceeds from a secondary offering of the Company's
Common Stock and the exercise of employee stock options and dividend
reinvestment and $790.0 million of proceeds from long-term borrowings including
$224.2 million of medium-term notes, $100.0 million of 7.25% and 8.75%
debentures and $465.8 million of borrowings under its various credit
facilities. During 1995, the Company repaid $375.9 million of long-term debt
consisting of $33.9 million of scheduled debt maturities and $342.0 million
under its credit facilities. The Company also received $6.1 million from its
ESOPs and the sale of treasury stock and made Preferred and Common Stock
dividend payments of $64.6 million during 1995. Financing activities in the
year ended December 31, 1994 did not result in a change in the Company's net
cash position as the proceeds of long-term borrowings and the exercise of
employee stock options and dividend reinvestment were offset by the repayment
of short and other long-term debt and the payment of Preferred and Common Stock
dividends.
The effect of changes in currency exchange rates on the Company's net cash
position during the three year period ended December 31, 1996 was not material.
29
<PAGE> 30
Income Taxes
At December 31, 1996, the Company had deferred tax assets of $276.4 million and
$27.4 million and deferred tax liabilities of $294.0 million and $66.8 million
from its U.S. and Canadian operations, respectively.
Current accounting standards require, among other things, recognition of future
tax benefits measured by enacted tax rates attributable to deductible temporary
differences between financial statement and income tax bases of assets and
liabilities and net operating loss carryforwards, to the extent that the
realization of such benefits is more likely to occur than not. The realization
of the deferred tax assets is dependent on the Company's ability to generate
taxable income in both the U.S. and Canada. Management has determined, based
on the Company's history of operating earnings and its expectations for the
future, that it is more likely than not that the deferred tax assets will be
realized. See Notes to Consolidated Financial Statements - Note 13: Income
Taxes.
OUTLOOK
The Company's earnings depend largely on refining and retail marketing margins.
The petroleum refining and marketing industry has been and continues to be
volatile and highly competitive. The cost of crude oil purchased by the
Company as well as the price of refined products sold by the Company have
fluctuated widely in the past. As a result of the historic volatility of
refining and marketing margins and the fact that they are affected by numerous
diverse factors, it is impossible to predict future margin levels.
In general, industry inventories are lower than they were a year ago. This
should bode well for the industry as we enter the driving season. In addition,
backwardation has moderated in the crude oil market and crude oil prices have
been declining and are relatively stable at present. Although, we believe 1997
crude oil spreads will be improved over 1996, we do not expect a secular
improvement in the industry in the near term.
California refining margins have improved in early 1997 due in part to
persistent refinery problems experienced by some competitors and scheduled
turnarounds in the industry. The retail margins, although improving, remain
weak because of the very competitive West Coast market.
Early in the first quarter, the refining margins in Texas remain weak due to
the fall in product prices. If product prices stabilize, refining margins
should improve as the refineries run the lower cost crude. Retail margins in
Texas and surrounding states are weak and remain flat from the fourth quarter.
In eastern Canada, refining spreads have weakened while retail margins have
strengthened because of strong heating oil retail prices.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses interest rate swaps and forward contracts, foreign exchange
contracts and commodity futures, forward and option contracts to manage its
exposure to interest rate, exchange rate and commodity price volatility. The
Company controls its derivative positions based on their underlying principal
values and does not transact derivative positions that exceed the Company's
underlying business exposure. The Company does not use complex, leveraged
derivative transactions with the intent of producing speculative gains. See
Notes to Consolidated Financial Statements - Note 16: Financial Instruments.
30
<PAGE> 31
SEASONALITY
In the Northeast, demand for petroleum products varies significantly during the
year. Distillate demand during the first and fourth quarters can range from
30% to 40% above the average demand during the second and third quarters. The
substantial increase in demand for heating oil during the winter months results
in the Company having significantly higher accounts receivable and inventory
levels during the first and last quarters of each year. The Company's
Southwest operations are less affected by seasonal fluctuations in demand than
its operations in the Northeast. The working capital requirements of the
Southwest operations are limited, due to lower inventory requirements and show
little fluctuation throughout the year.
EXCHANGE RATES
The exchange rate between the Canadian and U.S. dollar has weakened
substantially from the inception of the Company in 1992. The rate, however,
has remained relatively constant during the three year period ended December
31, 1996 as well as during the first two months of 1997. The Company expects
the exchange rate to fluctuate during 1997 but cannot reasonably predict its
future movement.
As the Company's Canadian operation is in a net asset position, the weaker
Canadian dollar has reduced, in U.S. dollars, the Company's net equity at
December 31, 1996 by $58.3 million. With the exception of its crude oil costs,
which are U.S. dollar denominated, the weaker Canadian dollar has also had the
effect of reducing, in U.S. dollars, the revenues and the related costs and
expenses reported by the Company's Canadian operation. The potential impact on
refining margins of fluctuating exchange rates together with U.S. dollar
denominated crude oil costs is mitigated by the Company's pricing policies in
Canada, which generally pass on any change in the cost of crude oil. Marketing
margins, on the other hand, have been adversely affected by exchange rate
fluctuation, as competitive pressures have, from time to time, limited the
Company's ability to promptly pass on the increased costs to the ultimate
consumer.
The Company periodically enters into short-term foreign exchange contracts to
manage its exposure to the negative effects of exchange rate fluctuations on
the trade payables of its Canadian operation that are denominated in U.S.
dollars. The Company generally does not hedge the effects of foreign exchange
rate fluctuations on the translation of its foreign results of operations or
financial position. However, the Company has considered various hedge
alternatives available to it, along with their attendant costs, and expects to
hedge the translation impact when such hedging is considered economically
appropriate.
IMPACT OF INFLATION
Although inflation has slowed in recent years, it is still a factor in the U.S.
and Canadian economies, increasing the cost to acquire or replace property,
plant and equipment and increasing the costs of supplies and labor. As
previously noted, to the extent permitted by competition, the Company passes
along increased costs to its customers.
In addition, the Company is affected by volatility in the cost of crude oils
and refined petroleum products as market conditions continue to be the primary
factor in determining the costs of the Company's products. The Company uses
the LIFO method of accounting for its inventories. Under this method, the cost
of products sold reported in the financial statements approximates current cost
and thus reduces distortion in reported income.
31
<PAGE> 32
ULTRAMAR DIAMOND SHAMROCK CORPORATION
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Ultramar Diamond Shamrock Corporation
We have audited the accompanying consolidated financial statements and schedule
of Ultramar Diamond Shamrock Corporation (formerly Ultramar Corporation) as
listed in the accompanying index to the financial statements (Item 14(a)).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits. We did not audit the financial
statements of the Diamond Shamrock operations, which financial statements
reflect total assets constituting 50% in 1996 and 53% in 1995, and total
revenues constituting 49% in 1996, 46% in 1995, and 45% in 1994 of the related
consolidated totals. Those financial statements were audited by Price
Waterhouse LLP whose report has been furnished to us, and our opinion, insofar
as it relates to data included for the Diamond Shamrock operations, is based
solely on the report of Price Waterhouse LLP.
We conducted our audits in accordance with generally accepted accounting
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 on 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 and the report of Price
Waterhouse LLP provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of Price Waterhouse LLP, the
financial statements listed in the accompanying index to the financial
statements (Item 14(a)) present fairly, in all material respects, the
consolidated financial position of Ultramar Diamond Shamrock Corporation at
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles. Also, in
our opinion, based on our audits and the report of Price Waterhouse LLP, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects the information set forth therein.
As discussed in Note 5 to the consolidated financial statements, in 1995, the
Company changed its method of accounting for refinery maintenance turnaround
costs.
/S/ ERNST & YOUNG LLP
San Antonio, Texas
February 7, 1997
32
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Ultramar Diamond Shamrock Corporation
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations, of changes in stockholders' equity and of cash flows,
including the financial statement schedule (not presented separately herein)
present fairly, in all material respects, the financial position of the Diamond
Shamrock operations of Ultramar Diamond Shamrock Corporation at December 31,
1996 and 1995 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements and
financial statement schedule are the responsibility of Ultramar Diamond
Shamrock Corporation's management; our responsibility is to express an opinion
on these financial statements and financial statement schedule based on our
audits. We conducted our audits of these statements and schedule in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial statement schedule are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
/S/ PRICE WATERHOUSE LLP
San Antonio, Texas
February 7, 1997
33
<PAGE> 34
ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------- ---
1996 1995
---- ----
(in millions)
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 197.9 $ 175.5
Accounts and notes receivable, less allowances for uncollectible
accounts of $15,400,000 and $13,700,000, respectively . . . . . . 503.1 394.2
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 633.3 664.3
Prepaid expenses and other current assets . . . . . . . . . . . . . 35.0 57.6
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 30.0 15.0
-------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 1,399.3 1,306.6
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . 2,730.8 2,602.5
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289.9 307.6
-------- ---------
$4,420.0 $4,216.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt . . . . . . . . $ 3.2 $ 7.4
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 540.7 456.1
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 328.9 260.0
Taxes other than income taxes . . . . . . . . . . . . . . . . . . . 191.3 196.0
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.1 1.4
-------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 1,096.2 920.9
Long-term debt, less current portion . . . . . . . . . . . . . . . . . 1,646.3 1,557.8
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . 349.6 289.9
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 87.0 120.1
Commitments and contingencies
Stockholders' equity:
Preferred Stock, par value $.01 per share:
25,000,000 shares authorized, 1,725,000 shares issued and
outstanding at December 31, 1996 and 1995 . . . . . . . . . . . . 0.0 0.0
Common Stock, par value $.01 per share:
250,000,000 shares authorized, 74,710,000 shares issued and
outstanding at December 31, 1996; 74,031,000 shares issued and
73,989,000 shares outstanding at December 31, 1995 . . . . . . . . 0.7 0.7
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 1,137.0 1,117.8
ESOP, treasury stock and other . . . . . . . . . . . . . . . . . . . (32.2) (37.5)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 193.7 302.7
Foreign currency translation adjustment . . . . . . . . . . . . . . (58.3) (55.7)
-------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 1,240.9 1,328.0
-------- ---------
$4,420.0 $4,216.7
======== ========
</TABLE>
See accompanying notes.
34
<PAGE> 35
ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----- ----- -------- ---
1996 1995 1994
---- ---- ----
(in millions, except share data)
<S> <C> <C> <C> <C>
Sales and other revenues (including excise taxes) . $10,208.4 $8,083.5 $7,418.3
Operating costs and expenses:
Cost of products sold . . . . . . . . . . . . . . 6,550.0 4,863.1 4,270.3
Operating expenses . . . . . . . . . . . . . . . 928.1 672.3 700.8
Selling, general and administrative expenses . . 302.0 254.7 269.2
Taxes other than income taxes . . . . . . . . . . 2,101.1 1,930.3 1,766.8
Depreciation and amortization . . . . . . . . . . 179.9 136.3 112.0
Merger and integration costs . . . . . . . . . . 77.4
--------- -------- --------
Total operating costs and expenses . . . . . . . . 10,138.5 7,856.7 7,119.1
--------- -------- --------
Operating income . . . . . . . . . . . . . . . . . 69.9 226.8 299.2
Interest income . . . . . . . . . . . . . . . . . . 18.4 13.4 8.6
Interest expense . . . . . . . . . . . . . . . . . (128.5) (93.1) (87.1)
--------- -------- --------
(Loss) income before income taxes and
cumulative effect of accounting change . . . . . (40.2) 147.1 220.7
Income tax (benefit) expense . . . . . . . . . . . (4.3) 52.1 83.9
--------- -------- --------
(Loss) income before cumulative
effect of accounting change . . . . . . . . . . . (35.9) 95.0 136.8
Cumulative effect, to December 31,
1994, of accounting change . . . . . . . . . . . 22.0
--------- -------- --------
Net (loss) income . . . . . . . . . . . . . . . . . (35.9) 117.0 136.8
Dividend requirement on preferred stock . . . . . . 4.3 4.3 4.3
--------- -------- --------
Net (loss) income applicable to common shares . . . $ (40.2) $ 112.7 $ 132.5
========= ======== =========
(Loss) income per common share:
Primary:
(Loss) income before cumulative effect of
accounting change . . . . . . . . . . . . . . . $(.54) $1.30 $1.93
Cumulative effect of accounting change . . . . . .31
--------- -------- --------
Net (loss) income . . . . . . . . . . . . . . . $(.54) $1.61 $1.93
========= ======== =========
Fully diluted:
(Loss) income before cumulative effect of
accounting change . . . . . . . . . . . . . . . $(.54) $1.29 $1.90
Cumulative effect of accounting change . . . . . .30
--------- -------- --------
Net (loss) income . . . . . . . . . . . . . . . $(.54) $1.59 $1.90
========= ======== =========
Weighted average number of shares used in
computation (in thousands):
Primary . . . . . . . . . . . . . . . . . . . . . 74,427 70,024 68,733
Fully diluted . . . . . . . . . . . . . . . . . . 74,427 73,396 72,021
</TABLE>
See accompanying notes.
35
<PAGE> 36
ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ESOP, FOREIGN
ADDITIONAL TREASURY CURRENCY TOTAL
COMMON PAID-IN STOCK AND RETAINED TRANSLATION STOCKHOLDERS'
STOCK CAPITAL OTHER EARNINGS ADJUSTMENT EQUITY
----- ------- ----- -------- ---------- ------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 . . . . . $ 0.7 $ 982.1 $ (48.5) $174.9 $(40.0) $1,069.2
Issuance of Common Stock . . . . . . 5.0 0.7 (0.9) 4.8
Payment on ESOP note . . . . . . . . 5.1 5.1
Purchase of treasury stock . . . . . (3.4) (3.4)
Net income . . . . . . . . . . . . . 136.8 136.8
Cash dividends . . . . . . . . . . . (62.0) (62.0)
Change in translation adjustment . . (30.7) (30.7)
Other, net . . . . . . . . . . . . . 1.5 0.5 1.1 3.1
------- -------- --------- -------- -------- --------
Balance at December 31, 1994 . . . . 0.7 988.6 (45.6) 249.9 (70.7) 1,122.9
Issuance of Common Stock . . . . . . 128.6 2.7 (0.6) 130.7
Payment on ESOP note . . . . . . . . 5.8 5.8
Net income . . . . . . . . . . . . . 117.0 117.0
Cash dividends . . . . . . . . . . . (64.6) (64.6)
Change in translation adjustment . . 15.0 15.0
Other, net . . . . . . . . . . . . . 0.6 ( 0.4) 1.0 1.2
------- -------- --------- -------- -------- --------
Balance at December 31, 1995 . . . . 0.7 1,117.8 (37.5) 302.7 (55.7) 1,328.0
Issuance of Common Stock . . . . . . 16.4 1.2 (3.1) 14.5
Payment on ESOP note . . . . . . . . 4.2 4.2
Net loss. . . . . . . . . . . . . . . (35.9) (35.9)
Cash dividends . . . . . . . . . . . (69.8) (69.8)
Other, net . . . . . . . . . . . . . 2.8 (0.1) (0.2) (2.6) (0.1)
------- -------- --------- -------- -------- --------
Balance at December 31, 1996 . . . . $ 0.7 $1,137.0 $ (32.2) $ 193.7 $ (58.3) $1,240.9
======= ======== ========= ======== ======== ========
</TABLE>
At December 31, 1996, 1995 and 1994, the Company had issued and outstanding
1,725,000 shares of 5% Cumulative Convertible Preferred Stock with a par value
of less than $100,000.
See accompanying notes.
36
<PAGE> 37
ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----- ----- -------- ---
1996 1995 1994
---- ---- ----
(in millions)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . $(35.9) $117.0 $136.8
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . 179.9 136.3 112.0
Provision for losses on receivables . . . . . . . . . . 13.6 13.8 6.6
Deferred income tax (credit) provision . . . . . . . . (45.7) 39.3 64.2
Cumulative effect of change in accounting policy . . . (22.0)
Other, net . . . . . . . . . . . . . . . . . . . . . . 1.2 1.2 4.2
Changes in operating assets and liabilities:
(Increase) decrease in accounts and notes receivable . (119.9) 3.1 (80.1)
Decrease (increase) in inventories . . . . . . . . . . 31.7 (32.1) (66.4)
Increase in accounts payable and other current liabilities 213.9 31.2 153.8
Increase (decrease) in other long-term liabilities . . 20.0 (46.5) (18.9)
Other, net . . . . . . . . . . . . . . . . . . . . . . 34.8 4.2 17.0
------- ------ ------
Net cash provided by operating activities . . . . . . . . . . 293.6 245.5 329.2
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . (315.2) (474.6) (347.4)
Acquisition of marketing operations . . . . . . . . . . . . . (27.9) (163.5) (22.4)
Proceeds from sale of assets . . . . . . . . . . . . . . . . 51.6 16.6 16.5
Expenditures for investments . . . . . . . . . . . . . . . . (5.2) (2.7) (3.2)
Deferred refinery maintenance turnaround costs . . . . . . . (11.5) (12.4)
------- ------ ------
Net cash used in investing activities . . . . . . . . . . . . (308.2) (636.6) (356.5)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuances of Common Stock . . . . . . . . . . . 14.0 128.0 2.9
Proceeds from long-term borrowings . . . . . . . . . . . . . 578.9 790.0 269.3
Repayment of long-term debt . . . . . . . . . . . . . . . . . (490.5) (375.9) (204.6)
Decrease in short-term borrowings . . . . . . . . . . . . . . (7.8)
Payment of dividends . . . . . . . . . . . . . . . . . . . . (69.8) (64.6) (62.0)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 6.1 2.2
------- ------ ------
Net cash provided by financing activities . . . . . . . . . . 37.8 483.6 0.0
Effect of exchange rate changes on cash . . . . . . . . . . . (0.8) 0.5 (0.4)
------- ------ ------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . 22.4 93.0 (27.7)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . 175.5 82.5 110.2
------- ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . $ 197.9 $175.5 $ 82.5
======= ====== ======
</TABLE>
See accompanying notes.
37
<PAGE> 38
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION
Ultramar Diamond Shamrock Corporation (the "Company" or "UDS", formerly
Ultramar Corporation or "Ultramar") is a Delaware company with crude oil
refining and petroleum product marketing operations in the southwest United
States (the "Southwest") and northeast United States and eastern Canada (the
"Northeast"). The Company markets petroleum products (principally
transportation fuels and heating oil) through both wholesale and retail
distribution facilities and a broad range of convenience items through
company-operated stores in all its market areas.
Under the terms of an Agreement and Plan of Merger dated September 22, 1996
between the Company and Diamond Shamrock, Inc. ("Diamond Shamrock"), Diamond
Shamrock was merged with and into the Company effective December 3, 1996, in a
transaction accounted for as a pooling-of-interests (the "Merger") (see Note
3). In connection with the Merger, the Company changed its name from Ultramar
Corporation to Ultramar Diamond Shamrock Corporation.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All financial
information includes the results of Diamond Shamrock for all periods presented
prior to the Merger on December 3, 1996 (see Note 3). Investments in 50% or
less owned companies are accounted for using the equity method of accounting.
Certain 1995 and 1994 amounts have been reclassified to conform to the
presentation used in 1996.
Use of estimates: The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents. The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
Inventories. Crude oil and refined and other finished product inventories are
valued at the lower of cost or market (net realizable value). Cost is
determined primarily on the last-in, first-out ("LIFO") basis. Materials and
supplies and convenience store items are valued at average cost, not in excess
of market value.
Property, Plant and Equipment. Property, plant and equipment are recorded at
cost. Depreciation is provided on the straight-line method over the estimated
useful lives of depreciable assets.
Environmental Costs. Environmental costs are expensed if they relate to an
existing condition caused by past operations and do not contribute to future
revenue generation. Liabilities are recorded when site restoration and
environmental remediation and cleanup obligations are either known or
considered probable and can be reasonably estimated. Recoveries of
environmental costs through insurance, indemnification arrangements or other
sources are reported separately as receivables to the extent such recoveries
are considered probable.
Excise Taxes. Federal excise and state motor vehicle fuel taxes collected on
the sale of products and remitted to governmental agencies are included in
sales and other revenues and taxes other than income taxes. Such amounts
totaled $2.0 billion, $1.8 billion and $1.7 billion for the years ended
December 31, 1996, 1995 and 1994, respectively.
Income Taxes. Income taxes include deferred taxes resulting from temporary
differences in the bases of assets and liabilities for financial and tax
reporting purposes. The liability method of accounting for income taxes
requires the effect of tax rate changes on current and accumulated deferred
income taxes to be reflected in the period in which the rate change was
enacted.
Functional Currency. The functional currency of the Company's Canadian
operations is the Canadian dollar. The translation into U.S. dollars is
performed for balance sheet accounts using exchange rates in effect at the
balance sheet date and for revenue and expense accounts using the weighted
average exchange rate during the year. Adjustments resulting from such
translation are recorded as a separate component of stockholders' equity.
Earnings per share. The computation of primary earnings (loss) per common
share is based on the weighted average number of
38
<PAGE> 39
common shares outstanding during the year and, to the extent dilutive, common
stock equivalents consisting of stock options, stock awards subject to
restrictions and stock appreciation rights. Primary earnings (loss) per common
share have been adjusted for dividend requirements on Preferred Stock. The
computation of fully diluted earnings per share assumes conversion of the
Preferred Stock during the time that the shares are outstanding if such
conversion is dilutive.
NOTE 3: MERGER OF ULTRAMAR AND DIAMOND SHAMROCK
On December 3, 1996, Diamond Shamrock merged with and into the Company. In
connection with the Merger, the Company issued 29.876 million shares of its
Common Stock and 1.725 million shares of its newly created 5% Cumulative
Convertible Preferred Stock in exchange for all the outstanding Common Stock
and 5% Cumulative Convertible Preferred Stock of Diamond Shamrock. The
shareholders of Diamond Shamrock received 1.02 shares of UDS Common Stock for
each share of Diamond Shamrock Common Stock and one share of UDS 5% Cumulative
Convertible Preferred Stock for each share of Diamond Shamrock 5% Cumulative
Convertible Preferred Stock. The Merger qualified as a tax-free reorganization
and was accounted for as a pooling-of-interests. Accordingly, the Company's
consolidated financial statements have been restated for all periods prior to
the Merger to include the results of operations, financial position and cash
flows of Ultramar and Diamond Shamrock.
Sales and other revenues, net loss (income) and dividends per share for
Ultramar and Diamond Shamrock for the periods prior to the Merger are presented
below. Since the Merger was effective December 3, 1996, the table reflects the
sales and other revenues and net loss for the entire year of 1996. Operations
from December 3, 1996 to year-end would not have a material impact on the data
presented.
<TABLE>
<CAPTION>
Years Ended December 31,
----- ----- -------- ---
1996 1995 1994
---- ---- ----
(in millions, except per share data)
<S> <C> <C> <C>
Sales and other revenues:
Ultramar Corporation . . . . . . . . . . . . . . . . . . $ 3,421.8 $2,714.4 $2,547.7
Diamond Shamrock, Inc. . . . . . . . . . . . . . . . . . 4,993.7 3,703.0 3,312.1
Reclassifications . . . . . . . . . . . . . . . . . . . 1,792.9 1,666.1 1,558.5
--------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $10,208.4 $8,083.5 $7,418.3
========= ======== ========
Net (loss) income:
Ultramar Corporation . . . . . . . . . . . . . . . . . $ 48.2 $ 69.7 $ 61.0
Diamond Shamrock, Inc. . . . . . . . . . . . . . . . . (31.1) 47.3 75.8
Merger and transition costs, net of
income tax benefit . . . . . . . . . . . . . . . . . (53.0)
--------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ (35.9) $117.0 $136.8
========= ======== ========
Dividends per share:
Ultramar Corporation Common Stock . . . . . . . . . . . . $1.10 $1.10 $1.10
Diamond Shamrock, Inc. Common Stock . . . . . . . . . . . .56 .56 .53
Diamond Shamrock, Inc. 5% Cumulative Convertible
Preferred . . . . . . . . . . . . . . . . . . . . . . 2.50 2.50 2.50
</TABLE>
In combining the financial information of Ultramar and Diamond Shamrock,
certain reclassifications of historical financial data have been made to
conform the accounting policies of the two companies. Reclassifications
include the presentation of Ultramar Federal excise and state motor vehicle
fuel taxes collected on the sale of product as sales and other revenues with a
corresponding charge to taxes other than income taxes. In addition, Diamond
Shamrock interest income has been reclassified from sales and other revenues to
interest income.
In connection with the Merger, the Company recorded merger and integration
costs of $77.4 million ($53.0 million net of income tax benefits) during the
fourth quarter of 1996. Merger costs of $13.1 million consist principally of
financial and legal fees and registration costs. Integration costs of $64.3
million include costs to combine the two operations, including costs associated
with a workforce reduction of approximately 200 employees, the termination of
certain agreements, the writedown of certain facilities and equipment and other
costs. Integration costs accrued at December 31, 1996 include estimated
termination benefits of $23.1
39
<PAGE> 40
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
million. Expenditures related to these costs are expected to be substantially
completed by the end of 1997. Additional costs, if any, will be recognized in
subsequent reporting periods as additional decisions are made and actions are
taken to combine the two companies.
NOTE 4: ACQUISITION OF NATIONAL CONVENIENCE STORES
On December 14, 1995, Diamond Shamrock completed the acquisition of National
Convenience Stores Incorporated ("NCS"). NCS operated 661 "Stop N Go"
convenience stores located in Texas. The total value of the transaction,
including transaction costs and the assumption of debt, was approximately
$280.0 million. The acquisition has been accounted for using the purchase
method of accounting and, accordingly, the operating results of NCS have been
included in the consolidated operating results since the date of acquisition.
The purchase price exceeded the fair value of net assets acquired by
approximately $160.5 million, which is included in the accompanying
consolidated balance sheet as an intangible asset (see Note 9).
The pro forma financial data below, which combines the results of operations of
the Company and NCS prior to the acquisition, are unaudited and reflect
purchase price accounting adjustments assuming the acquisition had occurred at
the beginning of each year presented.
<TABLE>
<CAPTION>
Years ended December 31,
----- ----- -------- ---
1995 1994
---- ----
(in millions, except per share data)
<S> <C> <C>
Sales and other revenues . . . . . . . . . . . . . . . . . . . . . . . . $8,946.6 $8,306.5
Income before tax provision and cumulative effect of accounting change . 141.2 210.2
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110.3 127.2
Primary earnings per common share . . . . . . . . . . . . . . . . . . . 1.51 1.79
Fully diluted earnings per common share . . . . . . . . . . . . . . . . 1.50 1.77
</TABLE>
NOTE 5: CHANGE IN ACCOUNTING FOR REFINERY MAINTENANCE TURNAROUND COSTS
During the second quarter of 1995, Ultramar changed its method of accounting
for refinery maintenance turnaround costs from an accrual method to a deferral
and amortization method to better match revenues and expenses. The change
resulted in a cumulative adjustment through December 31, 1994 of $22.0 million
(after income taxes of $13.4 million) or $.31 per share, which is included in
net income for the year ended December 31, 1995. The effect of the change on
the year ended December 31, 1995 was to increase income before cumulative
effect of accounting change by approximately $3.5 million ($.05 per share) and
net income by $25.5 million ($.36 per share). Pro forma net income for the
year ended December 31, 1994 of $143.4 million ($2.03 per share), reflects the
effect of the retroactive application of the change in accounting for refinery
maintenance turnaround costs as if the new method had been applied since the
inception of the Company.
NOTE 6: ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable were as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1996 1995
------ ------
(in millions)
<S> <C> <C>
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . $482.5 $367.7
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5 17.0
------ ------
498.0 384.7
Allowance for uncollectible amounts . . . . . . . . . . . . . . . . . . . (15.4) (13.7)
------ ------
482.6 371.0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.5 23.2
------ ------
$503.1 $394.2
====== ======
</TABLE>
40
<PAGE> 41
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 7: INVENTORIES
Inventories were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
---- ----
(in millions)
<S> <C> <C>
Crude oil and other feedstocks . . . . . . . . . . . . . . . . . . . . . . . . . $309.2 $275.7
Refined and other finished products . . . . . . . . . . . . . . . . . . . . . . 264.7 332.6
Materials and supplies and convenience store items . . . . . . . . . . . . . . . 59.4 56.0
------ ------
$633.3 $664.3
====== ======
</TABLE>
At December 31, 1996, replacement cost exceeded the LIFO cost of inventories by
$148.5 million. At December 31, 1995, replacement cost was lower than LIFO
cost by $16.0 million.
NOTE 8: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------- ---
Estimated 1996 1995
Useful Lives ---- ----
------ ----- (in millions)
<S> <C> <C> <C>
Refining . . . . . . . . . . . . . . . . . 15-30 years $2,507.2 $2,329.5
Marketing . . . . . . . . . . . . . . . . 5-30 years 896.2 835.1
Petrochemical and Allied Businesses . . . 5-25 years 224.9 203.4
Other . . . . . . . . . . . . . . . . . . 3-10 years 56.9 57.0
-------- --------
3,685.2 3,425.0
Accumulated depreciation
and amortization . . . . . . . . . . . . . (954.4) (822.5)
-------- --------
$2,730.8 $2,602.5
======== ========
</TABLE>
NOTE 9: OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------- ---
1996 1995
---- ----
(in millions)
<S> <C> <C>
Goodwill and other intangibles, net of accumulated amortization of $12.5
million in 1996 and $7.4 million in 1995 . . . . . . . . . . . . . . . . . $176.2 $169.4
Non-current notes receivable, net of allowance for uncollectible amounts
of $3.4 million in 1996 and $3.3 million in 1995 . . . . . . . . . . . . . 33.2 35.1
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 80.5 103.1
------ ------
$289.9 $307.6
====== ======
</TABLE>
Goodwill represents the excess of cost over the fair value of net assets of
businesses acquired and is being amortized using the straight-line method over
periods ranging from 10 to 20 years.
Non-current notes receivable include amounts due from customers for equipment
purchases.
42
<PAGE> 42
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 10: NOTES PAYABLE AND CREDIT FACILITIES
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------
1996 1995
---- ----
(in millions)
<S> <C> <C>
Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 122.2 $ 156.5
8.25% Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174.9 174.9
8.625% Guaranteed Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 274.3 274.2
Medium-term Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294.8 294.8
Revolving/term credit agreements . . . . . . . . . . . . . . . . . . . . . . . 220.0
Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300.0 200.0
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146.0
Bank Money Market Facilities . . . . . . . . . . . . . . . . . . . . . . . . . 280.0 163.0
Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.6 59.3
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.7 22.5
-------- --------
1,649.5 1,565.2
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 7.4
-------- --------
$1,646.3 $1,557.8
======== ========
</TABLE>
Between 1987 and 1989, Diamond Shamrock placed 9% Senior Notes due 1987 - 1997,
8.35% Senior Notes due 1989 - 1997 and 8.77% Senior Notes due 1997 - 2009 with
an institutional investor and loaned the proceeds to two Employee Stock
Ownership Plans (see Note 11). The 8.77% notes require annual installment
payments of $3.2 million in 1997 and $4.1 million through 2009. Senior Notes
also include 10.75% notes which require annual installment payments of $30.0
million through April 1999. Since the Company intends to refinance the
scheduled payments by the use of other credit facilities which would be
classified as long-term, and the Company has the ability to do so, the annual
installments due in 1997 have been classified as long-term.
The Company issued the 8.25% Notes due in 1999 and Ultramar Credit Corporation
("UCC"), a financing subsidiary, issued the 8.625% Guaranteed Notes due in
2002, in public offerings in 1992. The 8.625% Guaranteed Notes issued by UCC
are guaranteed by the Company. Both of these notes are unsecured and interest
is payable semi-annually.
Medium term notes at December 31, 1996 consisted of $150.0 million of 8% notes
due in 2005, $75.0 million of 9.375% notes due in 2002 and $70.0 million of
notes with an average interest rate of 7.8% and an average maturity of 12
years. The medium-term notes are unsecured and interest is payable
semi-annually.
At December 31, 1996, the Company's committed bank facilities consisted of (i)
a U.S. facility under which the Company may borrow and obtain letters of credit
in an aggregate amount of $500.0 million (the "U.S. Bank Facility") and (ii) a
Canadian facility under which the Company's Canadian subsidiary, Canadian
Ultramar Company ("CUC", formerly Canadian Ultramar Limited), may borrow, issue
bankers acceptances and obtain letters of credit in an aggregate amount of Cdn.
$200.0 million (the "Canadian Bank Facility" and together with the U.S. Bank
Facility, the "Bank Facilities"). The Company must pay annual fees of 1/9 of
1% on the total used and unused portion of the Bank Facilities. The interest
rates under the Bank Facilities are floating, based upon the prime rate, the
London interbank offered rate or other floating interest rates, at the option
of the Company. At December 31, 1996, there were no borrowings drawn against
the Company's Bank Facilities. Amounts outstanding under the Bank Facilities
are due in 2001, upon expiration of the facilities.
The Bank Facilities and the indentures governing the various notes contain
restrictive covenants relating to the Company and its financial condition,
operations and properties. Under these covenants, the Company and certain of
its subsidiaries are required to, among other things, maintain consolidated
interest coverage and debt-to-total capital ratios. Although these covenants
have the effect of limiting the Company's ability to pay dividends, it is not
anticipated that such limitations will affect the Company's present ability to
pay dividends. At December 31, 1996, under the most restrictive of these
covenants, $273.2 million was available for the payment of dividends.
Diamond Shamrock issued $100.0 million of 7.65% debentures due in 2026, $25.0
million of non-callable 7.25% debentures due in 2010, $75.0 million of
non-callable 8.75% debentures due in 2015 and $100.0 million of 8.0% debentures
due in 2023.
43
<PAGE> 43
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company has a $200.0 million commercial paper program supported by the U.S.
Bank Facility. At December 31, 1996, borrowings under the commercial paper
program of $146.0 million were classified as long-term based on the Company's
ability and intent to refinance these amounts on a long-term basis, using its
Bank Facilities.
At December 31, 1996, the Company had available money market lines of credit
with numerous financial institutions which provided the Company with additional
uncommitted borrowing capacity of $375.0 million and Cdn.$198.7 million.
Borrowings under the money market lines are typically short-term and bear
interest at prevailing market rates as established by the financial
institutions. At December 31, 1996 and 1995, outstanding borrowings were
$280.0 million at a weighted average interest rate of 6.23% and $163.0 million
at a weighted average interest rate of 6.05%, respectively. Since the Company
has the ability and intent to refinance the scheduled maturities by the use of
the Bank Facilities, borrowings under the money market lines have been
classified as long-term.
Diamond Shamrock assumed mortgages with a net present value of $59.3 million
(the "Mortgages") as part of the NCS acquisition in December 1995. The
Mortgages currently carry an annual interest rate of 9.5%, have maturities of 6
years and are recorded at their net present value of $44.6 million. The
Mortgages are secured by retail properties owned by the Company.
The aggregate maturities of long-term debt at December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.2
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.1
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211.4
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513.4
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 870.5
--------
$1,649.5
========
</TABLE>
Outstanding letters of credit totaled $79.4 million and $17.4 million at
December 31, 1996 and 1995, respectively.
The Company has the ability to issue an additional $50.0 million of medium-term
notes under a $200.0 million shelf registration filed with the Securities and
Exchange Commission in August 1994.
Interest payments totaled $114.0 million (net of capitalized interest of $8.8
million), $85.8 million (net of capitalized interest of $11.0 million) and
$80.8 million (net of capitalized interest of $5.7 million) for the years ended
December 31, 1996, 1995 and 1994, respectively.
NOTE 11: STOCKHOLDERS' EQUITY
At December 31, 1996, the Company had issued and outstanding 1.725 million
shares of 5% Cumulative Convertible Preferred Stock. The Preferred Stock is
non-voting and holders of Preferred Stock are entitled to receive a quarterly
dividend of $.625 per share which must be paid before a dividend can be paid on
the Company's Common Stock. The Preferred Stock has a liquidation value of
$50.00 per share (aggregate liquidation value of $86.3 million) and each
Preferred Share can be converted into the number of shares of the Company's
Common Stock obtained by dividing $50.00 by the conversion price then in effect
($25.98 at December 31, 1996), at any time up to and including the redemption
date. Until June 14, 2000, the Preferred Stock is redeemable at the option of
the Company for Common Stock, subject to certain conditions precedent relating
to the market price of the Common Stock. After June 15, 2000, it is redeemable
for cash at the option of the Company, at a redemption price of $50 per share
plus any accrued and unpaid dividends.
In October 1995, the Company issued 5.75 million shares of Common Stock in a
public offering at an offering price of $22.875 per share. Net proceeds to the
Company were approximately $125.5 million.
The Company has adopted several Long-Term Incentive Plans (the "LTIPs"), which
are administered by the Compensation Committee of the Board of Directors.
Under the terms of the LTIPs, the Board may grant restricted stock, stock
options, stock appreciation rights, performance units and securities awards to
officers and key employees of the Company. The vesting period
44
<PAGE> 44
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
for awards under the LTIPs are established by the Board at the time of grant.
Restricted shares awarded under the Company's 1992 and 1996 LTIPs generally
vest on the third anniversary of the date of grant. Restricted shares granted
under the Company's 1987 and 1990 LTIPs vest over a three year period through
1999. Stock options may not be granted at less than the fair market value of
the Company's Common Stock at the date of grant and may not expire more than
ten years from the date of grant. Options granted by Diamond Shamrock prior to
the Merger become exercisable 40%, 30% and 30% on the first, second and third
anniversaries of the date of grant. Under the terms of Ultramar's 1992 LTIP,
upon the occurrence of a change in control, all rights and options become
immediately vested and exercisable, and all restricted shares immediately vest.
As a result, upon consummation of the Merger, 1,152,920 options became
exercisable and 24,898 restricted shares vested.
Grants of restricted shares and performance units under the 1987 and 1990 LTIPs
for 1996, 1995 and 1994, as adjusted to reflect the Merger, are summarized as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----- ----- -------- ---
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Restricted shares . . . . . . . . . . . . . . . 48,106 45,609 16,779
Performance units . . . . . . . . . . . . . . . 2,374,356 1,727,880 1,671,780
</TABLE>
The Company recognized compensation expense during 1996, 1995 and 1994 related
to the performance units of $2.9 million, $1.6 million and $0.5 million,
respectively.
On December 19, 1996 and February 19, 1997, the Compensation Committee granted
2,949,250 and 106,450 stock options, respectively, under the 1996 LTIP. Under
these grants, 1,100,700 shares vest 30%, 30% and 40% on the first, second and
third anniversaries of the date of grant and 1,955,000 shares vest 100% after
4 1/2 years, except that accelerated vesting will occur if the market price of
the Company's Common Stock reaches prescribed levels prior to such time. These
stock options have terms ranging from 5 to 10 years. A total of 2,945,550
shares are available for future issuance under the 1996 LTIP.
Stock option transactions under the various LTIPs are summarized below. The
exercise price and number of stock options issued in transactions under the
1987 and 1990 LTIPs occurring prior to December 3, 1996, the effective date of
the Merger, have been adjusted to reflect the exchange of 1.02 shares of UDS
Common Stock for each share of Diamond Shamrock Common Stock.
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------ -------- -----
<S> <C> <C>
Outstanding January 1, 1994 . . . . . . . . . . . . . . . . . . . 2,452,499 $18.22
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 638,416 28.05
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . (112,044) 18.54
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . (291,934) 18.00
---------
Outstanding December 31, 1994 . . . . . . . . . . . . . . . . . . 2,686,937 20.57
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 975,050 24.27
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,914) 18.73
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . (204,834) 16.55
---------
Outstanding December 31, 1995 . . . . . . . . . . . . . . . . . . 3,443,239 21.86
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,902,675 29.82
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . (275,255) 26.25
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . (707,526) 19.98
---------
Outstanding December 31, 1996 . . . . . . . . . . . . . . . . . . 6,363,133 26.76
=========
</TABLE>
At December 31, 1996, 1995 and 1994, exercisable stock options totaled 2.9
million, 1.7 million and 1.0 million shares and had weighted average exercise
prices of $23.04, $20.33 and $18.51 per share, respectively.
45
<PAGE> 45
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Stock options outstanding and exercisable at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------- --------------------------------
Range of Number Weighted-Average Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Remaining Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$11.10 - $19.49 842,132 5.6 $16.36 842,132 $16.36
$20.40 - $23.53 470,180 6.7 $22.42 359,285 $22.08
$23.66 - $28.43 1,491,801 8.1 $26.17 1,375,778 $26.12
$28.56 - $33.58 3,559,020 9.7 $30.05 285,863 $29.13
--------- ---------
$11.10 - $33.58 6,363,133 8.5 $26.76 2,863,058 $23.04
========= =========
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
stock option plans as allowed under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation". Accordingly, the Company
has not recognized compensation expense for its stock options granted. Had
compensation expense for the Company's stock options granted in 1996 and 1995
been determined based on the fair value at the grant dates consistent with the
methodology of Statement No. 123, pro forma net (loss) income applicable to
common shares and net (loss) income per common share would have been as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
---- ----
(in millions, except per share data)
<S> <C> <C>
Pro forma net (loss) income . . . . . . . . . . . . . . . . $(44.2) $110.8
Pro forma (loss) income per share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . $(0.59) $ 1.58
Fully diluted . . . . . . . . . . . . . . . . . . . . . . $(0.59) $ 1.57
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1996 and 1995 was $5.83 and $6.54, respectively. Because
Statement No. 123 is applicable only to options granted in fiscal years
beginning subsequent to December 15, 1994, its pro forma effect will not be
fully reflected until 1997.
For purposes of the pro forma disclosures, the estimated fair value of options
is amortized to expense over the options' vesting period. The fair value for
these options was estimated at the respective grant dates using a Black-Scholes
option pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Expected Volatility . . . . . . . . . . . . . . . . . . . . 0.22 - 0.23 0.25 - 0.27
Expected Dividend Yield . . . . . . . . . . . . . . . . . . 3.34% - 3.48% 2.07% - 3.48%
Expected Life (Term) . . . . . . . . . . . . . . . . . . . . 4 - 6 years 4 - 6 years
Risk-Free Interest Rate . . . . . . . . . . . . . . . . . . 5.45% - 6.07% 6.71% - 7.72%
</TABLE>
In January 1993, the Board of Directors adopted the Ultramar Corporation Annual
Incentive Plan ("AIP") which provides for cash and restricted Common Stock
awards to officers and certain key employees of the Company. Annual awards
under the AIP are generally based on attainment of various performance measures
established by the Company's Board of Directors. Restricted shares awarded
under the terms of the AIP generally vest on the second anniversary of the date
of grant. A total of 446,363 shares remain available for issuance under the
AIP.
A Performance Incentive Plan has been adopted by Diamond Shamrock under which
the Compensation Committee may grant cash awards to eligible employees. For
the years 1996, 1995 and 1994, the Company paid $4.3 million, $2.4 million and
$2.7 million, respectively, under this plan.
Prior to the Merger, Diamond Shamrock had established two Employee Stock
Ownership Plans ("ESOP"). ESOP I was formed in
46
<PAGE> 46
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 1987, and ESOP II was formed in April 1989. All employees of Diamond
Shamrock who have attained a minimum length of service and satisfy other plan
requirements are eligible to participate in the ESOPs except that ESOP II
excludes employees covered by any collective bargaining agreements.
Prior to 1993, Diamond Shamrock loaned the ESOPs $65.8 million to purchase
shares of the Company's Common Stock and contributed 82,400 treasury shares of
its Common Stock to ESOP I as part of special award and success sharing
programs. In accordance with the success sharing program, the Company accrued
and expensed $1.5 million and $2.8 million for the purchase of 55,523 shares
and 107,681 shares in 1995 and 1994, respectively. There were no purchases of
shares in 1996 and the success sharing program was terminated prior to the
effective date of the Merger. A total of 2,776,300 shares are available for
future issuance under the plans.
The Company will make contributions to the ESOPs in sufficient amounts, when
combined with dividends on the Common Stock, to retire the principal and to pay
interest on the loans used to fund the ESOPs. Common shares will be allocated
to participants and included in the computation of earnings per share as the
payments of principal and interest are made on the loans. Contributions to the
ESOPs that were charged to expense for 1996, 1995 and 1994 were $5.6 million,
$7.5 million and $7.4 million, respectively. Dividend and interest income
reduced the amounts charged to expense in 1996, 1995 and 1994 by $1.7 million,
$1.5 million and $1.8 million, respectively.
At December 31, 1996, there were 1,968,653 allocated shares and 94,824 suspense
shares held by the ESOPs.
Under the terms of the Company's Restricted Share Plan for Directors, directors
who were not officers of the Company received an award of 400 shares of
restricted Common Stock of the Company for each year of their term as director.
In 1996, the annual award level under the plan was increased to 600 shares.
The director's restricted shares vested on the last day of the term for which
such shares were awarded or upon the occurrence of a change in control. At
December 31, 1996, 19,000 restricted shares were awarded and, as a result of
the Merger, were fully vested. A total of 31,000 shares are available for
future issuance under the plan.
In December 1993, the Board of Directors adopted the Ultramar Corporation Stock
Purchase and Dividend Reinvestment Plan which allows eligible holders of the
Company's Common Stock to use dividends to purchase Company stock and to make
optional cash payments to buy additional shares of Common Stock. The Company
has reserved a total of 2,000,000 shares of Common Stock for issuance under
this plan. At December 31, 1996, a total of 6,722 shares had been issued under
the plan and 1,993,278 shares remain available for future issuance.
On February 5, 1997, the Board of Directors declared a quarterly dividend of
$.275 per common share, payable on March 7, 1997 to holders of record on
February 20, 1997. In addition, the Board of Directors declared a quarterly
dividend of $.625 per share on the Company's 5% Cumulative Convertible
Preferred Stock, payable on March 14, 1997, to holders of record on February
20, 1997.
NOTE 12: BENEFIT PLANS
The Company has several qualified, non-contributory defined benefit pension
plans (the "Qualified Pension Plans") covering substantially all of its
salaried employees in the United States, other than those subject to collective
bargaining agreements. These plans generally provide retirement benefits based
on years of service and compensation during specified periods. Senior
executives and certain key employees covered by these plans are also entitled
to participate in various unfunded supplemental executive retirement plans
which provide retirement benefits based on years of service and compensation,
including compensation not permitted to be taken into account under the
Qualified Pension Plans (the "Supplemental Pension Plans" and together with the
Qualified Pension Plans, the "Pension Plans").
Under the Qualified Pension Plans, the Company's policy is to fund normal cost
plus the amortization of the unfunded actuarial liability for costs arising
from qualifying service determined under the projected unit credit method. The
underlying pension plan assets include cash equivalents, fixed income
securities (primarily obligations of the United States government) and equity
securities.
The Company also maintains a retirement plan for Diamond Shamrock's collective
bargaining groups (the "Bargaining Unit Plan"). The Bargaining Unit Plan
generally provides benefits that are based on the union member's monthly base
pay during the five years before retirement.
As a result of the Merger, the Company assumed obligations with respect to a
retirement plan for the former non-employee Directors of Diamond Shamrock (the
"Directors Retirement Plan"). The Directors Retirement Plan provides an annual
retirement benefit for
47
<PAGE> 47
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
a period of time equal to the shorter of (a) length of service as a
non-employee Director or (b) life of Director. Following the Merger, the
Company discontinued future contributions to the Directors Retirement Plan.
Benefit plan expense related to the Company's Pension Plans was as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----- ----- -------- ---
1996 1995 1994
---- ---- ----
(in millions)
<S> <C> <C> <C>
Cost of benefits earned . . . . . . . . . . . . . . . . . . $ 8.9 $6.7 $ 7.7
Accrued interest on projected benefit obligation . . . . . . 7.1 5.9 5.3
Return on plan assets . . . . . . . . . . . . . . . . . . . (8.4) (9.1) (2.1)
Net amortization and deferral . . . . . . . . . . . . . . . 2.9 4.5 (1.9)
----- ----- -----
$10.5 $ 8.0 $ 9.0
===== ===== =====
</TABLE>
A summary of the funded status of the Company's Pension Plans was as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------- ---
1996 1995
-------------------------------- ---------------------------------
Plans Where Plans Where Plans Where Plans Where
Assets Exceed Benefits Exceed Assets Exceed Benefits Exceed
Benefits Assets Benefits Assets
------------- --------------- -------------- ----------------
(in millions)
<S> <C> <C> <C> <C>
Fair market value of plan assets . . . . . $85.2 $2.0 $65.9 $6.2
Actuarial present value of accumulated
benefit obligation:
Vested . . . . . . . . . . . . . . . . . $67.2 $2.4 $55.5 $7.1
Non-vested . . . . . . . . . . . . . . . 5.1 4.9 0.1
----- ----- ----- -----
Total . . . . . . . . . . . . . . . . 72.3 2.4 60.4 7.2
Effect of projected future salary increases 27.6 0.3 25.6 1.0
----- ----- ----- -----
Projected benefit obligation . . . . . . . $99.9 $2.7 $86.0 $8.2
===== ==== ===== ====
Components of projected benefit obligation in
excess of plan assets:
Unrecognized prior service costs . . . . $ 0.1 $ 0.3 $(0.2)
Unrecognized net experience (gains) losses 3.5 $(0.5) 8.0 1.7
Unrecognized net obligation . . . . . . 0.4 0.3 0.2
Adjustment required to recognize
minimum liability . . . . . . . . . . (0.4) (0.1) (0.6)
Accrued pension cost . . . . . . . . . . 11.1 1.3 11.5 0.9
----- ----- ----- -----
. . . . . . . . . . . . . . . . . . . . . $14.7 $ 0.7 $20.1 $ 2.0
===== = === ===== = ===
</TABLE>
The assumptions used to measure the projected benefit obligations under the
Company's Pension Plans at December 31, 1996 and 1995 were as follows: assumed
discount rate -- 7.50% for 1996 and 7.25% for 1995 and assumed rate for
compensation increases, including increases for promotions -- 4.0% - 4.75% for
1996 and 4.0% - 4.50% in 1995. The weighted average expected long-term rate of
return on plan assets used to determine net periodic pension cost for each of
the three years in the period ended December 31, 1996 was 9%.
The Company also maintains several defined contribution retirement plans for
substantially all its eligible employees in the United States and Canada.
Contributions to the plans are generally determined as a percentage of each
eligible employee's salary. The aggregate costs of these plans amounted to
$8.0 million, $5.6 million and $6.0 million during the years ended December 31,
1996, 1995 and 1994, respectively.
48
<PAGE> 48
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company sponsors unfunded defined benefit postretirement plans which
provided health care and life insurance benefits to retirees who satisfy
certain age and service requirements. In addition, pursuant to the terms of a
distribution agreement between Diamond Shamrock and Maxus, Diamond Shamrock's
parent company prior to its 1987 spin-off, the Company also shares in the cost
of providing similar benefits to former employees of Maxus (see Note 15).
Generally, the health care plans pay a stated percentage of most medical
expenses reduced for any deductibles, payments made by government programs and
other group coverage. The cost of providing most of these benefits is shared
with retirees.
Net periodic postretirement benefit costs included the following components:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------
1996 1995 1994
---------------- -------------------- -------------------
Health Life Health Life Health Life
Care Insurance Care Insurance Care Insurance
Plan Plan Plan Plan Plan Plan
---- ---- ---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Service cost . . . . . . . . . . $1.7 $0.2 $1.5 $0.1 $1.4 $0.2
Interest cost . . . . . . . . . 3.9 0.6 4.0 0.4 3.0 0.5
Net amortization and deferral (0.7) (0.7) (0.7)
---- ---- ---- ---- ---- ----
$4.9 $0.8 $4.8 $0.5 $3.7 $0.7
==== ==== ==== ==== ==== ====
</TABLE>
The following table presents the plans' status reconciled with amounts
recognized in the Company's balance sheets:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------- --------------------
Health Life Health Life
Care Insurance Care Insurance
Plan Plan Plan Plan
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees . . . . . . . . . . . . . . . . $32.8 $3.5 $35.4 $3.2
Fully eligible active plan participants . 2.8 0.1 2.6 0.1
Other active plan participants . . . . . 19.5 4.2 16.3 3.5
---- --- ---- ---
$55.1 $7.8 $54.3 $6.8
===== ==== ===== ====
Components of accumulated benefit
obligation:
Unrecognized prior service costs. . . . . $ (2.8) $(0.5) $(3.2) $(0.5)
Unrecognized net experience (gains) losses (4.0) 0.2 (1.9)
(0.2)
Accrued postretirement benefit cost . . . 61.9 8.1 59.4 7.5
---- --- ---- ---
$55.1 $7.8 $54.3 $6.8
===== ==== ===== ====
</TABLE>
The principal assumptions used in the computation of net periodic
postretirement benefit cost and the accumulated benefit obligation were as
follows: weighted average assumed discount rate -- 7.5% for 1996 and 7.25% for
1995; rate of increase in future compensation levels -- 4.0% - 4.75% for 1996
and 4.0% - 4.5% for 1995. The health care cost trend rate for the U.S. ranged
from 7.8% to 11.5% in 1996 and was assumed to decrease gradually to 6.0% - 6.5%
by the year 2001 and remain at that level thereafter. The rate in 1995 ranged
from 9.2% to 12.25%. In Canada, the rate was 8.0% in 1996 and 8.25% in 1995.
The 8.0% rate was assumed to decrease gradually to 5.25% by 2000 and to remain
at that level thereafter. Increasing the assumed weighted average health care
cost trend rate by 1% in each year would increase the accumulated
postretirement benefit obligation under the U.S. and Canadian plans as of
December 31, 1996 by $5.4 million and $1.0 million, respectively, and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by $0.9 million and $0.1
million, respectively.
49
<PAGE> 49
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 13: INCOME TAXES
(Loss) income before income taxes and cumulative effect of accounting change
consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----- ----- -------- ---
1996 1995 1994
---- ---- ----
(in millions)
<S> <C> <C> <C>
United States . . . . . . . . . . . . . . . . . . . $(110.7) $ 78.6 $161.9
Canada . . . . . . . . . . . . . . . . . . . . . . . 70.5 68.5 58.8
------- ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . $ (40.2) $147.1 $220.7
========= ====== ======
</TABLE>
Income tax (benefit) expense consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----- ----- -------- ---
1996 1995 1994
---- ---- ----
(in millions)
<S> <C> <C> <C>
Current:
United States
Federal . . . . . . . . . . . . . . . . . . . $20.2 $9.4 $18.2
State . . . . . . . . . . . . . . . . . . . . 1.5 1.4 (0.1)
Canada . . . . . . . . . . . . . . . . . . . . . . 19.7 2.0 1.6
---- ---- ----
Total current . . . . . . . . . . . . . . . . 41.4 12.8 19.7
Deferred:
United States
Federal . . . . . . . . . . . . . . . . . . . (43.4) 15.1 39.5
State . . . . . . . . . . . . . . . . . . . . (10.2) (1.9) 3.2
Canada . . . . . . . . . . . . . . . . . . . . . . 7.9 26.1 21.5
---- ---- ----
Total deferred . . . . . . . . . . . . . . . . (45.7) 39.3 64.2
----- ---- ----
Total income tax (benefit) expense . . . . . . . . . ($4.3) $52.1 $83.9
===== ===== =====
</TABLE>
Deferred income taxes arise from temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements.
The components of the Company's deferred income tax liabilities and assets
consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------- ---
1996 1995
---- ----
(in millions)
<S> <C> <C>
Deferred tax liabilities:
Excess of book basis over tax basis of fixed assets . . . . . . . . . $(327.5) $(301.0)
LIFO inventory and market valuation allowance . . . . . . . . . . . . (12.6) (21.1)
Deferred refinery maintenance turnaround costs . . . . . . . . . . . . (20.7) (17.7)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.8)
----- -----
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . (360.8) (345.6)
Deferred tax assets:
Various accrued liabilities . . . . . . . . . . . . . . . . . . . . . 159.0 111.0
U.S. Federal and state income tax credit carryforwards . . . . . . . . 62.2 43.3
Canadian tax benefit on unrealized foreign exchange adjustment . . . . 6.1 6.1
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . 70.9 56.4
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6 23.7
----- -----
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . 303.8 240.5
----- -----
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . $ (57.0) $(105.1)
= ===== =======
</TABLE>
50
<PAGE> 50
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The realization of deferred tax assets recorded at December 31, 1996 is
dependent on the Company's ability to generate future taxable income in both
the U.S. and Canada. Although realization is not assured, the Company believes
it is more likely than not that the deferred tax assets will be realized.
The difference between the Company's effective income tax rate and the U.S.
Federal statutory rate is reconciled below:
<TABLE>
<CAPTION>
Years Ended December 31,
----- ----- -------- ---
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory rate . . . . . . . . . . . . (35.0)% 35.0% 35.0%
Effect of foreign operations . . . . . . . . . . . . 7.3 3.0 1.2
State income taxes, net of U.S.
Federal income tax benefit . . . . . . . . . . . . (14.2) (0.2) 0.9
Non-deductible reserves . . . . . . . . . . . . . . 11.2 (2.4) 0.0
Non-deductible merger costs . . . . . . . . . . . . 11.2 0.0 0.0
Goodwill amortization . . . . . . . . . . . . . . . 7.0 0.0 0.0
General business credits . . . . . . . . . . . . . . 0.0 (2.5) (0.3)
Other items . . . . . . . . . . . . . . . . . . . . 1.8 2.5 1.2
------ ----- -----
(10.7)% 35.4% 38.0%
======= ===== =====
</TABLE>
At December 31, 1996, the Company had U.S. Federal and state income tax credit
carryforwards totaling $30.8 million which will expire in the years 2002
through 2010, and Federal and state alternative minimum tax credits totaling
$31.5 million which can be carried forward indefinitely. In addition, at
December 31, 1996, the Company had U.S. net operating loss carryforwards for
income tax purposes amounting to $194.1 million which will expire in the years
1998 through 2011.
Income taxes paid in the years ended December 31, 1996, 1995 and 1994 amounted
to $9.6 million, $19.0 million and $15.1 million, respectively.
NOTE 14: ENVIRONMENTAL MATTERS
The Company's operations are subject to environmental laws and regulations
adopted by various governmental authorities in the jurisdictions in which the
Company operates. Accordingly, the Company has adopted policies, practices and
procedures in the areas of pollution control, product safety, occupational
health and the production, handling, storage, use and disposal of hazardous
materials to prevent material environmental or other damage, and the material
financial liability which could result from such events. However, some risk of
environmental or other damage is inherent in the business of the Company, as it
is with other companies engaged in similar businesses.
The Company has been designated as a potentially responsible party by the U.S.
Environmental Protection Agency (the "EPA") under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, and by certain
states under applicable state laws, with respect to the cleanup of hazardous
substances at several sites. In each instance, other potentially responsible
parties also have been so designated. In addition, the Quebec Ministry of
Environment and Montreal Urban Community are investigating possible instances
of contamination at two of the Company's Canadian facilities. The Company has
agreed to remediate certain of these sites and is currently assessing other
sites. The Company has accrued liabilities for environmental remediation
obligations at these sites, as well as estimated site restoration costs to be
incurred in the future.
At December 31, 1996 and 1995, accruals for environmental matters amounted to
$151.4 million and $122.2 million, respectively (included principally in "Other
long-term liabilities"). Charges to income during 1996 for environmental
matters, principally to conform the accounting policies of Diamond Shamrock and
Ultramar, totaled $41.7 million. Charges to income during the two year period
ended December 31, 1995 for environmental matters were not significant.
The accruals noted above represent the Company's best estimate of the costs
which will be incurred over an extended period of
51
<PAGE> 51
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
time for restoration and environmental remediation at various sites. These
liabilities have not been reduced by possible recoveries from third parties and
projected cash expenditures have not been discounted. Total future
environmental costs cannot be reasonably estimated due to unknown factors such
as the magnitude of possible contamination, the timing and extent of
remediation, the determination of the Company's liability in proportion to
other parties, improvements in cleanup technologies and the extent to which
environmental laws and regulations may change in the future. Although
environmental costs may have a significant impact on results of operations for
any single period, the Company believes that such costs will not have a
material adverse effect on the Company's financial position.
NOTE 15: COMMITMENTS AND CONTINGENCIES
The Company leases gasoline stations, office space and other assets under
operating leases with terms expiring at various dates through 2017. Certain
leases contain renewal options and escalation clauses and require the Company
to pay property taxes, insurance and maintenance costs. These provisions vary
by lease. Certain gasoline station leases provide for the payment of rentals
based solely on sales volume while others provide for payments, in addition to
any established minimums, contingent upon the achievement of specified levels
of sales volumes.
Future minimum rental payments applicable to noncancellable operating leases at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69.9
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.8
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.5
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.6
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.3
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145.9
-----
382.0
Less future minimum sublease rental income . . . . . . . . . . . . . . . . . . . . . 34.3
------
$347.7
======
</TABLE>
Rental expense for all operating leases was as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----- ----- -------- ---
1996 1995 1994
---- ---- ----
(in millions)
<S> <C> <C> <C>
Minimum rental expense . . . . . . . . . . . . . $76.7 $59.3 $54.8
Contingent rental expense . . . . . . . . . . . 6.8 6.7 6.4
----- ----- -----
Total rental expense . . . . . . . . . . . . . . 83.5 66.0 61.2
Less sublease income . . . . . . . . . . . . . . 10.4 8.9 10.0
----- ----- -----
Net rental expense . . . . . . . . . . . . . . . $73.1 $57.1 $51.2
===== ===== =====
</TABLE>
The Company has two long-term lease arrangements (the "Brazos Lease" and the
"Jamestown Lease") to accommodate its retail outlet construction program. The
Brazos and Jamestown Leases have lease terms which will expire in December and
July 2003, respectively. At December 31, 1996, substantially all of the $190.0
million Brazos Lease commitment had been used to construct or purchase retail
outlets and substantially all of the $100.0 million Jamestown Lease commitment
remained available to construct or purchase retail outlets. After their
non-cancelable lease term, the Brazos and Jamestown Leases may be extended by
agreement of the parties, or the Company may purchase or arrange for the sale
of the retail outlets. If the Company were unable to extend the lease or
arrange for the sale of the properties under the Brazos Lease to a third party
in 2003, the amount necessary to purchase
52
<PAGE> 52
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
the properties under lease as of December 31, 1996 would be approximately
$190.0 million.
At December 31, 1996, the Company had several ocean-going tankers and coastal
vessels under various noncancellable time charters which expire on various
dates through 1998. Certain charters include renewal options and escalation
clauses, which vary by charter. Certain charters provide for the payment of
chartering fees which vary based on usage. Aggregate future minimum payments
required under the time charters total $18.9 million for 1997 and $12.9 million
for 1998. Charges to income for marine freight time charters amounted to $54.4
million, $54.7 million and $64.3 million for the years ended December 31, 1996,
1995 and 1994, respectively.
In conjunction with the construction of a high-pressure gasoil hydrotreater at
the Company's Wilmington Refinery, the Company entered into a long-term
contract for the supply of hydrogen. The contract commenced in 1996 and will
run for 15 years. The purchase price for the hydrogen is fixed, based on the
quantity and flow rate of product supplied. The contract has a take-or-pay
provision of $1.2 million per month. In November, 1996, the Company also
entered into a contract for the supply of hydrogen to its Three Rivers
Refinery, containing a take-or-pay provision of $0.7 million per month, with an
initial term of 15 years.
Pursuant to the terms of various agreements, the Company has agreed to
indemnify the former owner of Ultramar Inc. ("UI") and CUC and certain of its
affiliates for any claims or liabilities arising out of, among other things,
refining and marketing activities and litigation related to the operations of
UI and CUC prior to their acquisition. The Company has also agreed to
indemnify two affiliates of the former owner against liability for
substantially all U.S. Federal, state and local income or franchise taxes in
respect of periods in which any UI company was a member of a consolidated,
combined or unitary return with any other member of the affiliated group.
In connection with the 1987 spin-off of Diamond Shamrock from Maxus, Diamond
Shamrock entered into a distribution agreement which, among other things,
provided for the sharing by the Company and Maxus of certain liabilities
relating to businesses Maxus discontinued or disposed of prior to the spin-off
date. The Company's total liability for such shared costs was limited to $85.0
million. The Company has fully performed all of its obligations to Maxus under
the agreement as of December 31, 1996, including $8.3 million paid during 1996.
There are various legal proceedings and claims pending against the Company
which arise in the ordinary course of business. It is management's opinion,
based upon advice of counsel, that these matters, individually or in the
aggregate, will not have a material adverse effect on the Company's results of
operations or financial condition.
NOTE 16: FINANCIAL INSTRUMENTS
Financial instruments consist of the following:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
-------- --- ---- -------- --- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(in millions)
<S> <C> <C> <C> <C>
Cash and cash equivalents . . . . . . . . $197.9 $197.9 $ 175.5 $ 175.5
Notes receivable . . . . . . . . . . . . . 33.2 33.2 35.1 35.1
Long-term debt,
including current portion . . . . . . . (1,649.5) (1,717.9) (1,565.2) (1,694.0)
Commodity futures . . . . . . . . . . . . (1.1) (1.1) (6.7) (6.7)
Foreign exchange contracts . . . . . . . . 0.0 0.0
Interest rate swap contracts . . . . . . . 0.2 2.7
</TABLE>
Cash and cash equivalents at December 31, 1996 and 1995 include $84.0 million
and $84.1 million of commercial paper with maturities of less than three
months. The investments in commercial paper are available for sale and are
stated at cost, which approximates fair market value.
53
<PAGE> 53
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The aggregate carrying amounts of notes receivable approximated fair value as
determined based on the discounted cash flow method.
The fair value of the Company's fixed rate debt at December 31, 1996 and 1995
was $1,288.3 million and $1,305.1 million, respectively (carrying amounts of
$1,219.9 million and $1,180.6 million, respectively) and was estimated based on
the quoted market price of similar debt instruments. The carrying amounts of
the Company's borrowings under its revolving credit agreements and bank money
market facilities approximate fair value because such obligations generally
bear interest at floating rates.
In 1996, the Company entered into interest rate swap agreements the effect of
which is to modify the interest rate characteristics of a portion of its debt,
from fixed to floating rate. At December 31, 1996, the Company had two
contracts with notional principal amounts of $100.0 million each that expire in
2002 and 2005. Under the terms of the contracts, the Company and a major
financial institution agree to pay, on a semi-annual basis, the differential
between using a fixed interest rate and a weighted average of LIBOR rates, as
stipulated in the contracts. Amounts to be paid or received under the
contracts are recorded as an adjustment to interest expense. The notional
principal amounts of the contracts represent the extent of the Company's
involvement in these transactions but do not represent its exposure to market
risk. The Company is subject to market risk as interest rates fluctuate and
impact the interest payments due on the notional principal amounts. The fair
value of interest rate swap contracts is determined based on the difference
between the contract rate of interest and the rates currently quoted for
contracts of similar terms and maturities.
The Company uses futures, forward and option contracts to reduce its exposure
to crude oil and petroleum product price volatility and does not use such
contracts with the intent of producing speculative gains. These contracts
permit settlement by the delivery or receipt of the related crude oil and
petroleum products. The contracts are marked to market value and gains and
losses are recognized currently, in the caption cost of products sold, as a
component of the related crude oil and petroleum product purchases. At
December 31, 1996, the Company had outstanding futures contracts to purchase
$51.4 million and sell $22.9 million of crude oil and petroleum products which
mature on various dates through May 1997. At December 31, 1995, the Company
had outstanding futures contracts to purchase $30.7 million and to sell $27.6
million of crude oil and petroleum products, which matured on various dates
through March 1996. The Company is subject to the risks associated with
changes in the value of the underlying crude oil and petroleum products;
however, such changes in values are generally offset by changes in the sales
price of the Company's petroleum products. The carrying and fair value of
commodity futures is based on quoted market values.
The Company also periodically enters into short-term foreign exchange contracts
to manage its exposure to exchange rate fluctuations on the trade payables of
its Canadian operation that are denominated in U.S. dollars. These contracts
involve the exchange of Canadian and U.S. currency at future dates. Gains and
losses on these contracts generally offset losses and gains on the U.S. dollar
denominated trade payables. At December 31, 1996, the Company had short- term
foreign exchange contracts totaling $10.8 million. The Company had no foreign
exchange contracts at December 31, 1995. The notional amount of the contracts
represents the extent of the Company's involvement in these transactions but
does not represent its exposure to market risk. The fair value of short-term
foreign exchange contracts is determined based on year-end exchange rates. The
Company generally does not hedge for the effects of foreign exchange rate
fluctuations on the translation of its foreign results of operations or
financial position.
The Company is exposed to credit risk in the event of nonperformance by the
counterparties to its interest rate, foreign exchange rate and petroleum
related forward and option contracts but does not anticipate nonperformance by
any of these counterparties. The amount of such exposure is generally the
unrealized gains on such contracts. Other financial instruments which
potentially subject the Company to credit risk consist principally of temporary
cash investments and trade receivables. The Company places its temporary cash
investments with high credit quality financial institutions and, by policy,
limits the amount of credit exposure with any one financial institution.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base and
their dispersion across different geographic areas. As of December 31, 1996,
the Company had no significant concentrations of credit risk.
NOTE 17: BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company's revenues from continuing operations are principally derived from
two business segments: (i) Refining and Marketing and (ii) Petrochemical and
Allied Businesses. Refining and Marketing is engaged in the refining of crude
oil and
54
<PAGE> 54
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
marketing of refined petroleum products and other merchandise. Petrochemical
and Allied Businesses consists of transporting, storing and marketing natural
gas liquids; upgrading refinery grade propylene and selling polymer grade
propylene; selling
55
<PAGE> 55
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
anhydrous ammonia; and investing in various other opportunities. The Company's
refining and marketing segment operates in the Southwest region of the United
States, with particular emphasis in Texas, California, Colorado, Louisiana,
New Mexico, and Oklahoma, as well as in the Northeast region of the United
States and eastern Canada.
<TABLE>
<CAPTION>
Refining Petrochemical
and and
Marketing Allied Business Total
--------- ------ -------- -----
(in millions)
<S> <C> <C> <C>
Year ended December 31, 1996:
Sales and other revenues . . . . . . . . . . $9,747.3 $461.1 $10,208.4
Operating income . . . . . . . . . . . . . . 137.8 9.5 147.3
Depreciation and amortization . . . . . . . 166.4 13.5 179.9
Interest expense, net . . . . . . . . . . . 101.7 8.4 110.1
(Loss) income before income taxes . . . . . (49.1) 8.9 (40.2)
Year ended December 31, 1995:
Sales and other revenues . . . . . . . . . . 7,706.1 377.4 8,083.5
Operating income . . . . . . . . . . . . . . 195.1 31.7 226.8
Depreciation and amortization . . . . . . . 124.9 11.4 136.3
Interest expense, net . . . . . . . . . . . 73.7 6.0 79.7
Income before income taxes and cumulative
effect of accounting change . . . . . . . 113.2 33.9 147.1
Year ended December 31, 1994:
Sales and other revenues . . . . . . . . . . 7,106.1 312.2 7,418.3
Operating income . . . . . . . . . . . . . . 286.3 12.9 299.2
Depreciation and amortization . . . . . . . 98.9 13.1 112.0
Interest expense, net . . . . . . . . . . . 72.2 6.3 78.5
Income before income taxes . . . . . . . . . 208.5 12.2 220.7
</TABLE>
Intersegment sales and operating revenues are generally derived from
transactions made at prevailing market rates. Sales of natural gas liquids
from the Petrochemical and Allied Businesses segment to the Refining and
Marketing segment amounted to $10.7 million in 1996, $21.5 million in 1995 and
$15.8 million in 1994.
Identifiable assets were as follows:
<TABLE>
<CAPTION>
December 31,
-------- ---
1996 1995 1994
---- ---- ----
(in millions)
<S> <C> <C> <C>
Refining and Marketing . . . . . . . . . . . $3,922.3 $3,839.6 $3,136.9
Petrochemical and Allied Businesses . . . . 240.0 188.0 159.0
Corporate . . . . . . . . . . . . . . . . . 257.7 189.1 88.5
-------- -------- --------
$4,420.0 $4,216.7 $3,384.4
======== ======== ========
</TABLE>
Capital expenditures were as follows:
<TABLE>
<CAPTION>
December 31,
-------- ---
1996 1995 1994
---- ---- ----
(in millions)
<S> <C> <C> <C>
Refining and Marketing . . . . . . . . . . . $314.8 $771.5 $343.5
Petrochemical and Allied Businesses . . . . 25.4 21.2 22.3
Corporate . . . . . . . . . . . . . . . . . 1.8 1.5 1.2
------ ------ ------
$342.0 $794.2 $367.0
====== ====== ======
</TABLE>
Identifiable assets are those assets that are utilized by the respective
business segment. Corporate assets are principally cash, investments and other
assets that cannot be directly associated with the operations or activities of
a business segment.
56
<PAGE> 56
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Geographic
<TABLE>
<CAPTION>
As of or for the Years Ended December 31,
------------------------------------------------------
1996 1995 1994
---------- --------- --------
(in millions)
<S> <C> <C> <C>
Sales and other revenues
Southwest . . . . . . . . . . . . . . . $ 7,161.6 $5,432.2 $4,904.8
Northeast . . . . . . . . . . . . . . . 3,046.8 2,651.3 2,513.5
--------- -------- --------
$10,208.4 $8,083.5 $7,418.3
========= ======== ========
Operating income
Southwest . . . . . . . . . . . . . . . $ 69.6 $ 137.8 $ 215.8
Northeast . . . . . . . . . . . . . . . 77.7 89.0 83.4
--------- -------- --------
$ 147.3 $ 226.8 $ 299.2
========= ======== ========
Net income
Southwest . . . . . . . . . . . . . . . $ (68.5) $ 59.0 $ 105.5
Northeast . . . . . . . . . . . . . . . 32.6 58.0 31.3
--------- -------- --------
$ (35.9) $ 117.0 $ 136.8
========= ======== ========
Identifiable assets
Southwest . . . . . . . . . . . . . . . $ 3,377.4 $3,304.6 $2,516.3
Northeast . . . . . . . . . . . . . . . 1,042.6 912.1 868.1
--------- -------- --------
$ 4,420.0 $4,216.7 $3,384.4
========= ======== ========
Capital expenditures
Southwest . . . . . . . . . . . . . . . $ 259.1 $ 770.8 $ 310.1
Northeast . . . . . . . . . . . . . . . 82.9 23.4 56.9
--------- -------- --------
$ 342.0 $ 794.2 $ 367.0
========= ======== ========
Depreciation and amortization
Southwest . . . . . . . . . . . . . . . $ 153.5 $ 111.4 $ 91.3
Northeast . . . . . . . . . . . . . . . 26.4 24.9 20.7
--------- -------- --------
$ 179.9 $ 136.3 $ 112.0
========= ======== ========
</TABLE>
Net income - Southwest includes an after tax charge of $53.0 million for
transaction and integration costs associated with the Merger.
57
<PAGE> 57
ULTRAMAR DIAMOND SHAMROCK CORPORATION
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1996 Fiscal Quarters
-------------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Sales and other revenues . . . . . . . . . . . . . . $2,369.6 $2,767.2 $2,351.4 $2,720.2
Cost of products sold and operating expenses . . . . 1,713.2 1,873.3 1,773.9 2,117.7
Operating income (loss) . . . . . . . . . . . . . . . 61.6 107.6 52.7 (152.0)
Income (loss) before income taxes . . . . . . . . . . 36.8 79.2 21.8 (178.0)
Net income (loss) . . . . . . . . . . . . . . . . . . 22.0 47.1 13.9 (118.9)
Income (loss) per common share:
Primary . . . . . . . . . . . . . . . . . . . . . $.28 $.61 $.17 $(1.61)
==== ==== ==== ======
Fully Diluted . . . . . . . . . . . . . . . . . . $.28 $.60 $.17 $(1.61)
==== ==== ==== ======
Weighted average number of shares used
in computation (in thousands):
Primary . . . . . . . . . . . . . . . . . . . . 74,692 75,352 75,148 74,674
Fully Diluted . . . . . . . . . . . . . . . . . 78,072 78,674 75,148 74,674
</TABLE>
<TABLE>
<CAPTION>
1995 Fiscal Quarters
--------------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
(in millions, except per share data)
<S> <C> <C> <C> <C>
Sales and other revenues . . . . . . . . . . . . . . . $1,852.9 $2,091.0 $2,069.2 $2,070.4
Cost of products sold and operating expenses . . . . . 1,319.6 1,449.9 1,357.9 1,408.0
Operating income . . . . . . . . . . . . . . . . . . . 33.7 70.7 61.3 61.1
Income before income taxes and cumulative effect of
accounting change . . . . . . . . . . . . . . . . . . . 13.3 50.4 41.1 42.3
Income before cumulative effect of accounting change . 8.2 31.4 26.2 29.2
Net income . . . . . . . . . . . . . . . . . . . . . . 30.2 31.4 26.2 29.2
Income per common share:
Primary:
Income before cumulative effect of accounting change $.18 $.44 $.37 $.38
Cumulative effect of accounting change . . . . . .12
--- ---- ---- ----
Net Income . . . . . . . . . . . . . . . . . . . $.30 $.44 $.37 $.38
==== ==== ==== ====
Fully Diluted:
Income before cumulative effect of accounting change $.18 $.44 $.36 $.38
Cumulative effect of accounting change . . . . . .11
--- ---- ---- ----
Net income . . . . . . . . . . . . . . . . . . . $.29 $.44 $.36 $.38
==== ==== ==== ====
Weighted average number of shares used
in computation (in thousands):
Primary . . . . . . . . . . . . . . . . . . . . . 68,558 68,819 68,757 73,885
Fully diluted . . . . . . . . . . . . . . . . . . 72,005 72,133 72,077 77,302
</TABLE>
The results for the fourth quarter of 1996 include $77.4 million of Merger and
integration costs and $50.4 million of charges principally to conform the
accounting practices of Diamond Shamrock, Inc. and Ultramar Corporation,
including the accrual of estimated future environmental and other obligations.
In addition, as a result of a decision to increase certain inventory levels
during the fourth quarter of 1996, the Company recorded an additional LIFO
inventory reserve of $60.7 million as a result of higher than expected crude
oil prices.
During the third quarter of 1996, Ultramar Corporation changed its presentation
of sales and other revenues to include Federal excise and state motor vehicle
fuel taxes collected on the sale of product which were previously reported as a
reduction of the corresponding tax expense. The effect of the change in
presentation was to increase previously reported sales and other revenues for
the first through fourth quarters of 1995 and the first and second quarter of
1996 by $238.2 million, $269.6 million, $283.7 million, $277.0 million, $275.2
million and $287.3 million, respectively.
The results for the first quarter of 1995 have been restated to reflect a
change in the accounting for refinery maintenance turnaround costs from an
accrual method to a deferral method adopted in the second quarter of 1995. The
effect of the change on the first quarter was to increase income before the
cumulative effect of accounting change by approximately $1.7 million and to
increase net income by approximately $23.7 million.
58
<PAGE> 58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 4, 1997, the Company changed its independent accounting firm from
Ernst & Young LLP to Arthur Andersen LLP. There were no disagreements with
Ernst & Young LLP on accounting and financial disclosure prior to the change.
See current Report on Form 8-K dated March 4, 1997 (File No. 1-11154).
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under the caption "Election of Directors -- Nominees
for Election at the Annual Meeting" and "Compliance with Section 16(a) of the
Exchange Act" in the registrant's definitive Proxy Statement relating to its
1997 Annual Meeting of Stockholders as filed with the Securities and Exchange
Commission (the "Proxy Statement") is hereby incorporated by reference. See
also the information appearing under the caption "Executive Officers of the
Registrant" appearing in Part I.
The registrant is not aware of any family relationship between any Director or
executive officer. Each officer is generally elected to hold office until his
or her successor is elected or until such officer's earlier removal or
resignation.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the caption "Executive Compensation" in the
registrant's Proxy Statement is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under the captions "Beneficial Ownership of
Securities -- Security Ownership of Certain Beneficial Owners" and "--
Ownership of Common Stock by Management" in the registrant's Proxy Statement is
hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the caption "Employment Contracts,
Change-in-Control Arrangements and Benefit Plans -- Indebtedness of Management"
in the registrant's Proxy Statement is hereby incorporated by reference.
59
<PAGE> 59
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) AND (2)--LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Ultramar Diamond Shamrock
Corporation are included under Item 8:
Balance sheets -- December 31, 1996 and 1995
Statements of operations -- Years ended December 31, 1996, 1995 and 1994
Statements of stockholders' equity -- From January 1, 1994 through December
31, 1996
Statements of cash flows -- Years ended December 31, 1996, 1995 and 1994
Notes to consolidated financial statements
The following consolidated schedule of Ultramar Diamond Shamrock Corporation is
included in Item 14(d):
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
(B) REPORTS ON FORM 8-K
Current Report on Form 8-K dated December 4, 1996 (File no. 1-11154)
reporting the approval by stockholders of the merger of Diamond Shamrock, Inc.
with and into Ultramar Corporation (the "Merger").
Current Report on Form 8-K dated December 18, 1996 (File no. 1-11154)
incorporating by reference certain pro forma financial information regarding
the Merger which had been previously filed with the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1995.
Current Report on Form 8-K dated March 4, 1997 (File no. 1-11154) relating
to change in Registrant's certifying accountant.
(C) EXHIBITS:
Unless otherwise indicated, each of the following exhibits has been previously
filed with the Securities and Exchange Commission by the Company under File No.
1-11154. Where indicated as being filed by Diamond Shamrock, Inc., such
filings were filed under File No. 1-9409 unless otherwise specified.
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
------ ----------- -- --- --------- ---------
<S> <C> <C>
3.1 Certificate of Incorporation dated April 27, Registration Statement on Form S-1 (File No.
1992, as amended on April 28, 1992 33-47586), Exhibit 3.1
3.2 Certificate of Merger of Diamond Shamrock, Registration Statement on Form S-8 (File No.
Inc. with and into the Company, amending the 333-19131), Exhibit 4.2
Company's Articles of Incorporation
3.3 Certificate of Designations of the Company's Registration Statement on Form S-8 (File No.
5% Cumulative Convertible Preferred Stock 333-19131), Exhibit 4.3
</TABLE>
60
<PAGE> 60
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
------ ----------- -- --- --------- ---------
<S> <C> <C>
3.4 By-laws dated April 28, 1992 Registration Statement on Form S-1 (File No.
33-47586), Exhibit 3.2
3.5 Amendment dated July 22, 1993 to By-laws Annual Report on Form 10-K for the Year
Ended December 31, 1995, Exhibit 3.3
3.6 Amendment dated December 3, 1996 to By-laws Registration Statement on Form S-8 (File No.
333-19131), Exhibit 4.6
4.1 Form of Common Stock Certificate Registration Statement on Form S-8 (File No.
333-19131), Exhibit 4.8
4.2 Form of 5% Cumulative Convertible Preferred +
Stock Certificate
4.3 See Exhibit 3.1
4.4 See Exhibit 3.2
4.5 See Exhibit 3.3
4.6 See Exhibit 3.4
4.7 See Exhibit 3.5
4.8 See Exhibit 3.6
4.9 Form of Indenture between Diamond Shamrock, Registration Statement on Form S-1 of
Inc. and the First National Bank of Chicago Diamond Shamrock, Inc. (File No. 33-32024),
Exhibit 4.1
4.10 Form of 9-3/8% Note Due March 1, 2001 Current Report on Form 8-K of Diamond
Shamrock, Inc. dated February 20, 1991,
Exhibit 4.1
4.11 Forms of Medium-Term Notes, Series A Registration Statement on Form S-3 of
Diamond Shamrock, Inc. (File No. 33-58744),
Exhibit 4.2
4.12 Form of 8% Debenture due April 1, 2023 Current Report on Form 8-K of Diamond
Shamrock, Inc. dated March 22, 1993, Exhibit
4.1
4.13 Form of 8 3/4% Debenture due June 15, 2015 Current Report on Form 8-K of Diamond
Shamrock, Inc. dated February 6, 1995,
Exhibit 4.1
4.14 Form of 7 1/4% Debenture due June 15, 2010 Current Report on Form 8-K of Diamond
Shamrock, Inc. dated June 1, 1995, Exhibit
4.1
4.15 Form of 7.65% Debenture due July 1, 2026 Current Report on Form 8-K of Diamond
Shamrock, Inc. dated June 20, 1996, Exhibit
4.1
</TABLE>
61
<PAGE> 61
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
------ ----------- -- --- --------- ---------
<S> <C> <C>
4.16 Rights Agreement dated June 25, 1992, between Registration Statement on Form S-1 (File No.
Ultramar Diamond Shamrock Corporation and 33-47586), Exhibit 4.2; Quarterly Report on
Registrar and Transfer Company (as successor Form 10-Q for the Quarter Ended September
rights agent to First City, Texas-Houston, 30, 1992, Exhibit 4.2; Annual Report on Form
National Association), as amended by the First 10-K for the Year Ended December 31, 1994,
Amendment dated October 26, 1992 and the Exhibit 4.3
Amendment dated May 10, 1994
4.17 Indenture dated July 6, 1992 between Ultramar Quarterly Report on Form 10-Q for the
Diamond Shamrock Corporation, as issuer, and Quarter Ended June 30, 1992, Exhibit 10.5
First City, Texas-Houston, National
Association, as trustee, relating to the 8
1/4% Notes due July 1, 1999
4.18 Indenture dated July 6, 1992 among Ultramar Quarterly Report on Form 10-Q for the
Credit Corporation, as issuer, Ultramar Quarter Ended June 30, 1992, Exhibit 10.6
Diamond Shamrock Corporation, as guarantor,
and First City, Texas-Houston, National
Association, as trustee, relating to the 8
5/8% Guaranteed Notes due July 1, 2002.
4.19 Indenture dated March 15, 1994 between Annual Report on Form 10-K for the Year
Ultramar Diamond Shamrock Corporation, as Ended December 31, 1995, Exhibit 4.7
issuer, and The Bank of New York, as trustee,
relating to the 8% Notes due March 15, 2005
10.1 Lease dated April 30, 1970 between Ultramar Registration Statement on Form S-1 (File No.
Inc., by assignment, and the City of Long 33-47586), Exhibit 10.20
Beach
10.2 Lease dated November 27, 1972 between Ultramar Registration Statement on Form S-1 (File No.
Canada Inc. and the National Harbours Board 33-47586), Exhibit 10.27
10.3 Permit No. 306 dated October 1, 1975 issued by Registration Statement on Form S-1 (File No.
the City of Los Angeles to Ultramar Inc., by 33-47586), Exhibit 10.19
assignment
10.4 Agreement dated April 6, 1977 between Atlantic Registration Statement on Form S-1 (File No.
Richfield Company and Ultramar Inc., by 33-47586), Exhibit 10.22
assignment
10.5 Agreement for Use of Marine Terminal and Registration Statement on Form S-1 (File No.
Pipeline dated August 30, 1978 between 33-47586), Exhibit 10.21
Ultramar Inc., by assignment, Arco
Transportation Company and Shell Oil Company
10.6 Warehousing Agreement dated July 1, 1984 Registration Statement on Form S-1 (File No.
between Ultramar Inc., by assignment, and GATX 33-47586), Exhibit 10.25
Tank Storage Terminals Corporation
10.7 Contract re Charlottetown Terminal dated Registration Statement on Form S-1 (File No.
October 1,1990 between Ultramar Canada Inc. 33-47586), Exhibit 10.30
and Imperial Oil (1)
</TABLE>
62
<PAGE> 62
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
------ ----------- -- --- --------- ---------
<S> <C> <C>
10.8 Tax Allocation Agreement dated April 30, 1992, Registration Statement on Form S-1 (File No.
between Ultramar Diamond Shamrock Corporation, 33-47586), Exhibit 10.2
LASMO plc and Ultramar America Limited and
Guarantee of Performance and Indemnity to
Ultramar Diamond Shamrock Corporation by LASMO
plc, as amended by Amendment No. 1 dated May
22, 1992
10.9 Reorganization Agreement dated as of July 6, Quarterly Report on Form 10-Q for the
1992 between LASMO plc and Ultramar Diamond Quarter Ended June 30, 1992, Exhibit 10.1
Shamrock Corporation
10.10 Ultramar Diamond Shamrock Corporation 1992 Registration Statement on Form S-8 (File No.
Long Term Incentive Plan dated July 21, 1992, 33-52148), Exhibit 28; Annual Report on Form
as amended by the First Amendment dated 10-K for the Year Ended December 31, 1992,
January 23, 1993, the Second Amendment dated Exhibit 10.34; Annual Report on Form 10-K
July 21, 1993, the Third Amendment dated March for the Year Ended December 31, 1993,
21, 1994 and the Fourth Amendment dated Exhibit 10.46; Quarterly Report on Form 10-Q
February 10, 1995 for the Quarter Ended March 31, 1994,
Exhibit 10.47; Quarterly Report on Form 10-Q
for the Quarter Ended March 31, 1995,
Exhibit 10.50
10.11 Ultramar Diamond Shamrock Corporation Annual Annual Report on Form 10-K for the Year
Incentive Plan dated January 20, 1993, as Ended December 31, 1992, Exhibit 10.35;
amended by the First Amendment dated February Quarterly Report on Form 10-Q for the
10, 1995 Quarter Ended June 30, 1995, Exhibit 10.51
10.12 Ultramar Diamond Shamrock Corporation Annual Report on Form 10-K for the Year
Restricted Share Plan For Directors dated Ended December 31, 1992, Exhibit 10.36
January 26, 1993
10.13 Ultramar Diamond Shamrock Corporation Annual Report on Form 10-K for the Year
Supplemental Executive Retirement Plan dated Ended December 31, 1995, Exhibit 10.13
July 27, 1994
10.14 Ultramar Diamond Shamrock Corporation U.S. Annual Report on Form 10-K for the Year
Employees Retirement Restoration Plan dated ended December 31, 1995, Exhibit 10.14
July 27, 1994
10.15 Ultramar Diamond Shamrock Corporation U.S. Annual Report on Form 10-K for the Year
Savings Incentive Restoration Plan dated July ended December 31, 1995, Exhibit 10.15
27, 1994
10.16 Trust Agreement dated April 1, 1985 between Registration Statement on Form S-1 (File No.
Ultramar Canada Inc. and Montreal Trust 33-47586), Exhibit 10.13
Company of Canada
10.17 Employment Agreement dated as of September 22, Registration Statement on Form S-4 (File No.
1996 between Ultramar Diamond Shamrock 333-14807), Exhibit 10.1
Corporation and Jean Gaulin
10.18 Employment Agreement dated as of September 22, Current report on Form 8-K of Diamond
1996 between Ultramar Diamond Shamrock Shamrock, Inc. dated September 26, 1996,
Corporation and Roger R. Hemminghaus Exhibit 10(c)
</TABLE>
63
<PAGE> 63
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
------ ----------- -- --- --------- ---------
<S> <C> <C>
10.19 Employment Agreement dated as of September 22, +
1996 between Ultramar Diamond Shamrock
Corporation and Patrick J. Guarino
10.20 Form of Employment Agreement dated as of +
September 22, 1996 between Diamond Shamrock,
Inc, and W. R. Klesse and J. Robert Mehall
10.21 Hydrogen and Steam Supply Agreement, dated Annual Report on Form 10-K for the Year
December 22, 1993, between Ultramar Inc. and Ended December 31, 1993, Exhibit 10.43
Air Products and Chemicals, Inc. (1)
10.22 MTBE Terminaling Agreement dated March 3, 1995 Annual Report on Form 10-K for the Year
between Petro-Diamond Incorporated and Ended December 31, 1995
Ultramar Inc. (1)
10.23 Confidential Transportation Contract dated May Quarterly Report on Form 10-Q for the
25,1995 between Canadian National Railway Quarter Ended June 30, 1995, Exhibit 10.52
Company and Ultramar Canada Inc. (1)
10.24 Senior Subordinated Note Purchase Agreement, Registration Statement on Form 10 of Diamond
dated as of April 17, 1987, between Diamond Shamrock, Inc. ("DS Form 10"), Exhibit 10.22
Shamrock, Inc. and certain purchasers (the
"Senior Subordinated Note Agreement")
10.25 Amendment No. 1 to the Senior Subordinated Quarterly Report on Form 10-Q of Diamond
Note Agreement, dated as of March 31, 1988 Shamrock, Inc. for the Quarter Ended March
31, 1988, Exhibit 19.5
10.26 Amendment No. 2 to the Senior Subordinated Quarterly Report on Form 10-Q of Diamond
Note Agreement, dated as of July 12, 1989 Shamrock, Inc. for the Quarter Ended June
30, 1989, Exhibit 19.2
10.27 Amendment No. 3 to the Senior Subordinated Annual Report on Form 10-K of Diamond
Note Agreement, dated as of December 6, 1993 Shamrock, Inc. for the Year Ended December
31, 1993, Exhibit 10.8
10.28 Deferred Compensation Plan for executives and Annual Report on Form 10-K of Diamond
directors of Diamond Shamrock, Inc., amended Shamrock, Inc. for the year ended December
and restated as of January 1, 1989 31, 1988, Exhibit 10.13
10.29 Supplemental Executive Retirement Plan of DS Form 10, Exhibit 10.16
Diamond Shamrock, Inc. (the "DS SERP")
10.30 First Amendment to the DS SERP Registration Statement on Form S-1 of
Diamond Shamrock, Inc. (File No. 33-21991)
("DS S-1"), Exhibit 10.17
10.31 Second Amendment to the DS SERP Annual Report on Form 10-K of Diamond
Shamrock, Inc. for the Year Ended December
31, 1989, Exhibit 10.21
10.32 Excess Benefits Plan of Diamond Shamrock, Inc. Quarterly Report on Form 10-Q of Diamond
Shamrock, Inc. for the Quarter Ended June
30, 1987, Exhibit 19.5
</TABLE>
64
<PAGE> 64
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
------ ----------- -- --- --------- ---------
<S> <C> <C>
10.33 1987 Long-Term Incentive Plan of Diamond Registration Statement on Form S-8 of
Shamrock, Inc. Diamond Shamrock, Inc. (File No. 33-15268),
Annex A-1
10.34 Form of Disability Benefit Agreement between DS S-1, Exhibit 10.21
Diamond Shamrock, Inc. and certain of its
executive officers
10.35 Form of Supplemental Death Benefit Agreement Quarterly Report on Form 10-Q of Diamond
between Diamond Shamrock, Inc. and certain of Shamrock, Inc. for the Quarter Ended June
its executive officers 30, 1987, Exhibit 19.9
10.36 Diamond Shamrock, Inc. Long-Term Incentive Quarterly Report on Form 10-Q of Diamond
Plan, as amended and restated as of August 15, Shamrock, Inc. for the Quarter Ended
1996 September 30, 1996 ("DS September 30, 1996
Form 10-Q"), Exhibit 10.9
10.37 Diamond Shamrock, Inc. Long-Term Incentive Quarterly Report on Form 10-Q of Diamond
Plan, amended and restated as of May 5, 1992 Shamrock, Inc. for the Quarter Ended June
30, 1992, Exhibit 19.1
10.38 Form of Employee Stock Purchase Loan Agreement Quarterly Report on Form 10-Q of Diamond
between Diamond Shamrock, Inc. and certain of Shamrock, Inc. for the Quarter Ended June
its executive officers and employees, amended 30, 1992, Exhibit 19.2
and restated as of May 26, 1992
10.39 Form of Excess benefit plan between Diamond Annual Report on Form 10-K of Diamond
Shamrock, Inc. And certain officers, amended Shamrock, Inc. for the Year Ended December
and restated as of December 1, 1992 31, 1992 (the "DS 1992 10-K"), Exhibit 10.49
10.40 Form of Disability Benefit Agreement between DS 1992 10-K, Exhibit 10.50
Diamond Shamrock, Inc. and certain officers,
amended and restated as of January 1, 1993
10.41 Form of Deferred Compensation Plan between DS 1992 10-K, Exhibit 10.51
Diamond Shamrock, Inc. and certain directors,
officers and other employees, amended and
restated as of January 1, 1993
10.42 Diamond Shamrock, Inc. Nonqualified 401(k) Registration Statement on Form S-8 of
Plan Diamond Shamrock, Inc. (File No. 33-64645),
Exhibit 4.1
10.43 Amendment to Diamond Shamrock, Inc. DS September 30, 1996 Form 10-Q, Exhibit
Supplemental Executive Retirement Plan, July 10.2
22, 1996
10.44 Amendment to Diamond Shamrock, Inc. Disability DS September 30, 1996 Form 10-Q, Exhibit
Benefit Agreement, July 22, 1996 10.4
10.45 Amendment to Diamond Shamrock, Inc. DS September 30, 1996 Form 10-Q, Exhibit
Supplemental Death Benefit Agreement 10.5
10.46 Amendment to Diamond Shamrock, Inc. Excess DS September 30, 1996 Form 10-Q, Exhibit
Benefits Plan 10.6
</TABLE>
65
<PAGE> 65
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
------ ----------- -- --- --------- ---------
<S> <C> <C>
10.47 Amendment to Diamond Shamrock, Inc. Long Term DS September 30, 1996 Form 10-Q, Exhibit
Incentive Plan 10.7
10.48 Credit Agreement dated December 19, 1996, in +
the amount of $500,000,000, between the
Company, Morgan Guaranty Trust Company of New
York and certain other banks
10.49 Amendment No. 1 to Credit Agreement described +
in Exhibit 10.48
10.50 Credit Agreement dated December 19, 1996, in +
the amount of CDN. $200,000,000, between the
Company, Canadian Ultramar Company, Canadian
Imperial Bank of Commerce and certain other
banks
10.51 Amendment No. 1 to Credit Agreement described +
in Exhibit 10.50
10.52 Amended and Restated Lease Agreement dated +
December 19, 1996 among Jamestown Funding
L.P., Ultramar Inc., Ultramar Energy Inc.,
Diamond Shamrock Leasing, Inc., Diamond
Shamrock Arizona, Inc., and Diamond Shamrock
Refining and Marketing Company.
10.53 Amended and Restated Ground Lease Agreement +
dated December 19, 1996 between Brazos River
Leasing, L.P. and Diamond Shamrock Refining
and Marketing Company
10.54 Amended and Restated Facilities Lease +
Agreement dated December 19, 1996 between
Brazos River Leasing, L.P. and Diamond
Shamrock Refining and Marketing
11 Statement re Computation of Per Share Earnings +
16.1 Letter of Ernst & Young LLP to the Securities Current Report on Form 8-K dated March 4,
and Exchange Commission regarding its 1997, Exhibit 16.1
concurrence with the Company's statements
contained in Company's Current Report on Form
8-K
</TABLE>
66
<PAGE> 66
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
------ ----------- -- --- --------- ---------
<S> <C> <C>
16.2 Letter of Price Waterhouse LLP to the Current Report on Form 8-K dated March 4,
Securities and Exchange Commission regarding 1997, Exhibit 16.2
its concurrence with the Company's statements
contained in Company's Current Report on Form
8-K
18 Letter from Ernst & Young LLP, dated August 7, Quarterly Report on Form 10-Q for the
1995 regarding change in accounting method Quarter Ended June 30, 1995, Exhibit 18
21 Subsidiaries +
23.1 Consent of Ernst & Young LLP +
23.2 Consent of Price Waterhouse LLP +
24.1 Power of Attorney of Officers and Directors +
24.2 Power of Attorney of the Company +
27 Financial Data Schedule +
</TABLE>
+ Filed herewith
(1) Contains material for which confidential treatment has been granted
pursuant to Rule 406 under the Securities Act of 1933, as amended,
or Rule 24b-2 under the Securities Exchange Act of 1934, as
amended. This material has been filed separately with the
Securities and Exchange Commission pursuant to the application for
confidential treatment.
67
<PAGE> 67
SCHEDULE II
ULTRAMAR DIAMOND SHAMROCK CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Additions Other Changes Balance
Beginning Charged to Costs Add (Deduct) at End
Description of Period and Expenses Describe (1) of Period
- ------------------------------------------------ -------------------- ---------------------------- ----------- ------
(in millions)
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Allowance for doubtful accounts and
notes receivable :
Current allowance . . . . . . . . . $13.7 $13.5 $(11.8) $15.4
Non-current allowance . . . . . . . 3.3 0.1 3.4
----- ----- ------ -----
Total . . . . . . . . . . . . . . . . $17.0 $13.6 $(11.8) $18.8
===== ===== ====== =====
Year Ended December 31, 1995
Allowance for doubtful accounts and
notes receivable :
Current allowance . . . . . . . . . $11.3 $12.3 $ (9.9) $13.7
Non-current allowance . . . . . . . 6.0 1.5 (4.2) 3.3
----- ----- ------ -----
Total . . . . . . . . . . . . . . . . $17.3 $13.8 $(14.1) $17.0
===== ===== ====== =====
Year Ended December 31, 1994
Allowance for doubtful accounts and
notes receivable :
Current allowance . . . . . . . . . $14.8 $4.2 $ (7.7) $11.3
Non-current allowance . . . . . . . 6.1 2.4 (2.5) 6.0
Inventory valuation allowance . . . 11.3 (11.3)
----- ----- ------ -----
Total . . . . . . . . . . . . . . . . $32.2 $6.6 $(21.5) $17.3
===== ==== ====== =====
</TABLE>
(1) Other changes in the allowance for doubtful accounts and notes receivable
represent uncollectible accounts written off, . . . . . . . . net of
recoveries.
68
<PAGE> 68
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized as of March 31, 1997.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
By:ROGER R. HEMMINGHAUS
----------------------------------
Roger R. Hemminghaus
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed as of March 31, 1997 by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ ROGER R. HEMINGHAUS Chief Executive Officer and Chairman of the Board
- -------------------------- of Directors (Principal Executive Officer)
Roger R. Hemminghaus
/s/ JEAN GAULIN President, Chief Operating Officer and Vice Chairman of the
- -------------------------- Board of Directors (Principal Operating Officer)
Jean Gaulin
/s/ H. PETE SMITH Executive Vice President and Chief Financial Officer
- -------------------------- (Principal Financial and Accounting Officer)
H. Pete Smith
* Director
- --------------------------
Byron Allumbaugh
* Director
- --------------------------
E. Glenn Biggs
* Director
- --------------------------
W. E. Bradford
* Director
- --------------------------
H. Frederick Christie
* Director
- --------------------------
W.H. Clark
* Director
- --------------------------
Bob Marbut
* Director
- --------------------------
Katherine D. Ortega
* Director
- --------------------------
Madeleine Saint Jacques
* Director
- --------------------------
C. Barry Schaefer
By: /s/ PATRICK J. GUARINO Attorney-in-Fact
- --------------------------
Patrick J. Guarino
</TABLE>
69
<PAGE> 69
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
------ ----------- -- --- --------- ---------
<S> <C> <C>
3.1 Certificate of Incorporation dated April 27, Registration Statement on Form S-1 (File No.
1992, as amended on April 28, 1992 33-47586), Exhibit 3.1
3.2 Certificate of Merger of Diamond Shamrock, Registration Statement on Form S-8 (File No.
Inc. with and into the Company, amending the 333-19131), Exhibit 4.2
Company's Articles of Incorporation
3.3 Certificate of Designations of the Company's Registration Statement on Form S-8 (File No.
5% Cumulative Convertible Preferred Stock 333-19131), Exhibit 4.3
3.4 By-laws dated April 28, 1992 Registration Statement on Form S-1 (File No.
33-47586), Exhibit 3.2
3.5 Amendment dated July 22, 1993 to By-laws Annual Report on Form 10-K for the Year
Ended December 31, 1995, Exhibit 3.3
3.6 Amendment dated December 3, 1996 to By-laws Registration Statement on Form S-8 (File No.
333-19131), Exhibit 4.6
4.1 Form of Common Stock Certificate Registration Statement on Form S-8 (File No.
333-19131), Exhibit 4.8
4.2 Form of 5% Cumulative Convertible Preferred +
Stock Certificate
4.3 See Exhibit 3.1
4.4 See Exhibit 3.2
4.5 See Exhibit 3.3
4.6 See Exhibit 3.4
4.7 See Exhibit 3.5
4.8 See Exhibit 3.6
4.9 Form of Indenture between Diamond Shamrock, Registration Statement on Form S-1 of
Inc. and the First National Bank of Chicago Diamond Shamrock, Inc. (File No. 33-32024),
Exhibit 4.1
4.10 Form of 9-3/8% Note Due March 1, 2001 Current Report on Form 8-K of Diamond
Shamrock, Inc. dated February 20, 1991,
Exhibit 4.1
4.11 Forms of Medium-Term Notes, Series A Registration Statement on Form S-3 of
Diamond Shamrock, Inc. (File No. 33-58744),
Exhibit 4.2
4.12 Form of 8% Debenture due April 1, 2023 Current Report on Form 8-K of Diamond
Shamrock, Inc. dated March 22, 1993, Exhibit
4.1
4.13 Form of 8 3/4% Debenture due June 15, 2015 Current Report on Form 8-K of Diamond
Shamrock, Inc. dated February 6, 1995,
Exhibit 4.1
4.14 Form of 7 1/4% Debenture due June 15, 2010 Current Report on Form 8-K of Diamond
Shamrock, Inc. dated June 1, 1995, Exhibit
4.1
4.15 Form of 7.65% Debenture due July 1, 2026 Current Report on Form 8-K of Diamond
Shamrock, Inc. dated June 20, 1996, Exhibit
4.1
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
------ ----------- -- --- --------- ---------
<S> <C> <C>
4.16 Rights Agreement dated June 25, 1992, between Registration Statement on Form S-1 (File No.
Ultramar Diamond Shamrock Corporation and 33-47586), Exhibit 4.2; Quarterly Report on
Registrar and Transfer Company (as successor Form 10-Q for the Quarter Ended September
rights agent to First City, Texas-Houston, 30, 1992, Exhibit 4.2; Annual Report on Form
National Association), as amended by the First 10-K for the Year Ended December 31, 1994,
Amendment dated October 26, 1992 and the Exhibit 4.3
Amendment dated May 10, 1994
4.17 Indenture dated July 6, 1992 between Ultramar Quarterly Report on Form 10-Q for the
Diamond Shamrock Corporation, as issuer, and Quarter Ended June 30, 1992, Exhibit 10.5
First City, Texas-Houston, National
Association, as trustee, relating to the 8
1/4% Notes due July 1, 1999
4.18 Indenture dated July 6, 1992 among Ultramar Quarterly Report on Form 10-Q for the
Credit Corporation, as issuer, Ultramar Quarter Ended June 30, 1992, Exhibit 10.6
Diamond Shamrock Corporation, as guarantor,
and First City, Texas-Houston, National
Association, as trustee, relating to the 8
5/8% Guaranteed Notes due July 1, 2002.
4.19 Indenture dated March 15, 1994 between Annual Report on Form 10-K for the Year
Ultramar Diamond Shamrock Corporation, as Ended December 31, 1995, Exhibit 4.7
issuer, and The Bank of New York, as trustee,
relating to the 8% Notes due March 15, 2005
10.1 Lease dated April 30, 1970 between Ultramar Registration Statement on Form S-1 (File No.
Inc., by assignment, and the City of Long 33-47586), Exhibit 10.20
Beach
10.2 Lease dated November 27, 1972 between Ultramar Registration Statement on Form S-1 (File No.
Canada Inc. and the National Harbours Board 33-47586), Exhibit 10.27
10.3 Permit No. 306 dated October 1, 1975 issued by Registration Statement on Form S-1 (File No.
the City of Los Angeles to Ultramar Inc., by 33-47586), Exhibit 10.19
assignment
10.4 Agreement dated April 6, 1977 between Atlantic Registration Statement on Form S-1 (File No.
Richfield Company and Ultramar Inc., by 33-47586), Exhibit 10.22
assignment
10.5 Agreement for Use of Marine Terminal and Registration Statement on Form S-1 (File No.
Pipeline dated August 30, 1978 between 33-47586), Exhibit 10.21
Ultramar Inc., by assignment, Arco
Transportation Company and Shell Oil Company
10.6 Warehousing Agreement dated July 1, 1984 Registration Statement on Form S-1 (File No.
between Ultramar Inc., by assignment, and GATX 33-47586), Exhibit 10.25
Tank Storage Terminals Corporation
10.7 Contract re Charlottetown Terminal dated Registration Statement on Form S-1 (File No.
October 1,1990 between Ultramar Canada Inc. 33-47586), Exhibit 10.30
and Imperial Oil (1)
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
------ ----------- -- --- --------- ---------
<S> <C> <C>
10.8 Tax Allocation Agreement dated April 30, 1992, Registration Statement on Form S-1 (File No.
between Ultramar Diamond Shamrock Corporation, 33-47586), Exhibit 10.2
LASMO plc and Ultramar America Limited and
Guarantee of Performance and Indemnity to
Ultramar Diamond Shamrock Corporation by LASMO
plc, as amended by Amendment No. 1 dated May
22, 1992
10.9 Reorganization Agreement dated as of July 6, Quarterly Report on Form 10-Q for the
1992 between LASMO plc and Ultramar Diamond Quarter Ended June 30, 1992, Exhibit 10.1
Shamrock Corporation
10.10 Ultramar Diamond Shamrock Corporation 1992 Registration Statement on Form S-8 (File No.
Long Term Incentive Plan dated July 21, 1992, 33-52148), Exhibit 28; Annual Report on Form
as amended by the First Amendment dated 10-K for the Year Ended December 31, 1992,
January 23, 1993, the Second Amendment dated Exhibit 10.34; Annual Report on Form 10-K
July 21, 1993, the Third Amendment dated March for the Year Ended December 31, 1993,
21, 1994 and the Fourth Amendment dated Exhibit 10.46; Quarterly Report on Form 10-Q
February 10, 1995 for the Quarter Ended March 31, 1994,
Exhibit 10.47; Quarterly Report on Form 10-Q
for the Quarter Ended March 31, 1995,
Exhibit 10.50
10.11 Ultramar Diamond Shamrock Corporation Annual Annual Report on Form 10-K for the Year
Incentive Plan dated January 20, 1993, as Ended December 31, 1992, Exhibit 10.35;
amended by the First Amendment dated February Quarterly Report on Form 10-Q for the
10, 1995 Quarter Ended June 30, 1995, Exhibit 10.51
10.12 Ultramar Diamond Shamrock Corporation Annual Report on Form 10-K for the Year
Restricted Share Plan For Directors dated Ended December 31, 1992, Exhibit 10.36
January 26, 1993
10.13 Ultramar Diamond Shamrock Corporation Annual Report on Form 10-K for the Year
Supplemental Executive Retirement Plan dated Ended December 31, 1995, Exhibit 10.13
July 27, 1994
10.14 Ultramar Diamond Shamrock Corporation U.S. Annual Report on Form 10-K for the Year
Employees Retirement Restoration Plan dated ended December 31, 1995, Exhibit 10.14
July 27, 1994
10.15 Ultramar Diamond Shamrock Corporation U.S. Annual Report on Form 10-K for the Year
Savings Incentive Restoration Plan dated July ended December 31, 1995, Exhibit 10.15
27, 1994
10.16 Trust Agreement dated April 1, 1985 between Registration Statement on Form S-1 (File No.
Ultramar Canada Inc. and Montreal Trust 33-47586), Exhibit 10.13
Company of Canada
10.17 Employment Agreement dated as of September 22, Registration Statement on Form S-4 (File No.
1996 between Ultramar Diamond Shamrock 333-14807), Exhibit 10.1
Corporation and Jean Gaulin
10.18 Employment Agreement dated as of September 22, Current report on Form 8-K of Diamond
1996 between Ultramar Diamond Shamrock Shamrock, Inc. dated September 26, 1996,
Corporation and Roger R. Hemminghaus Exhibit 10(c)
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
------ ----------- -- --- --------- ---------
<S> <C> <C>
10.19 Employment Agreement dated as of September 22, +
1996 between Ultramar Diamond Shamrock
Corporation and Patrick J. Guarino
10.20 Form of Employment Agreement dated as of +
September 22, 1996 between Diamond Shamrock,
Inc, and W. R. Klesse and J. Robert Mehall
10.21 Hydrogen and Steam Supply Agreement, dated Annual Report on Form 10-K for the Year
December 22, 1993, between Ultramar Inc. and Ended December 31, 1993, Exhibit 10.43
Air Products and Chemicals, Inc. (1)
10.22 MTBE Terminaling Agreement dated March 3, 1995 Annual Report on Form 10-K for the Year
between Petro-Diamond Incorporated and Ended December 31, 1995
Ultramar Inc. (1)
10.23 Confidential Transportation Contract dated May Quarterly Report on Form 10-Q for the
25,1995 between Canadian National Railway Quarter Ended June 30, 1995, Exhibit 10.52
Company and Ultramar Canada Inc. (1)
10.24 Senior Subordinated Note Purchase Agreement, Registration Statement on Form 10 of Diamond
dated as of April 17, 1987, between Diamond Shamrock, Inc. ("DS Form 10"), Exhibit 10.22
Shamrock, Inc. and certain purchasers (the
"Senior Subordinated Note Agreement")
10.25 Amendment No. 1 to the Senior Subordinated Quarterly Report on Form 10-Q of Diamond
Note Agreement, dated as of March 31, 1988 Shamrock, Inc. for the Quarter Ended March
31, 1988, Exhibit 19.5
10.26 Amendment No. 2 to the Senior Subordinated Quarterly Report on Form 10-Q of Diamond
Note Agreement, dated as of July 12, 1989 Shamrock, Inc. for the Quarter Ended June
30, 1989, Exhibit 19.2
10.27 Amendment No. 3 to the Senior Subordinated Annual Report on Form 10-K of Diamond
Note Agreement, dated as of December 6, 1993 Shamrock, Inc. for the Year Ended December
31, 1993, Exhibit 10.8
10.28 Deferred Compensation Plan for executives and Annual Report on Form 10-K of Diamond
directors of Diamond Shamrock, Inc., amended Shamrock, Inc. for the year ended December
and restated as of January 1, 1989 31, 1988, Exhibit 10.13
10.29 Supplemental Executive Retirement Plan of DS Form 10, Exhibit 10.16
Diamond Shamrock, Inc. (the "DS SERP")
10.30 First Amendment to the DS SERP Registration Statement on Form S-1 of
Diamond Shamrock, Inc. (File No. 33-21991)
("DS S-1"), Exhibit 10.17
10.31 Second Amendment to the DS SERP Annual Report on Form 10-K of Diamond
Shamrock, Inc. for the Year Ended December
31, 1989, Exhibit 10.21
10.32 Excess Benefits Plan of Diamond Shamrock, Inc. Quarterly Report on Form 10-Q of Diamond
Shamrock, Inc. for the Quarter Ended June
30, 1987, Exhibit 19.5
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
------ ----------- -- --- --------- ---------
<S> <C> <C>
10.33 1987 Long-Term Incentive Plan of Diamond Registration Statement on Form S-8 of
Shamrock, Inc. Diamond Shamrock, Inc. (File No. 33-15268),
Annex A-1
10.34 Form of Disability Benefit Agreement between DS S-1, Exhibit 10.21
Diamond Shamrock, Inc. and certain of its
executive officers
10.35 Form of Supplemental Death Benefit Agreement Quarterly Report on Form 10-Q of Diamond
between Diamond Shamrock, Inc. and certain of Shamrock, Inc. for the Quarter Ended June
its executive officers 30, 1987, Exhibit 19.9
10.36 Diamond Shamrock, Inc. Long-Term Incentive Quarterly Report on Form 10-Q of Diamond
Plan, as amended and restated as of August 15, Shamrock, Inc. for the Quarter Ended
1996 September 30, 1996 ("DS September 30, 1996
Form 10-Q"), Exhibit 10.9
10.37 Diamond Shamrock, Inc. Long-Term Incentive Quarterly Report on Form 10-Q of Diamond
Plan, amended and restated as of May 5, 1992 Shamrock, Inc. for the Quarter Ended June
30, 1992, Exhibit 19.1
10.38 Form of Employee Stock Purchase Loan Agreement Quarterly Report on Form 10-Q of Diamond
between Diamond Shamrock, Inc. and certain of Shamrock, Inc. for the Quarter Ended June
its executive officers and employees, amended 30, 1992, Exhibit 19.2
and restated as of May 26, 1992
10.39 Form of Excess benefit plan between Diamond Annual Report on Form 10-K of Diamond
Shamrock, Inc. And certain officers, amended Shamrock, Inc. for the Year Ended December
and restated as of December 1, 1992 31, 1992 (the "DS 1992 10-K"), Exhibit 10.49
10.40 Form of Disability Benefit Agreement between DS 1992 10-K, Exhibit 10.50
Diamond Shamrock, Inc. and certain officers,
amended and restated as of January 1, 1993
10.41 Form of Deferred Compensation Plan between DS 1992 10-K, Exhibit 10.51
Diamond Shamrock, Inc. and certain directors,
officers and other employees, amended and
restated as of January 1, 1993
10.42 Diamond Shamrock, Inc. Nonqualified 401(k) Registration Statement on Form S-8 of
Plan Diamond Shamrock, Inc. (File No. 33-64645),
Exhibit 4.1
10.43 Amendment to Diamond Shamrock, Inc. DS September 30, 1996 Form 10-Q, Exhibit
Supplemental Executive Retirement Plan, July 10.2
22, 1996
10.44 Amendment to Diamond Shamrock, Inc. Disability DS September 30, 1996 Form 10-Q, Exhibit
Benefit Agreement, July 22, 1996 10.4
10.45 Amendment to Diamond Shamrock, Inc. DS September 30, 1996 Form 10-Q, Exhibit
Supplemental Death Benefit Agreement 10.5
10.46 Amendment to Diamond Shamrock, Inc. Excess DS September 30, 1996 Form 10-Q, Exhibit
Benefits Plan 10.6
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
------ ----------- -- --- --------- ---------
<S> <C> <C>
10.47 Amendment to Diamond Shamrock, Inc. Long Term DS September 30, 1996 Form 10-Q, Exhibit
Incentive Plan 10.7
10.48 Credit Agreement dated December 19, 1996, in +
the amount of $500,000,000, between the
Company, Morgan Guaranty Trust Company of New
York and certain other banks
10.49 Amendment No. 1 to Credit Agreement described +
in Exhibit 10.48
10.50 Credit Agreement dated December 19, 1996, in +
the amount of CDN. $200,000,000, between the
Company, Canadian Ultramar Company, Canadian
Imperial Bank of Commerce and certain other
banks
10.51 Amendment No. 1 to Credit Agreement described +
in Exhibit 10.50
10.52 Amended and Restated Lease Agreement dated +
December 19, 1996 among Jamestown Funding
L.P., Ultramar Inc., Ultramar Energy Inc.,
Diamond Shamrock Leasing, Inc., Diamond
Shamrock Arizona, Inc., and Diamond Shamrock
Refining and Marketing Company.
10.53 Amended and Restated Ground Lease Agreement +
dated December 19, 1996 between Brazos River
Leasing, L.P. and Diamond Shamrock Refining
and Marketing Company
10.54 Amended and Restated Facilities Lease +
Agreement dated December 19, 1996 between
Brazos River Leasing, L.P. and Diamond
Shamrock Refining and Marketing
11 Statement re Computation of Per Share Earnings +
16.1 Letter of Ernst & Young LLP to the Securities Current Report on Form 8-K dated March 4,
and Exchange Commission regarding its 1997, Exhibit 16.1
concurrence with the Company's statements
contained in Company's Current Report on Form
8-K
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
------ ----------- -- --- --------- ---------
<S> <C> <C>
16.2 Letter of Price Waterhouse LLP to the Current Report on Form 8-K dated March 4,
Securities and Exchange Commission regarding 1997, Exhibit 16.2
its concurrence with the Company's statements
contained in Company's Current Report on Form
8-K
18 Letter from Ernst & Young LLP, dated August 7, Quarterly Report on Form 10-Q for the
1995 regarding change in accounting method Quarter Ended June 30, 1995, Exhibit 18
21 Subsidiaries +
23.1 Consent of Ernst & Young LLP +
23.2 Consent of Price Waterhouse LLP +
24.1 Power of Attorney of Officers and Directors +
24.2 Power of Attorney of the Company +
27 Financial Data Schedule +
</TABLE>
+ Filed herewith
(1) Contains material for which confidential treatment has been granted
pursuant to Rule 406 under the Securities Act of 1933, as amended,
or Rule 24b-2 under the Securities Exchange Act of 1934, as
amended. This material has been filed separately with the
Securities and Exchange Commission pursuant to the application for
confidential treatment.
<PAGE> 1
EXHIBIT 4.2
Preferred Stock 5% Cumulative Convertible
Par Value $.01 Preferred Stock
NUMBER SHARES
Incorporated under the Laws See Reverse For
of the State of Delaware Certain Definitions
This Certificate is transferable in
New York and New Jersey
ULTRAMAR DIAMOND SHAMROCK CORPORATION
This is to certify that ___________________________________________
____________________________________________________________ is the owner of
____________________________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF THE 5% CUMULATIVE CONVERTIBLE
PREFERRED STOCK OF Ultramar Diamond Shamrock Corporation (hereinafter referred
to as the "Corporation") transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all of the provisions of the
Certificate of Incorporation, as amended, of the Corporation (a copy of which
certificate is on file with the Transfer Agent) to all of which the holder by
acceptance hereof assents. This certificate is not valid until countersigned
by the Transfer Agent and registered by the Registrar.
Witness the signatures of duly authorized officers of the Corporation.
Dated
Countersigned and Registered
REGISTRAR AND TRANSFER COMPANY
TRANSFER AGENT
AND REGISTRAR
<TABLE>
<S> <C>
Patrick J. Guarino R. R. Hemminghaus
Executive Vice President Chairman of the Board and By:__________________________
General Counsel and Secretary Chief Executive Officer Authorized Signature
</TABLE>
REVERSE SIDE
ULTRAMAR DIAMOND SHAMROCK CORPORATION
ULTRAMAR DIAMOND SHAMROCK CORPORATION WILL FURNISH WITHOUT CHARGE TO
EACH STOCKHOLDER WHO SO REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF
EACH CLASS OF STOCK OR SERIES THEREOF WHICH ULTRAMAR DIAMOND SHAMROCK
CORPORATION IS AUTHORIZED TO ISSUE AND THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS, ANY SUCH REQUEST IS TO BE
ADDRESSED TO THE SECRETARY OF ULTRAMAR DIAMOND SHAMROCK CORPORATION, SAN
ANTONIO, TEXAS OR TO THE TRANSFER AGENT NAMED ON THE FACE OF THIS CERTIFICATE.
The following abbreviations, when used in the inscription on the face
of this
<PAGE> 2
certificate, shall be construed as though they were written out in full
according to applicable law or regulation:
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ______ Custodian _______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to
survivorship and not as tenants Minor's Act ________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list
For value received, ___________________ hereby sell, assign and
transfer unto
Please insert social security or other
identifying number of Assignee
___________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
of the capital stock represented by the within Certificate, and do
hereby irrevocably
_________________________________________________________________________Shares
constitute and appoint
________________________________________________________________________________
to transfer the said stock on the books of the within-named Company with
full power
_______________________________________________________________________Attorney
of substitution in the premises
Dated _________________________ ____________________________________
- --------------------------------------------------------------------------------
TRANSFEREE LETTER OF REPRESENTATIONS
Ultramar Diamond Shamrock Corporation
c/o Transfer Agent
Dear Sirs:
This certificate is delivered to request a transfer of _____ shares of
5% Cumulative Convertible Preferred Stock (the "Preferred Stock") of Ultramar
Diamond Shamrock Corporation (the "Company") or _______ shares of Common Stock
of the Company issued upon conversion or redemption of the Preferred Stock.
<PAGE> 3
Upon transfer, the shares of Preferred Stock or Common Stock would be
registered in the name of the new beneficial owner as follows:
Name: ________________________________________
Address: _____________________________________
Taxpayer ID Number: __________________________
TRANSFEREE: _________________________________
By: ___________________________________
Name: __________________________________
<PAGE> 1
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), dated as of __________,
1996, but effective as provided herein, is made and entered into by and between
Ultramar Corporation, a Delaware corporation (the "Company"), and Patrick J.
Guarino (the "Executive").
WHEREAS, the Executive has been serving as a senior executive officer of
Ultramar Corporation;
WHEREAS, the Executive is a party to an Employment Agreement with
Ultramar Corporation, dated as of May 21, 1992 (the "Prior Agreement");
WHEREAS, pursuant to the Agreement and Plan of Merger between Ultramar
Corporation and Diamond Shamrock, Inc., a Delaware corporation ("Diamond
Shamrock, Inc."), dated as of September 22, 1996 (the "Merger Agreement"), as
of the effective time of the Merger (the "Effective Date"), Diamond Shamrock,
Inc. will be merged with and into Ultramar Corporation, with Ultramar
Corporation as the surviving entity (the "Merger");
WHEREAS, pursuant to the Merger Agreement, the Company is authorized to
enter into this Agreement with Executive;
WHEREAS, the Company considers it in the best interests of its
stockholders to foster the continuous employment of certain key management
personnel;
WHEREAS, the Company recognizes that, as is the case for most publicly
held companies, the possibility of a Change in Control (as defined herein)
exists;
WHEREAS, the Company wishes to assure itself of both present and future
continuation of management in light of the Merger and in the event of a Change
in Control subsequent to the Merger;
WHEREAS, the Company wishes to continue to employ the Executive and the
Executive is willing to continue to
<PAGE> 2
render services, both on the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants herein contained, it is agreed as follows:
1. Employment.
a. The Company hereby agrees to continue to employ the Executive
and the Executive hereby agrees to undertake employment with the Company upon
the terms and conditions herein set forth.
b. Employment will be for a term commencing on the Effective
Date and, subject to earlier expiration upon the Executive's termination under
Section 5, expiring three years from the Effective Date (the "Term").
Notwithstanding the previous sentence, this Agreement and the employment of the
Executive will be automatically renewed and the Term extended, subject to
Section 5, for successive one-year periods upon the terms and conditions set
forth herein, commencing on the third anniversary of the Effective Date, and on
each anniversary date thereafter, unless either party to this Agreement gives
the other party written notice (in accordance with Section 12.5) of such
party's intention to terminate this Agreement at least three months prior to
the end of such initial or extended term. For purposes of this Agreement, any
reference to the "Term" of this Agreement will include the original term and
any extension thereof.
2. Position and Duties.
a. Position and Duties. During the Term, the Executive will
serve as Executive Vice President, General Counsel, and Secretary of the
Company and will have such duties, functions, responsibilities and authority as
are (i) consistent with the Executive's position as Executive Vice President,
General Counsel, and Secretary of the Company; or (ii) assigned to his office
in the Company's bylaws; or (iii) reasonably assigned to him by the Company's
Board of Directors (the "Board").
<PAGE> 3
b. Commitment. During the Term, the Executive will be the
Company's full-time employee and, except as may otherwise be approved in
advance in writing by the Board, and except during vacation periods and
reasonable periods of absence due to sickness, personal injury or other
disability, the Executive will devote substantially all of his business time
and attention to the performance of his duties to the Company.
3. Place of Performance. In connection with his employment during the
Term, unless otherwise agreed by the Executive, the Executive will be based at
the Company's principal executive offices. The Executive will undertake normal
business travel on behalf of the Company.
4. Compensation and Related Matters.
a. Compensation and Benefits.
(i) Annual Base Salary. During the Term of this Agreement,
the Company will pay to the Executive an annual base salary of not less than
$335,000, which annual base salary may be modified from time to time by the
Board (or the Compensation Committee thereof) in its sole discretion, payable
at the times and in the manner consistent with the Company's general policies
regarding compensation of executive employees. The Board may from time to time
authorize such additional compensation to the Executive, in cash or in
property, as the Board may determine in its sole discretion to be appropriate.
(ii) Annual Incentive Compensation. If the Board (or the
Compensation Committee thereof) authorizes any cash incentive compensation or
approves any other management incentive program or arrangement, the Executive
will be eligible to participate in such plan, program or arrangement under the
general terms and conditions applicable to executive and management employees;
provided, however, that so long as the Executive remains employed by the
Company at the end of the applicable fiscal year, (a) the annual cash incentive
compensation paid by the Company to the Executive for the Company's fiscal year
that includes the Effective Date, aggregated with any other annual incentive
compensation earned by the Executive for calendar year 1996, will be in an
amount not less than the greater of (1) 40% of the Executive's highest annual
base salary rate during the fiscal year to which such incentive compensation
relates, and (2) the Executive's actual annual incentive compensation earned
during such fiscal year, as determined by the Company's Board (or the
Compensation Committee thereof), and (b) the cash incentive compensation paid
to the Executive for the Company's next succeeding fiscal year will be in an
amount not less than the greater of (1) 40% of the Executive's highest annual
base salary rate during the fiscal year to which such incentive compensation
relates, and (2) the Executive's actual annual incentive compensation during
such fiscal year, as determined by the Board (or the Compensation Committee
thereof). Except as set forth in the proviso to the preceding sentence,
nothing in this Section 4.1(ii) will guarantee to the Executive any specific
amount of incentive compensation, or prevent the Board (or the Compensation
Committee thereof) from establishing performance goals and compensation targets
applicable only to the Executive.
b. Executive Benefits. In addition to the compensation
described in Section 4.1, the Company will make available to the Executive and
his eligible dependents, subject to the terms and conditions of the applicable
plans, including without limitation the eligibility rules, participation in all
Company-sponsored employee benefit plans including all employee retirement
income and welfare benefit policies, plans, programs or arrangements in which
senior executives of the Company participate, including any stock option, stock
purchase, stock appreciation, savings, pension, supplemental executive
retirement or other retirement income or welfare benefit, disability, salary
continuation, and any other deferred compensation, incentive compensation,
group and/or executive life, health, medical/hospital or other insurance
(whether funded by actual insurance or self-insured by the Company), expense
reimbursement or other employee benefit policies, plans, programs or
arrangements or any equivalent successor policies, plans, programs or
arrangements that may now exist or be adopted hereafter by the Company.
c. Expenses. The Company will promptly reimburse the Executive
for all travel and other business
<PAGE> 4
expenses the Executive incurs in order to perform his duties to the Company
under this Agreement in a manner commensurate with the Executive's position and
level of responsibility with the Company, and in accordance with the Company's
policy regarding substantiation of expenses.
5. Termination. Notwithstanding the Term specified in Section 1.2,
the termination of the Executive's employment hereunder will be governed by the
following provisions:
a. Death. In the event of the Executive's death during the
Term, the Company will pay to the Executive's beneficiaries or estate, as
appropriate, promptly after the Executive's death, (i) the unpaid annual base
salary to which the Executive is entitled, pursuant to Section 4.1, through the
date of the Executive's death, and (ii) for any accrued but unused vacation
days, to the extent and in the amounts, if any, provided under the Company's
usual policies and arrangements. This Section 5.1 will not limit the
entitlement of the Executive's estate or beneficiaries to any death or other
benefits then available to the Executive under any life insurance, stock
ownership, stock options, or other benefit plan or policy that is maintained by
the Company for the Executive's benefit.
b. Disability.
(i) If the Company determines in good faith that the
Executive has incurred a Disability (as defined below) during the Term, the
Company may give the Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company will terminate effective on the 30th day after receipt of such notice
by the Executive, provided that within the 30 days after such receipt, the
Executive will not have returned to full-time performance of his duties. The
Executive will continue to receive his annual base salary and benefits until
the date of termination. In the event of the Executive's Disability, the
Company will pay the Executive, promptly after the Executive's termination, (a)
the unpaid annual base salary to which he is entitled, pursuant to Section 4.1,
through the date of the Executive's termination, (b) for any accrued
<PAGE> 5
but unused vacation days, to the extent and in the amounts, if any, provided
under the Company's usual policies and arrangements, and (c) a lump sum in cash
in an amount equal to 50% of his annual base salary at the time of termination.
This Section 5.2 will not limit the entitlement of the Executive, the
Executive's estate or beneficiaries to any disability or other benefits then
available to the Executive under any disability insurance or other benefit plan
or policy that is maintained by the Company for the Executive's benefit.
(ii) For purposes of this Agreement, "Disability" will mean
the Executive's incapacity due to physical or mental illness substantially to
perform his duties on a full-time basis for six consecutive months and within
30 days after a notice of termination is thereafter given by the Company the
Executive will not have returned to the full-time performance of the
Executive's duties; provided, however, if the Executive disagrees with a
determination to terminate him because of Disability, the question of the
Executive's disability will be subject to the certification of a qualified
medical doctor agreed to by the Company and the Executive or, in the event of
the Executive's incapacity to designate a doctor, the Executive's legal
representative. In the absence of agreement between the Company and the
Executive, each party will nominate a qualified medical doctor and the two
doctors will select a third doctor, who will make the determination as to
Disability. In order to facilitate such determination, the Executive will, as
reasonably requested by the Company, (a) make himself available for medical
examinations by a doctor in accordance with this Section 5.2(ii), and (b) grant
the Company and any such doctor access to all relevant medical information
concerning him, arrange to furnish copies of medical records to such doctor and
use his best efforts to cause his own doctor to be available to discuss his
health with such doctor.
<PAGE> 6
c. Cause.
(i) The Company may terminate the Executive's employment
hereunder for Cause (as defined below). In the event of the Executive's
termination for Cause, the Company will promptly pay to the Executive (or his
representative) the unpaid annual base salary to which he is entitled, pursuant
to Section 4.1, through the date the Executive is terminated and the Executive
will be entitled to no other compensation, except as otherwise due to him under
applicable law.
<PAGE> 7
(ii) For purposes of this Agreement, the Company will have
"Cause" to terminate the Executive's employment hereunder upon a finding by the
Board that (a) the Executive committed an illegal act or acts that were
intended to and did defraud the Company, (b) the Executive engaged in gross
negligence or gross misconduct against the Company or another employee, or in
carrying out his duties and responsibilities, or (c) the Executive materially
breached any of the express covenants set forth in Section 9.1, 9.2 or 9.3.
The Company will not have Cause unless and until the Company provides the
Executive with written notice that the Company intends to terminate his
employment for Cause. Such written notice will specify the particular act or
acts, or failure to act, that is or are the basis for the decision to so
terminate the Executive's employment for Cause. The Employee will be given the
opportunity within 30 calendar days of the receipt of such notice to meet with
the Board to defend such act or acts, or failure to act. The Executive's
employment by the Company automatically will be terminated under this Section
5.3 for Cause as of the receipt of the written notice from the Company or, if
later, the date specified in such notice. A notice given under this Section
5.3 must set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment for Cause, and if
the termination date is other than the date of receipt of such notice, specify
the date on which the Executive's employment is to be terminated (which date
will not be earlier than the date on which such notice is given in accordance
with Section 13.5). Such notice must be given no later than 180 business days
after a director of the Company (excluding the Executive, if applicable) first
has actual knowledge of the events justifying the purported termination.
d. Termination.
(i) Involuntary Termination. The Executive's employment
hereunder may be terminated by the Company for any reason by written notice as
provided in Section 12.5. The Executive will be treated for purposes of this
Agreement as having been involuntarily terminated by the Company other than for
Cause if the Executive terminates his employment with the Company for any of
the following
<PAGE> 8
reasons (each, a "Good Reason"): without the Executive's written consent, (a)
the Company has breached any material provision of this Agreement and within 30
days after notice thereof from the Executive, the Company fails to cure such
breach; (b) a successor or assign (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company fails to assume liability under the Agreement; (c)
at any time after the Company has notified the Executive pursuant to Section
1.2 that the Company does not intend to renew the Agreement and the Executive's
employment at the end of the Term (including any previous renewals) (rather
than to allow the Agreement automatically to renew); (d) a material reduction
in the aggregate benefits described by Section 4.2 (other than stock-based
compensation) provided to the Executive, unless such decrease is required by
law or is applicable to all employees of the Company eligible to participate in
any employee benefit arrangement affected by such reduction; (e) a significant
reduction in the Executive's duties or the addition of duties, which in either
case are materially inconsistent with the Executive's title or position; (f) a
reduction in the Executive's annual base salary; (g) for any reason or for no
reason within the 30-day period following the 18th month after the Effective
Date, provided, in such case, however, that Executive has given written notice
during the 15th month after the Effective Date of his intention to terminate
employment with the Company; or (h) provided that the Executive has relocated
to the location of the Company's principal place of business prior to Jean
Gaulin becoming Chief Executive Officer of the Company, for any reason or
without reason within 120 days after (1) the termination of the employment of
Mr. Gaulin prior to January 1, 1999, without Mr. Gaulin becoming Chief
Executive Officer of the Company if such termination of employment is
involuntary without "Cause" or voluntary with "Good Reason" under the terms of
Mr. Gaulin's employment agreement with the Company, or (2) January 1, 1999, if
Mr. Gaulin has not become the Chief Executive Officer of the Company by such
date.
(ii) Voluntary Termination. The Executive may voluntarily
terminate the Agreement at any time by notice to the Company as provided in
Section 12.5. The Executive's death or Disability (as defined in Section
<PAGE> 9
5.2(ii)) during the term of the Agreement will constitute a voluntary
termination of employment for purposes of eligibility for termination payments
and benefits as provided in Section 5.5, but for no other purpose.
<PAGE> 10
e. Termination Payments and Benefits.
(i) Form and Amount. Upon the Executive's involuntary
termination, other than for Cause, (a) subject to Section 5.5(iii), the Company
will pay or provide to the Executive (1) his annual base salary and benefits
until the date of termination, (2) within five business days after termination
of his employment, a lump sum cash payment equal in amount to three times the
sum of (x) the Executive's highest annual base salary in effect during the
three years prior to his date of termination, and (y) the highest annual
incentive compensation earned by the Executive during the same three-year
period, (3) three additional years of age and service credit under the
qualified and nonqualified defined benefit retirement plans of the Company in
which the Executive participates at the time of termination; provided, however,
that in the case of a qualified defined benefit pension plan, the present value
of the additional benefit the Executive would have accrued if he had been
credited for all purposes with the additional years of age and service under
such plan as of the Executive's date of termination with the Company will be
paid in a lump sum in cash within five business days after termination of the
Executive's employment, and (4) for a period of one year after termination of
his employment, the continuation of the employee welfare benefits set forth in
Section 4.2 except as offset by benefits paid by other sources as set forth in
Section 8, or as prohibited by law or as a condition of maintaining the tax-
favored status of any such benefits to the Company or its employees; (b) the
Executive's benefit under the applicable supplemental executive retirement plan
will be not less than the benefit the Executive would have received under the
terms of the corresponding plan (including any individual modifications
thereof) applicable to the Executive as in effect immediately prior to the
Effective Date determined as if the Executive had continued employment under
the terms of such corresponding plan (and modifications) until his actual
termination of employment; and (c) if the Executive had theretofore relocated
to San Antonio and his employment has been terminated within two years after
the Effective Date, Executive will be reimbursed the costs of relocation from
San Antonio to any other location in the continental United States under the
same policies and procedures applicable to Executive's reimbursement for
relocation to San Antonio.
<PAGE> 11
(ii) Maintenance of Benefits. During the period
set forth in Section 5.5(i)(a)(4), the Company will use its best efforts to
maintain in full force and effect for the continued benefit of the Executive
all referenced benefits or will arrange to make available to the Executive
benefits substantially similar to those that the Executive would otherwise have
been entitled to receive if his employment had not been terminated. Such
benefits will be provided to the Executive on the same terms and conditions
(including employee contributions toward the premium payments) under which the
Executive was entitled to participate immediately prior to his termination.
(iii) Release. No benefit will be paid or made
available under Section 5.5(i) (a) unless the Executive first executes a
release in the form attached as an exhibit to this Agreement, and (b) to the
extent any portion of such release is subject to the seven-day revocation
period prescribed by the Age Discrimination in Employment Act of 1967, as
amended, or to any similar revocation period in effect on the date of
termination of Executive's employment, such revocation period has expired.
6. Change in Control Provisions.
a. Impact of Change in Control. In the event of a "Change
in Control" of the Company, as defined in Section 6.2, (i) the Company will
cause all cash benefits due under this Agreement to be secured by an
irrevocable trust for the benefit of the Executive, the assets of which will be
subject to the claims of the Company's creditors, and will transfer to such
trust cash and other property adequate to satisfy all of the expenses of the
trust for at least five years after the Change in Control and any of the
Company's actual and potential cash obligations under this Agreement, (ii) if
the Executive's employment is involuntarily terminated without Cause after the
Change in Control, (A) the covenants of Sections 9.1 and 10 will be
inapplicable to the Executive, and (B) the covenant of Section 9.2 will expire
on the third anniversary of the date of termination of the Executive's
employment, and (iii) the definition of Good Reason, as set forth in Section
5.4(i) above, will be expanded to include the following:
<PAGE> 12
(i) A good faith determination by the Executive
that, as a result of the Change in Control and a change in circumstances
thereafter significantly affecting his positions, including a change in the
scope of business or other activities for which he was responsible, he has been
rendered substantially unable to carry out, has been substantially hindered in
the performance of, or has suffered a substantial reduction in, any of the
authorities, powers, functions, responsibilities or duties attached to any of
the Executive's positions; the Executive's determination will be presumed to
have been made in good faith unless otherwise shown by the Company by clear and
convincing evidence;
(ii) The relocation of the Company's principal
executive offices (but only if, immediately prior to the Change in Control, the
Executive's principal place of employment was at the Company's principal
executive offices), or requirement that the Executive have as his principal
location of work any location that is, in excess of 50 miles from the location
thereof immediately preceding the Change in Control or to travel away from his
home or office significantly more often than that required immediately prior to
the Change in Control; or
(iii) For any reason, or without reason,
during the 30-day period immediately following the first anniversary of the
first occurrence of a Change in Control.
b. Definition of Change in Control. For purposes of this
Agreement, a "Change in Control" will be deemed to occur if at any time during
the term of the Agreement any of the following events will occur:
(i) The Company is merged, consolidated or reorganized into
or with another corporation or other legal person, and as a result of such
merger, consolidation or reorganization, less than 50% of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
Voting Stock (as that term is hereafter defined) of the Company immediately
prior to such transaction;
<PAGE> 13
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal person,
and as a result of such sale or transfer, less than 50% of the combined voting
power of the then-outstanding voting securities of such corporation or person
are held in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale;
(iii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"),
disclosing that any person (as the term "person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the
term "beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing 20%
or more of the combined voting power of the then-outstanding securities of the
Company entitled to vote generally in the election of Directors of the Company
("Voting Stock");
(iv) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form or report
or item therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction;
(v) If during the period of two consecutive years
individuals who at the beginning of any such period constitute the Directors of
the Company cease for any reason to constitute at least a majority thereof
unless the election, or the nomination for election by the Company's
shareholders, of each Director of the Company first elected during such period
was approved by a vote of at least two-thirds of the Directors of the Company
then still in office who were Directors of the Company at the beginning of any
such period (excluding for this purpose the
<PAGE> 14
election of any new Director in connection with an actual or threatened
election or proxy contest); or
(vi) If the Company sells at least 85% of the assets or
outstanding stock of a subsidiary to an unrelated party (or completes a
transaction having a similar effect), a Change in Control will be deemed to
have occurred with respect to the Executive if (A) he is then employed by such
subsidiary, (B) he primarily performs services for such subsidiary and (C) his
principal place of employment is other than the Company's principal executive
offices.
Notwithstanding the foregoing provisions of Section 6.2(iii) or (iv) hereof,
unless otherwise determined in a specific case by majority vote of the Board
(or the Compensation Committee thereof), a "Change in Control" will not be
deemed to have occurred for purposes of this Agreement solely because the
Company, an entity in which the Company directly or beneficially owns 50% or
more of the voting securities of such entity, any Company-sponsored employee
stock ownership plan or any other employee benefit plan of the Company either
files or becomes obligated to file a report or a proxy statement under or in
response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) under the Exchange Act,
disclosing beneficial ownership by it of shares of voting securities of the
Company, whether in excess of 20% or otherwise, or because the Company reports
that a change in control of the Company has or may have occurred or will or may
occur in the future by reason of such beneficial ownership. Notwithstanding
the foregoing provisions of Section 6.2, the Merger will not constitute a
Change in Control.
7. Certain Additional Payments by the Company:
(i) Anything in this Agreement to the contrary
notwithstanding, if it is determined (as hereafter provided) that any payment
or distribution by the Company to or for the benefit of the Executive, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise pursuant to or by reason of any other agreement, policy,
plan, program or arrangement, including without limitation any stock option,
stock appreciation right or similar right, or the lapse or termination of any
restriction on or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being "contingent on a
change in ownership or control" of the Company, within the meaning of Section
280G of the Code (or any successor provision thereto) or to any similar tax
imposed by state or local law, or any interest or penalties with respect to
such excise tax (such tax or taxes, together with any such interest and
penalties, are hereafter
<PAGE> 15
collectively referred to as the "Excise Tax"), then the Executive will be
entitled to receive an additional payment or payments (a "Gross-Up Payment") in
an amount such that, after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments. No Gross-
Up Payment will be made with respect to the Excise Tax, if any, attributable to
(a) any incentive stock option, as defined by Section 422 of the Code ("ISO")
granted prior to the execution of this Agreement (unless a comparable Gross-Up
Payment has theretofore been made available with respect to such option), or
(b) any stock appreciation or similar right, whether or not limited, granted in
tandem with any ISO described in clause (a).
(ii) Subject to the provisions of Section 7(vi) hereof, all
determinations required to be made under this Section 7, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required and the amount of such Gross-Up Payment,
will be made by a nationally recognized firm of certified public accountants
(the "Accounting Firm") selected by the Executive in his sole discretion. The
Executive will direct the Accounting Firm to submit its determination and
detailed supporting calculations to both the Company and the Executive within
15 calendar days after the Termination Date, if applicable, and any other such
time or times as may be requested by the Company or the Executive. If the
Accounting Firm determines that any Excise Tax is payable by the Executive, the
Company will pay the required Gross-Up Payment to the Executive within five
business days after receipt of such determination and calculations. If the
Accounting Firm determines that no Excise Tax is payable by the Executive, it
will, at the same time as it makes such determination, furnish the Executive
with an opinion that he has substantial authority not to report any Excise Tax
on his federal, state, local income or other tax return. Any determination by
the Accounting Firm as to the amount of the Gross-Up Payment will be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor
<PAGE> 16
provision thereto) and the possibility of similar uncertainty regarding
applicable state or local tax law at the time of any determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies pursuant to Section
7(vi) hereof and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive will direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination
and detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment will be promptly paid by the
Company to, or for the benefit of, the Executive within five business days
after receipt of such determination and calculations.
(iii) The Company and the Executive will each provide
the Accounting Firm access to and copies of any books, records and documents in
the possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determination
contemplated by Section 7(ii) hereof.
(iv) The federal, state and local income or other tax
returns filed by the Executive will be prepared and filed on a consistent basis
with the determination of the Accounting Firm with respect to the Excise Tax
payable by the Executive. The Executive will make proper payment of the amount
of any Excise Tax, and at the request of the Company, provide to the Company
true and correct copies (with any amendments) of his federal income tax return
as filed with the Internal Revenue Service and corresponding state and local
tax returns, if relevant, as filed with the applicable taxing authority, and
such other documents reasonably requested by the Company, evidencing such
payment. If prior to the filing of the Executive's federal income tax return,
or corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
<PAGE> 17
Executive will within five business days pay to the Company the amount of such
reduction.
(v) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Sections 7(ii) and (iv) hereof will be borne by the Company. If such fees and
expenses are initially advanced by the Executive, the Company will reimburse
the Executive the full amount of such fees and expenses within five business
days after receipt from the Executive of a statement therefor and reasonable
evidence of his payment thereof.
(vi) The Executive will notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notification will be given
as promptly as practicable but no later than 10 business days after the
Executive actually receives notice of such claim and the Executive will further
apprise the Company of the nature of such claim and the date on which such
claim is requested to be paid (in each case, to the extent known by the
Executive). The Executive will not pay such claim prior to the earlier of (a)
the expiration of the 30-calendar-day period following the date on which he
gives such notice to the Company and (b) the date that any payment of amount
with respect to such claim is due. If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive will:
a. provide the Company with any written records or documents in
his possession relating to such claim reasonably requested by the Company;
b. take such action in connection with contesting such claim as
the Company will reasonably request in writing from time to time, including
without limitation accepting legal representation with respect to such claim by
an attorney competent in respect of the subject matter and reasonably selected
by the Company;
<PAGE> 18
c. cooperate with the Company in good faith in order effectively
to contest such claim; and
d. permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company will bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and will indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of
this Section 7(vi), the Company will control all proceedings taken in
connection with the contest of any claim contemplated by this Section 7(vi)
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim (provided, however, that the Executive may participate
therein at his own cost and expense) and may, at its option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company will
determine; provided, however, that if the Company directs the Executive to pay
the tax claimed and sue for a refund, the Company will advance the amount of
such payment to the Executive on an interest-free basis and will indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax, including interest or penalties with respect thereto, imposed with
respect to such advance; and provided further, however, that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which the contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's control
of any such contested claim will be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive will be entitled
to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(vii) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 7(vi) hereof, the Executive
receives any refund with respect to such claim, the Executive will (subject to
the Company's complying with the requirements of Section 7(vi) hereof) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after any taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section 7(vi)
hereof, a determination is made that the Executive will not be entitled to any
refund with respect to such claim and the Company does not notify the Executive
in writing of its intent to contest such denial or refund prior to the
expiration of 30 calendar days after such determination, then such advance will
be forgiven and will not be required to be repaid and the amount of such
advance will offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid pursuant to this Section 7.
8. Mitigation and Offset. The Executive is under no obligation to
mitigate damages or the amount of any payment or benefit provided for hereunder
by seeking other employment or otherwise; provided, however, that the
Executive's coverage under the Company's welfare benefit plans will be reduced
to the extent that the Executive becomes covered under any comparable employee
benefit plan made available by another employer and covering the same
<PAGE> 19
type of benefits. The Executive will report to the Company any such benefits
actually received by him.
9. Competition; Confidentiality; Nonsolicitation.
a. (i) Subject to Section 6.1(ii), the Executive hereby
covenants and agrees that during the Term and for one year following the Term
he will not, without the prior written consent of the Company, engage in
Competition (as defined below) with the Company. For purposes of this
Agreement, if the Executive takes any of the following actions he will be
engaged in "Competition": engaging in or carrying on, directly or indirectly,
any enterprise, whether as an advisor, principal, agent, partner, officer,
director, employee, stockholder, associate or consultant to any person,
partnership, corporation or any other business entity, that is principally
engaged in the business of refining and/or marketing oil or related products in
States or Provinces in which the Company (or any division or segment thereof)
has operations; provided, however, that "Competition" will not include (a) the
mere ownership of securities in any enterprise and exercise of rights
appurtenant thereto or (b) participation in management of any enterprise or
business operation thereof other than in connection with the competitive
operation of such enterprise.
(ii) Subject to Section 6.1(ii), the Executive hereby
covenants and agrees that during the Term and for three years following the
Term he will not assist a third party in preparing or making an unsolicited bid
for the Company, engaging in a proxy contest with the Company, or engaging in
any other similar activity.
b. During the Term, the Company agrees that it will
disclose to Executive its confidential or proprietary information (as defined
in this Section 9.2) to the extent necessary for Executive to carry out his
obligations under this Agreement. Subject to Section 6.1(ii), the Executive
hereby covenants and agrees that he will not, without the prior written consent
of the Company, during the Term or thereafter disclose to any person not
employed by the Company, or use in connection with engaging in Competition with
the Company, any confidential or proprietary information of the Company. For
purposes of this Agreement, the term "confidential or proprietary
<PAGE> 20
information" will include all information of any nature and in any form that is
owned by the Company and that is not publicly available or generally known to
persons engaged in businesses similar or related to those of the Company.
Confidential information will include, without limitation, the Company's
financial matters, customers, employees, industry contracts, and all other
secrets and all other information of a confidential or proprietary nature. The
foregoing obligations imposed by this Section 9.2 will cease if such
confidential or proprietary information will have become, through no fault of
the Executive, generally known to the public or the Executive is required by
law to make disclosure (after giving the Company notice and an opportunity to
contest such requirement).
c. The Executive hereby covenants and agrees that during
the Term and for one year thereafter he will not attempt to influence, persuade
or induce, or assist any other person in so persuading or inducing, any
employee of the Company to give up, or to not commence, employment or a
business relationship with the Company.
d. Executive acknowledges and agrees that the remedy at
law available to the Company for breach of any of his post-termination
obligations under Sections 9.1, 9.2 and 9.3 would be inadequate and that
damages flowing from such a breach may not readily be susceptible to being
measured in monetary terms. Accordingly, Executive acknowledges, consents and
agrees that, in addition to any other rights or remedies which the Company may
have at law, in equity or under this Agreement, upon adequate proof of his
violation of any such provision of this Agreement, the Company will be entitled
to immediate injunctive relief and may obtain a temporary order restraining any
threatened or further breach, without the necessity of proof of actual damage.
10. Post-termination Assistance. Subject to Section 6.1(ii), the
Executive agrees that after his employment with the Company has terminated he
will provide, upon reasonable notice, such information and assistance to the
Company as may reasonably be requested by the Company in connection with any
audit, governmental investigation or litigation in which it or any of its
affiliates is or may
<PAGE> 21
become a party; provided, however, that (i) the Company agrees to reimburse the
Executive for any related out-of-pocket expenses, including travel expenses,
and to pay the Executive reasonable compensation for his time based on his rate
of annual salary at the time of termination and (ii) any such assistance may
not unreasonably interfere with the then-current employment of the Executive.
11. Survival. The expiration or termination of the Term will not
impair the rights or obligations of any party hereto that accrue hereunder
prior to such expiration or termination, except to the extent specifically
stated herein. In addition to the foregoing, the Executive's covenants
contained in Sections 9.1, 9.2, 9.3 and 10 and the Company's obligations under
Sections 5, 7 and 12.1 will survive the expiration or termination of
Executive's employment.
12. Miscellaneous Provisions.
a. Legal Fees and Expenses. Without regard to whether the
Executive prevails, in whole or in part, in connection therewith, the Company
will pay and be financially responsible for 100% of any and all attorneys' and
related fees and expenses incurred by the Executive in connection with any
dispute associated with the interpretation, enforcement or defense of the
Executive's rights under this Agreement by litigation or otherwise; provided
that, in regard to such dispute, the Executive has not acted in bad faith or
with no colorable claim of success. All such fees and expenses will be paid by
the Company as incurred by the Executive on a monthly basis upon an undertaking
by the Executive to repay such advanced amounts if a court determines, in a
decision against which no appeal may be taken or with respect to which the time
period to appeal has expired, that he acted in bad faith or with no colorable
claim of success.
b. Binding on Successors. This Agreement will be binding
upon and inure to the benefit of the Company, the Executive and each of their
respective successors, assigns, personal and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable.
<PAGE> 22
c. Governing Law. This Agreement will be governed,
construed, interpreted and enforced in accordance with the substantive laws of
the State of Delaware, without regard to conflicts of law principles.
d. Severability. Any provision of this Agreement that is
deemed invalid, illegal or unenforceable in any jurisdiction will, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provisions of this
Agreement invalid, illegal, or unenforceable in any other jurisdiction. If any
covenant should be deemed invalid, illegal or unenforceable because its scope
is considered excessive, such covenant will be modified so that the scope of
the covenant is reduced only to the minimum extent necessary to render the
modified covenant valid, legal and enforceable.
e. Notices. For all purposes of this Agreement, all
communications, including without limitation notices, consents, requests or
approvals, required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof confirmed), or five
business days after having been mailed by United States registered or certified
mail, return receipt requested, postage prepaid, or three business days after
having been sent by a nationally recognized overnight courier service such as
Federal Express, UPS, or Purolator, addressed to the Company (to the attention
of the Secretary of the Company) at its principal executive offices and to the
Executive at his principal residence, or to such other address as any party may
have furnished to the other in writing and in accordance herewith, except that
notices of changes of address will be effective only upon receipt.
(i) To The Company. If to the Company, addressed to the
attention of Chief Executive Officer at 9830 Colonnade Boulevard, San Antonio,
Texas 78230.
<PAGE> 23
(ii) To the Executive. If to the Executive, to him care of
the Company at the above address.
f. Counterparts. This Agreement may be executed in
several counterparts, each of which will be deemed to be an original, but all
of which together will constitute one and the same Agreement.
g. Entire Agreement. The terms of this Agreement are
intended by the parties to be the final expression of their agreement with
respect to the Executive's employment by the Company and may not be
contradicted by evidence of any prior or contemporaneous agreement. The
parties further intend that this Agreement will constitute the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced in any judicial, administrative or other legal proceeding to vary
the terms of this Agreement.
h. Amendments; Waivers. This Agreement may not be
modified, amended, or terminated except by an instrument in writing, approved
by the Company and signed by the Executive and the Company. Failure on the part
of either party to complain of any action or omission, breach or default on the
part of the other party, no matter how long the same may continue, will never
be deemed to be a waiver of any rights or remedies hereunder, at law or in
equity. The Executive or the Company may waive compliance by the other party
with any provision of this Agreement that such other party was or is obligated
to comply with or perform only through an executed writing; provided, however,
that such waiver will not operate as a waiver of, or estoppel with respect to,
any other or subsequent failure.
i. No Inconsistent Actions. The parties will not
voluntarily undertake or fail to undertake any action or course of action that
is inconsistent with the provisions or essential intent of this Agreement.
Furthermore, it is the intent of the parties hereto to act in a fair and
reasonable manner with respect to the interpretation and application of the
provisions of this Agreement.
<PAGE> 24
j. Headings and Section References. The headings used in
this Agreement are intended for convenience or reference only and will not in
any manner amplify, limit, modify or otherwise be used in the construction or
interpretation of any provision of this Agreement. All section references are
to sections of this Agreement, unless otherwise noted.
k. Indemnification. The Company will indemnify, defend and hold
the Executive harmless, to the maximum extent permitted by law, from any and
all claims, litigations or suits arising out of the activities of the Executive
reasonably taken in the performance of his duties hereunder, including all
reasonable expenses and professional fees that may relate thereto. The Company
agrees to use its best efforts to obtain a directors and officers liability
insurance policy covering the Executive in a sufficient amount to provide such
indemnification, and to maintain such policy during the Term (and for so long
thereafter as is practicable in the circumstances taking into account the
availability of such insurance).
l. Effectiveness and Prior Agreement. This Agreement will
become effective upon, and the Prior Agreement will terminate immediately prior
to, the Effective Date. Notwithstanding any other provision of this Agreement,
if the Merger Agreement is terminated prior to the Effective Date, this
Agreement will have no further force or effect, and the Prior Agreement will
continue in effect as though this Agreement had not been entered into.
<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written but effective as provided in Section 13.
Patrick J. Guarino
ULTRAMAR CORPORATION,
a Delaware corporation
By:
Jean Gaulin
Chief Executive Officer
EXHIBIT
GENERAL RELEASE OF ALL CLAIMS
This General Release of all Claims (this "Agreement") is entered into by
and between _____________________ ("Executive") and Ultramar Diamond Shamrock
Corporation (including its subsidiaries) (collectively the "Company") effective
as of __________________.
In consideration of the promises set forth in the employment agreement
between Executive and the Company, dated __________, 1996, as amended as of the
effective date hereof (the "Employment Agreement"), as well as any promises set
forth in this Agreement, Executive and the Company agree as follows:
(1) Employment Agreement Entitlements
The Company will provide Executive the post-termination payments and
benefits to which he is entitled under the Employment Agreement.
<PAGE> 26
(2) Return of Property
All Company files, access keys, desk keys, ID badges and credit cards,
and such other property of the Company as the Company may reasonably
request, in Executive's possession must be returned no later than the
date of Executive's termination from the Company (the "Termination
Date").
(3) General Release and Waiver of Claims
Except as provided in the last sentence of this paragraph (3), Executive
hereby unconditionally and forever releases, discharges and waives any
and all claims of any nature whatsoever, whether legal, equitable or
otherwise, which Executive may have against the Company arising at any
time on or before the Termination Date, other than with respect to the
obligations of the Company to the Executive under the Employment
Agreement. This release of claims extends to any and all claims of any
nature whatsoever, other than with respect to the obligations of the
Company to the Executive under the Employment Agreement, whether known,
unknown or capable or incapable of being known as of the Termination Date
of thereafter. This Agreement is a release of all claims of any nature
whatsoever by Executive against the Company, other than with respect to
the obligations of the Company to the Executive under the Employment
Agreement, and includes, other than as herein provided, any and all
claims, demands, causes of action, liabilities whether known or unknown
including those caused by, arising from or related to Executive's
employment relationship with the Company including, but without
limitation, any and all alleged discrimination or acts of discrimination
which occurred or may have occurred on or before the Termination Date
based upon race, color, sex, creed, national origin, age, disability or
any other violation of any Equal Employment Opportunity Law, ordinance,
rule, regulation or order, including, but not limited to, Title VII of
the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991;
the Age Discrimination in Employment Act, as amended (as further
described in Section 7 below); the Americans with Disabilities Act;
claims under the Employee Retirement Income Security Act ("ERISA"); or
any other
<PAGE> 27
federal, state or local laws or regulations regarding employment
discrimination or termination of employment. This also includes claims
for wrongful discharge, fraud, or misrepresentation under any statute,
rule, regulation or under the common law.
The Executive agrees and understands and knowingly agrees to this release
because it is his intent in executing this Agreement to forever discharge
the Company from any and all present, future, foreseen or unforeseen
causes of action except for the obligations of the Company set forth in
the Employment Agreement.
Notwithstanding the foregoing, Executive does not release, discharge or
waive any rights to indemnification that he may have under the By-Laws of
the Company, the laws of the State of Delaware, any indemnification
agreement between the Executive and the Company or any insurance coverage
maintained by or on behalf of the Company.
(4) Release and Waiver of Claims Under the Age of Discrimination in
Employment Act
Executive acknowledges that the Company encouraged him to consult with an
attorney of his choosing, and through this Agreement encourages him to
consult with his attorney with respect to possible claims under the Age
Discrimination in Employment Act of 1967, as amended ("ADEA") and that
Executive acknowledges that he understands that the ADEA is a federal
statute that prohibits discrimination, on the basis of age, in
employment, benefits, and benefit plans. Executive wishes to waive any
and all claims under the ADEA that he may have, as of the Termination
Date, against the Company, its shareholders, employees, or successors and
hereby waives such claims. Executive further understands that by signing
this Agreement he is in fact waiving, releasing and forever giving up any
claim under the ADEA that may have existed on or prior to the Termination
Date. Executive acknowledges that the Company has informed him that he
has at his option, twenty-one (21) days in which to sign the waiver of
this claim under ADEA, and he does hereby knowingly and
<PAGE> 28
voluntarily waive said twenty-one (21) day period. Executive also
understands that he has seven (7) days following the Termination Date
within which to revoke the release contained in this paragraph by
providing a written notice of his revocation of the release and waiver
contained in this paragraph to the Company. Executive further
understands that this right to revoke the release contained in this
paragraph relates only to this paragraph and does not act as a revocation
of any other term of this Agreement.
(5) Proceedings
Executive has not filed, and agrees not to initiate or cause to be
initiated on his behalf, any complaint, charge, claim or proceeding
against the Company before any local, state or federal agency, court or
other body relating to his employment or the termination of his
employment, other than with respect to the obligations of the Company to
the Executive under the Employment Agreement (each individually, a
"Proceeding"), and agrees not to voluntarily participate in any
Proceeding. Executive waives any right he may have to benefit in any
manner from any relief (whether monetary or otherwise) arising out of any
Proceeding.
(6) Remedies
In the event Executive initiates or voluntarily participates in any
Proceeding, or if he fails to abide by any of the terms of this Agreement
or his post-termination obligations contained in the Employment
Agreement, or if he revokes the ADEA release contained in Paragraph 4 of
this Agreement within the seven-day period provided under Paragraph 4,
the Company may, in addition to any other remedies it may have, reclaim
any amounts paid to him under the termination provisions of the
Employment Agreement or terminate any benefits or payments that are
subsequently due under the Employment Agreement, without waiving the
release granted herein. Executive acknowledges and agrees that the
remedy at law available to the Company for breach of any of his post-
termination obligations under the Employment Agreement or his obligations
under Paragraphs 3, 4, and
<PAGE> 29
5 of this Agreement would be inadequate and that damages flowing from
such a breach may not readily be susceptible to being measured in
monetary terms. Accordingly, Executive acknowledges, consents and agrees
that, in addition to any other rights or remedies which the Company may
have at law, in equity or under this Agreement, upon adequate proof of
his violation of any such provision of this Agreement, the Company shall
be entitled to immediate injunctive relief and may obtain a temporary
order restraining any threatened or further breach, without the necessity
of proof of actual damage.
Executive understands that by entering into this Agreement he will be
limiting the availability of certain remedies that he may have against
the Company and limiting also his ability to pursue certain claims
against the Company.
(7) Severability Clause
In the event any provision or part of this Agreement is found to be
invalid or unenforceable, only that particular provision or part so
found, and not the entire agreement, will be inoperative.
(8) Non-Admission
Nothing contained in this Agreement will be deemed or construed as an
admission of wrongdoing or liability on the part of the Company.
(9) Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, applicable to agreements made and to be
performed in that State; and the parties agree to the jurisdiction of the
U.S. District Court for the District of Delaware, and agree to appear in
any action in such courts by service of process by certified mail, return
receipt requested, at the following addresses:
<PAGE> 30
To Company: ULTRAMAR DIAMOND SHAMROCK CORPORATION
9830 Colonnade Boulevard
San Antonio, Texas 78230
and
To Executive:
THE EXECUTIVE ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT AND THAT HE FULLY
KNOWS, UNDERSTANDS, AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES
THE SAME AND MAKES THIS AGREEMENT AND THE RELEASE AND AGREEMENTS PROVIDED FOR
HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.
IN WITNESS WHEREOF, the parties have executed this AGREEMENT as of the
date first set forth above.
/s/ PATRICK J. GUARINO
--------------------------------------
Patrick J. Guarino
ULTRAMAR DIAMOND SHAMROCK CORPORATION,
a Delaware corporation
By:
Name:
Title:
<PAGE> 1
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), dated as of
____________, 1996, but effective as provided herein, is made and entered into
by and between Diamond Shamrock, Inc., a Delaware corporation (the "Company" or
"Diamond Shamrock, Inc.", as the context requires), and William R. Klesse (the
"Executive").
WHEREAS, the Executive has been serving as a senior executive
officer of Diamond Shamrock, Inc.;
WHEREAS, the Executive is a party to an Employment Agreement with
Diamond Shamrock, Inc., dated as of February 6, 1996 (the "Prior Agreement");
WHEREAS, pursuant to the Agreement and Plan of Merger between
Ultramar Corporation, a Delaware corporation ("Ultramar Corporation") and
Diamond Shamrock, Inc., dated as of September 22, 1996 (the "Merger
Agreement"), as of the effective time of the Merger (the "Effective Date"),
Diamond Shamrock, Inc. will be merged with and into Ultramar Corporation, with
Ultramar Corporation as the surviving entity (the "Merger");
WHEREAS, pursuant to the Merger Agreement, the Company is
authorized to enter into this Agreement with Executive;
WHEREAS, the Company considers it in the best interests of its
stockholders to foster the continuous employment of certain key management
personnel;
WHEREAS, the Company recognizes that, as is the case for most
publicly held companies, the possibility of a Change in Control (as defined
herein) exists;
WHEREAS, the Company wishes to assure itself of both present and
future continuation of management in light of the Merger and in the event of a
Change in Control subsequent to the Merger;
WHEREAS, the Company wishes to employ the Executive and the
Executive is willing to render services, both on the terms and subject to the
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the promises and of the
mutual covenants herein contained, it is agreed as follows:
<PAGE> 2
1. Employment.
1.1 The Company hereby agrees to employ the Executive and the
Executive hereby agrees to undertake employment with the Company upon the terms
and conditions herein set forth.
1.2 Employment will be for a term commencing on the Effective
Date and, subject to earlier expiration upon the Executive's termination under
Section 5, expiring three years from the Effective Date (the "Term").
Notwithstanding the previous sentence, this Agreement and the employment of the
Executive will be automatically renewed and the Term extended, subject to
Section 5, for successive one-year periods upon the terms and conditions set
forth herein, commencing on the third anniversary of the date of this
Agreement, and on each anniversary date thereafter, unless either party to this
Agreement gives the other party written notice (in accordance with Section
12.5) of such party's intention to terminate this Agreement at least three
months prior to the end of such initial or extended term. For purposes of this
Agreement, any reference to the "Term" of this Agreement will include the
original term and any extension thereof.
2. Position and Duties.
2.1 Position and Duties. During the Term, the Executive will
serve as Executive Vice President, Logistics and Supply, of the Company and
will have such duties, functions, responsibilities and authority as are (i)
consistent with the Executive's position as Executive Vice President, Logistics
and Supply, of the Company; or (ii) assigned to his office in the Company's
bylaws; or (iii) reasonably assigned to him by the Company's Board of Directors
(the "Board").
2.2 Commitment. During the Term, the Executive will be the
Company's full-time employee and, except as may otherwise be approved in
advance in writing by the Board, and except during vacation periods and
reasonable periods of absence due to sickness, personal injury or other
disability, the Executive will devote substantially all of his business time
and attention to the performance of his duties to the Company.
3. Place of Performance. In connection with his employment during
the Term, unless otherwise agreed by the Executive, the Executive will be based
at the Company's principal executive offices. The Executive will undertake
normal business travel on behalf of the Company.
4. Compensation and Related Matters.
4.1 Compensation and Benefits.
(i) Annual Base Salary. During the Term of this
Agreement, the Company will pay to the Executive an annual base
2
<PAGE> 3
salary of not less than $335,000, which annual base salary may be modified from
time to time by the Board (or the Compensation Committee thereof) in its sole
discretion, payable at the times and in the manner consistent with the
Company's general policies regarding compensation of executive employees. The
Board may from time to time authorize such additional compensation to the
Executive, in cash or in property, as the Board may determine in its sole
discretion to be appropriate.
(ii) Annual Incentive Compensation. If the Board (or
the Compensation Committee thereof) authorizes any cash incentive compensation
or approves any other management incentive program or arrangement, the
Executive will be eligible to participate in such plan, program or arrangement
under the general terms and conditions applicable to executive and management
employees; provided, however, that so long as the Executive remains employed by
the Company at the end of the applicable fiscal year, (a) the annual cash
incentive compensation paid by the Company to the Executive for the Company's
fiscal year that includes the Effective Date, aggregated with any other annual
incentive compensation earned by the Executive for calendar year 1996, will be
in an amount not less than the greater of (1) 40% of the Executive's highest
annual base salary rate during the fiscal year to which such incentive
compensation relates, and (2) the Executive's actual annual incentive
compensation earned during such fiscal year, as determined by the Company's
Board (or the Compensation Committee thereof), and (b) the cash incentive
compensation paid to the Executive for the Company's next succeeding fiscal
year will be in an amount not less than the greater of (1) 40% of the
Executive's highest annual base salary rate during the fiscal year to which
such incentive compensation relates, and (2) the Executive's actual annual
incentive compensation during such fiscal year, as determined by the Board (or
the Compensation Committee thereof). Except as set forth in the proviso to the
preceding sentence, nothing in this Section 4.1(ii) will guarantee to the
Executive any specific amount of incentive compensation, or prevent the Board
(or the Compensation Committee thereof) from establishing performance goals and
compensation targets applicable only to the Executive.
4.2 Executive Benefits. In addition to the compensation
described in Section 4.1, the Company will make available to the Executive and
his eligible dependents, subject to the terms and conditions of the applicable
plans, including without limitation the eligibility rules, participation in all
Company-sponsored employee benefit plans including all employee retirement
income and welfare benefit policies, plans, programs or arrangements in which
senior executives of the Company participate, including any stock option, stock
purchase, stock appreciation, savings, pension, supplemental executive
retirement or other retirement income or welfare benefit, disability, salary
continuation, and any other deferred compensation, incentive compensation,
group and/or executive life, health,
3
<PAGE> 4
medical/hospital or other insurance (whether funded by actual insurance or
self-insured by the Company), expense reimbursement or other employee benefit
policies, plans, programs or arrangements or any equivalent successor policies,
plans, programs or arrangements that may now exist or be adopted hereafter by
the Company.
4.3 Expenses. The Company will promptly reimburse the
Executive for all travel and other business expenses the Executive incurs in
order to perform his duties to the Company under this Agreement in a manner
commensurate with the Executive's position and level of responsibility with the
Company, and in accordance with the Company's policy regarding substantiation
of expenses.
5. Termination. Notwithstanding the Term specified in Section 1.2,
the termination of the Executive's employment hereunder will be governed by the
following provisions:
5.1 Death. In the event of the Executive's death during the
Term, the Company will pay to the Executive's beneficiaries or estate, as
appropriate, promptly after the Executive's death, (i) the unpaid annual base
salary to which the Executive is entitled, pursuant to Section 4.1, through the
date of the Executive's death, and (ii) for any accrued but unused vacation
days, to the extent and in the amounts, if any, provided under the Company's
usual policies and arrangements. This Section 5.1 will not limit the
entitlement of the Executive's estate or beneficiaries to any death or other
benefits then available to the Executive under any life insurance, stock
ownership, stock options, or other benefit plan or policy that is maintained by
the Company for the Executive's benefit.
5.2 Disability.
(i) If the Company determines in good faith that the
Executive has incurred a Disability (as defined below) during the Term, the
Company may give the Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company will terminate effective on the 30th day after receipt of such notice
by the Executive, provided that within the 30 days after such receipt, the
Executive will not have returned to full-time performance of his duties. The
Executive will continue to receive his annual base salary and benefits until
the date of termination. In the event of the Executive's Disability, the
Company will pay the Executive, promptly after the Executive's termination, (a)
the unpaid annual base salary to which he is entitled, pursuant to Section 4.1,
through the date of the Executive's termination, (b) for any accrued but unused
vacation days, to the extent and in the amounts, if any, provided under the
Company's usual policies and arrangements, and (c) a lump sum in cash in an
amount equal to 50% of his annual base salary at the time of termination. This
Section 5.2 will not limit the entitlement of
4
<PAGE> 5
the Executive, the Executive's estate or beneficiaries to any disability or
other benefits then available to the Executive under any disability insurance
or other benefit plan or policy that is maintained by the Company for the
Executive's benefit.
(ii) For purposes of this Agreement, "Disability" will
mean the Executive's incapacity due to physical or mental illness substantially
to perform his duties on a full-time basis for six consecutive months and
within 30 days after a notice of termination is thereafter given by the Company
the Executive will not have returned to the full-time performance of the
Executive's duties; provided, however, if the Executive disagrees with a
determination to terminate him because of Disability, the question of the
Executive's disability will be subject to the certification of a qualified
medical doctor agreed to by the Company and the Executive or, in the event of
the Executive's incapacity to designate a doctor, the Executive's legal
representative. In the absence of agreement between the Company and the
Executive, each party will nominate a qualified medical doctor and the two
doctors will select a third doctor, who will make the determination as to
Disability. In order to facilitate such determination, the Executive will, as
reasonably requested by the Company, (a) make himself available for medical
examinations by a doctor in accordance with this Section 5.2(ii), and (b) grant
the Company and any such doctor access to all relevant medical information
concerning him, arrange to furnish copies of medical records to such doctor and
use his best efforts to cause his own doctor to be available to discuss his
health with such doctor.
5.3 Cause.
(i) The Company may terminate the Executive's
employment hereunder for Cause (as defined below). In the event of the
Executive's termination for Cause, the Company will promptly pay to the
Executive (or his representative) the unpaid annual base salary to which he is
entitled, pursuant to Section 4.1, through the date the Executive is terminated
and the Executive will be entitled to no other compensation, except as
otherwise due to him under applicable law.
(ii) For purposes of this Agreement, the Company will
have "Cause" to terminate the Executive's employment hereunder upon a finding
by the Board that (a) the Executive committed an illegal act or acts that were
intended to and did defraud the Company, (b) the Executive engaged in gross
negligence or gross misconduct against the Company or another employee, or in
carrying out his duties and responsibilities, or (c) the Executive materially
breached any of the express covenants set forth in Section 9.1, 9.2 or 9.3.
The Company will not have Cause unless and until the Company provides the
Executive with written notice that the Company intends to terminate his
employment for Cause. Such written notice will specify the particular act or
acts, or failure to act, that is or
5
<PAGE> 6
are the basis for the decision to so terminate the Executive's employment for
Cause. The Employee will be given the opportunity within 30 calendar days of
the receipt of such notice to meet with the Board to defend such act or acts,
or failure to act. The Executive's employment by the Company automatically
will be terminated under this Section 5.3 for Cause as of the receipt of the
written notice from the Company or, if later, the date specified in such
notice. A notice given under this Section 5.3 must set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive's employment for Cause, and if the termination date is other
than the date of receipt of such notice, specify the date on which the
Executive's employment is to be terminated (which date will not be earlier than
the date on which such notice is given in accordance with Section 13.5). Such
notice must be given no later than 180 business days after a director of the
Company (excluding the Executive, if applicable) first has actual knowledge of
the events justifying the purported termination.
5.4 Termination.
(i) Involuntary Termination. The Executive's
employment hereunder may be terminated by the Company for any reason by written
notice as provided in Section 12.5. The Executive will be treated for purposes
of this Agreement as having been involuntarily terminated by the Company other
than for Cause if the Executive terminates his employment with the Company for
any of the following reasons (each, a "Good Reason"): without the Executive's
written consent, (a) the Company has breached any material provision of this
Agreement and within 30 days after notice thereof from the Executive, the
Company fails to cure such breach; (b) a successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company fails to assume
liability under the Agreement; (c) at any time after the Company has notified
the Executive pursuant to Section 1.2 that the Company does not intend to renew
the Agreement and the Executive's employment at the end of the Term (including
any previous renewals) (rather than to allow the Agreement automatically to
renew); (d) a material reduction in the aggregate benefits described by Section
4.2 (other than stock-based compensation) provided to the Executive, unless
such decrease is required by law or is applicable to all employees of the
Company eligible to participate in any employee benefit arrangement affected by
such reduction; (e) a significant reduction in the Executive's duties or the
addition of duties, which in either case are materially inconsistent with the
Executive's title or position; or (f) a reduction in the Executive's annual
base salary.
(ii) Voluntary Termination. The Executive may voluntarily
terminate the Agreement at any time by notice to the Company as provided in
Section 12.5. The Executive's death or Disability (as defined in Section
5.2(ii)) during the term of the
6
<PAGE> 7
Agreement will constitute a voluntary termination of employment for purposes of
eligibility for termination payments and benefits as provided in Section 5.5,
but for no other purpose.
5.5 Termination Payments and Benefits.
(i) Form and Amount. Upon the Executive's involuntary
termination, other than for Cause, (a) subject to Section 5.5(iii), the Company
will pay or provide to the Executive (1) his annual base salary and benefits
until the date of termination, (2) within five business days after termination
of his employment, a lump sum cash payment equal in amount to three times the
sum of (x) the Executive's highest annual base salary in effect during the
three years prior to his date of termination, and (y) the highest annual
incentive compensation earned by the Executive during the same three-year
period, (3) three additional years of age and service credit under the
qualified and nonqualified defined benefit retirement plans of the Company in
which the Executive participates at the time of termination; provided, however,
that in the case of a qualified defined benefit pension plan, the present value
of the additional benefit the Executive would have accrued if he had been
credited for all purposes with the additional years of age and service under
such plan as of the Executive's date of termination with the Company will be
paid in a lump sum in cash within five business days after termination of the
Executive's employment, and (4) for a period of one year after termination of
his employment, the continuation of the employee welfare benefits set forth in
Section 4.2 except as offset by benefits paid by other sources as set forth in
Section 8, or as prohibited by law or as a condition of maintaining the tax-
favored status of any such benefits to the Company or its employees; (b) the
Executive's benefit under the applicable supplemental executive retirement plan
will be not less than the benefit the Executive would have received under the
terms of the corresponding plan (including any individual modifications
thereof) applicable to the Executive as in effect immediately prior to the
Effective Date determined as if the Executive had continued employment under
the terms of such corresponding plan (and modifications) until his actual
termination of employment. For purposes of Section 5.5(i)(a)(2), the three-
year period will include employment with Diamond Shamrock, Inc. or any of its
affiliates.
(ii) Maintenance of Benefits. During the period set
forth in Section 5.5(i)(a)(4), the Company will use its best efforts to
maintain in full force and effect for the continued benefit of the Executive
all referenced benefits or will arrange to make available to the Executive
benefits substantially similar to those that the Executive would otherwise have
been entitled to receive if his employment had not been terminated. Such
benefits will be provided to the Executive on the same terms and conditions
(including employee contributions toward the premium payments) under which the
Executive was entitled to participate immediately prior to his termination.
7
<PAGE> 8
(iii) Release. No benefit will be paid or made available
under Section 5.5(i) (a) unless the Executive first executes a release in the
form attached as an exhibit to this Agreement, and (b) to the extent any
portion of such release is subject to the seven-day revocation period
prescribed by the Age Discrimination in Employment Act of 1967, as amended, or
to any similar revocation period in effect on the date of termination of
Executive's employment, such revocation period has expired.
6. Change in Control Provisions.
6.1 Impact of Change in Control. In the event of a "Change in
Control" of the Company, as defined in Section 6.2, (i) the Company will cause
all cash benefits due under this Agreement to be secured by an irrevocable
trust for the benefit of the Executive, the assets of which will be subject to
the claims of the Company's creditors, and will transfer to such trust cash and
other property adequate to satisfy all of the expenses of the trust for at
least five years after the Change in Control and any of the Company's actual
and potential cash obligations under this Agreement, (ii) if the Executive's
employment is involuntarily terminated without Cause after the Change in
Control, (A) the covenants of Sections 9.1 and 10 will be inapplicable to the
Executive, and (B) the covenant of Section 9.2 will expire on the third
anniversary of the date of termination of the Executive's employment, and (iii)
the definition of Good Reason, as set forth in Section 5.4(i) above, will be
expanded to include the following:
(a) A good faith determination by the Executive that, as a
result of the Change in Control and a change in circumstances thereafter
significantly affecting his positions, including a change in the scope of
business or other activities for which he was responsible, he has been rendered
substantially unable to carry out, has been substantially hindered in the
performance of, or has suffered a substantial reduction in, any of the
authorities, powers, functions, responsibilities or duties attached to any of
the Executive's positions; the Executive's determination will be presumed to
have been made in good faith unless otherwise shown by the Company by clear and
convincing evidence;
(b) The relocation of the Company's principal executive
offices (but only if, immediately prior to the Change in Control, the
Executive's principal place of employment was at the Company's principal
executive offices), or requirement that the Executive have as his principal
location of work any location that is, in excess of 50 miles from the location
thereof immediately preceding the Change in Control or to travel away from his
home or office significantly more often that required immediately prior to the
Change in Control; or
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<PAGE> 9
(c) For any reason, or without reason, during the 30-day
period immediately following the first anniversary of the first occurrence of a
Change in Control.
6.2 Definition of Change in Control. For purposes of this
Agreement, a "Change in Control" will be deemed to occur if at any time during
the term of the Agreement any of the following events will occur:
(i) The Company is merged, consolidated or reorganized
into or with another corporation or other legal person, and as a result of such
merger, consolidation or reorganization, less than 50% of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
Voting Stock (as that term is hereafter defined) of the Company immediately
prior to such transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal person,
and as a result of such sale or transfer, less than 50% of the combined voting
power of the then-outstanding voting securities of such corporation or person
are held in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale;
(iii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated pursuant
to the Securities Exchange Act of 1934 (the "Exchange Act"), disclosing that
any person (as the term "person" is used in Section 13(d)(3) or Section
14(d)(2) of the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing 20%
or more of the combined voting power of the then-outstanding securities of the
Company entitled to vote generally in the election of Directors of the Company
("Voting Stock");
(iv) The Company files a report or proxy statement with
the Securities and Exchange Commission pursuant to the Exchange Act disclosing
in response to Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; or
(v) If during the period of two consecutive years
individuals who at the beginning of any such period constitute the Directors of
the Company cease for any reason to constitute at least a majority thereof
unless the election, or the nomination for election by the Company's
shareholders, of each Director of the Company first elected during such period
was approved by a vote of at least two-thirds of the Directors of the
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Company then still in office who were Directors of the Company at the beginning
of any such period (excluding for this purpose the election of any new Director
in connection with an actual or threatened election or proxy contest).
Notwithstanding the foregoing provisions of Section 6.2(iii) or (iv) hereof,
unless otherwise determined in a specific case by majority vote of the Board
(or the Compensation Committee thereof), a "Change in Control" will not be
deemed to have occurred for purposes of this Agreement solely because the
Company, an entity in which the Company directly or beneficially owns 50% or
more of the voting securities of such entity, any Company-sponsored employee
stock ownership plan or any other employee benefit plan of the Company either
files or becomes obligated to file a report or a proxy statement under or in
response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) under the Exchange Act,
disclosing beneficial ownership by it of shares of voting securities of the
Company, whether in excess of 20% or otherwise, or because the Company reports
that a change in control of the Company has or may have occurred or will or may
occur in the future by reason of such beneficial ownership. Notwithstanding
the foregoing provisions of Section 6.2, the Merger will not constitute a
Change in Control.
7. Certain Additional Payments by the Company:
(i) Anything in this Agreement to the contrary notwithstanding,
if it is determined (as hereafter provided) that any payment or distribution by
the Company to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement, policy, plan,
program or arrangement, including without limitation any stock option, stock
appreciation right or similar right, or the lapse or termination of any
restriction on or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being "contingent on a
change in ownership or control" of Diamond Shamrock, Inc. or the Company,
within the meaning of Section 280G of the Code (or any successor provision
thereto) or to any similar tax imposed by state or local law, or any interest
or penalties with respect to such excise tax (such tax or taxes, together with
any such interest and penalties, are hereafter collectively referred to as the
"Excise Tax"), then the Executive will be entitled to receive an additional
payment or payments (a "Gross-Up Payment") in an amount such that, after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax, imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments. No Gross-Up Payment will be made
with respect to the Excise Tax, if any, attributable to (a) any incentive
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stock option, as defined by Section 422 of the Code ("ISO") granted prior to
the execution of this Agreement (unless a comparable Gross-Up Payment has
theretofore been made available with respect to such option), or (b) any stock
appreciation or similar right, whether or not limited, granted in tandem with
any ISO described in clause (a).
(ii) Subject to the provisions of Section 7(vi) hereof, all
determinations required to be made under this Section 7, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required and the amount of such Gross-Up Payment,
will be made by a nationally recognized firm of certified public accountants
(the "Accounting Firm") selected by the Executive in his sole discretion. The
Executive will direct the Accounting Firm to submit its determination and
detailed supporting calculations to both the Company and the Executive within
15 calendar days after the Termination Date, if applicable, and any other such
time or times as may be requested by the Company or the Executive. If the
Accounting Firm determines that any Excise Tax is payable by the Executive, the
Company will pay the required Gross-Up Payment to the Executive within five
business days after receipt of such determination and calculations. If the
Accounting Firm determines that no Excise Tax is payable by the Executive, it
will, at the same time as it makes such determination, furnish the Executive
with an opinion that he has substantial authority not to report any Excise Tax
on his federal, state, local income or other tax return. Any determination by
the Accounting Firm as to the amount of the Gross-Up Payment will be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto)
and the possibility of similar uncertainty regarding applicable state or local
tax law at the time of any determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts or fails
to pursue its remedies pursuant to Section 7(vi) hereof and the Executive
thereafter is required to make a payment of any Excise Tax, the Executive will
direct the Accounting Firm to determine the amount of the Underpayment that has
occurred and to submit its determination and detailed supporting calculations
to both the Company and the Executive as promptly as possible. Any such
Underpayment will be promptly paid by the Company to, or for the benefit of,
the Executive within five business days after receipt of such determination and
calculations.
(iii) The Company and the Executive will each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm
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in connection with the preparation and issuance of the determination
contemplated by Section 7(ii) hereof.
(iv) The federal, state and local income or other tax
returns filed by the Executive will be prepared and filed on a consistent basis
with the determination of the Accounting Firm with respect to the Excise Tax
payable by the Executive. The Executive will make proper payment of the amount
of any Excise Tax, and at the request of the Company, provide to the Company
true and correct copies (with any amendments) of his federal income tax return
as filed with the Internal Revenue Service and corresponding state and local
tax returns, if relevant, as filed with the applicable taxing authority, and
such other documents reasonably requested by the Company, evidencing such
payment. If prior to the filing of the Executive's federal income tax return,
or corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive will within five business days pay to the Company the amount of such
reduction.
(v) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Sections 7(ii) and (iv) hereof will be borne by the Company. If such fees and
expenses are initially paid by the Executive, the Company will reimburse the
Executive the full amount of such fees and expenses within five business days
after receipt from the Executive of a statement therefor and reasonable
evidence of his payment thereof.
(vi) The Executive will notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of a Gross-Up Payment. Such notification will be
given as promptly as practicable but no later than 10 business days after the
Executive actually receives notice of such claim and the Executive will further
apprise the Company of the nature of such claim and the date on which such
claim is requested to be paid (in each case, to the extent known by the
Executive). The Executive will not pay such claim prior to the earlier of (a)
the expiration of the 30-calendar-day period following the date on which he
gives such notice to the Company and (b) the date that any payment of amount
with respect to such claim is due. If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive will:
(1) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(2) take such action in connection with contesting such
claim as the Company will reasonably request in writing from time
to time, including without limitation accepting legal
representation with respect to such
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claim by an attorney competent in respect of the subject matter
and reasonably selected by the Company;
(3) cooperate with the Company in good faith in order
effectively to contest such claim; and
(4) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company will bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and will indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of
this Section 7(vi), the Company will control all proceedings taken in
connection with the contest of any claim contemplated by this Section 7(vi)
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim (provided, however, that the Executive may participate
therein at his own cost and expense) and may, at its option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company will
determine; provided, however, that if the Company directs the Executive to pay
the tax claimed and sue for a refund, the Company will advance the amount of
such payment to the Executive on an interest-free basis and will indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax, including interest or penalties with respect thereto, imposed with
respect to such advance; and provided further, however, that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which the contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's control
of any such contested claim will be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive will be entitled
to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(vii) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(vi) hereof, the Executive
receives any refund with respect to such claim, the Executive will (subject to
the Company's complying with the requirements of Section 7(vi) hereof) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after any taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company
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pursuant to Section 7(vi) hereof, a determination is made that the Executive
will not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial
or refund prior to the expiration of 30 calendar days after such determination,
then such advance will be forgiven and will not be required to be repaid and
the amount of such advance will offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid pursuant to this Section 7.
8. Mitigation and Offset. The Executive is under no obligation to
mitigate damages or the amount of any payment or benefit provided for hereunder
by seeking other employment or otherwise; provided, however, that the
Executive's coverage under the Company's welfare benefit plans will be reduced
to the extent that the Executive becomes covered under any comparable employee
benefit plan made available by another employer and covering the same type of
benefits. The Executive will report to the Company any such benefits actually
received by him.
9. Competition; Confidentiality; Nonsolicitation
9.1 (i) Subject to Section 6.1(ii), the Executive hereby
covenants and agrees that during the Term and for one year following the Term
he will not, without the prior written consent of the Company, engage in
Competition (as defined below) with the Company. For purposes of this
Agreement, if the Executive takes any of the following actions he will be
engaged in "Competition": engaging in or carrying on, directly or indirectly,
any enterprise, whether as an advisor, principal, agent, partner, officer,
director, employee, stockholder, associate or consultant to any person,
partnership, corporation or any other business entity, that is principally
engaged in the business of refining and/or marketing oil or related products in
States or Provinces in which the Company (or any division or segment thereof)
has operations; provided, however, that "Competition" will not include (a) the
mere ownership of securities in any enterprise and exercise of rights
appurtenant thereto or (b) participation in management of any enterprise or
business operation thereof other than in connection with the competitive
operation of such enterprise.
(ii) Subject to Section 6.1(ii), the Executive hereby
covenants and agrees that during the Term and for three years following the
Term he will not assist a third party in preparing or making an unsolicited bid
for the Company, engaging in a proxy contest with the Company, or engaging in
any other similar activity.
9.2 During the Term, the Company agrees that it will disclose to
Executive its confidential or proprietary information (as defined in this
Section 9.2) to the extent necessary for Executive to carry out his obligations
under this Agreement. Subject to Section 6.1(ii), the Executive hereby
covenants and
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agrees that he will not, without the prior written consent of the Company,
during the Term or thereafter disclose to any person not employed by the
Company, or use in connection with engaging in Competition with the Company,
any confidential or proprietary information of the Company. For purposes of
this Agreement, the term "confidential or proprietary information" will include
all information of any nature and in any form that is owned by the Company and
that is not publicly available or generally known to persons engaged in
businesses similar or related to those of the Company. Confidential
information will include, without limitation, the Company's financial matters,
customers, employees, industry contracts, and all other secrets and all other
information of a confidential or proprietary nature. The foregoing obligations
imposed by this Section 9.2 will cease if such confidential or proprietary
information will have become, through no fault of the Executive, generally
known to the public or the Executive is required by law to make disclosure
(after giving the Company notice and an opportunity to contest such
requirement).
9.3 Subject to Section 6.1(ii), the Executive hereby covenants
and agrees that during the Term and for one year thereafter he will not attempt
to influence, persuade or induce, or assist any other person in so persuading
or inducing, any employee of the Company to give up, or to not commence,
employment or a business relationship with the Company.
9.4 Executive acknowledges and agrees that the remedy at law
available to the Company for breach of any of his post-termination obligations
under Sections 9.1, 9.2 and 9.3 would be inadequate and that damages flowing
from such a breach may not readily be susceptible to being measured in monetary
terms. Accordingly, Executive acknowledges, consents and agrees that, in
addition to any other rights or remedies which the Company may have at law, in
equity or under this Agreement, upon adequate proof of his violation of any
such provision of this Agreement, the Company will be entitled to immediate
injunctive relief and may obtain a temporary order restraining any threatened
or further breach, without the necessity of proof of actual damage.
10. Post-termination Assistance. Subject to Section 6.1(ii), the
Executive agrees that after his employment with the Company has terminated he
will provide, upon reasonable notice, such information and assistance to the
Company as may reasonably be requested by the Company in connection with any
audit, governmental investigation or litigation in which it or any of its
affiliates is or may become a party; provided, however, that (i) the Company
agrees to reimburse the Executive for any related out-of-pocket expenses,
including travel expenses, and to pay the Executive reasonable compensation for
his time based on his rate of annual salary at the time of termination and (ii)
any such assistance may not unreasonably interfere with the then-current
employment of the Executive.
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11. Survival. The expiration or termination of the Term will not
impair the rights or obligations of any party hereto that accrue hereunder
prior to such expiration or termination, except to the extent specifically
stated herein. In addition to the foregoing, the Executive's covenants
contained in Sections 9.1, 9.2, 9.3 and 10 and the Company's obligations under
Sections 5, 7 and 12.1 will survive the expiration or termination of
Executive's employment.
12. Miscellaneous Provisions.
12.1 Legal Fees and Expenses. Without regard to whether the
Executive prevails, in whole or in part, in connection therewith, the Company
will pay and be financially responsible for 100% of any and all attorneys' and
related fees and expenses incurred by the Executive in connection with any
dispute associated with the interpretation, enforcement or defense of the
Executive's rights under this Agreement by litigation or otherwise; provided
that, in regard to such dispute, the Executive has not acted in bad faith or
with no colorable claim of success. All such fees and expenses will be paid by
the Company as incurred by the Executive on a monthly basis upon an undertaking
by the Executive to repay such advanced amounts if a court determines, in a
decision against which no appeal may be taken or with respect to which the time
period to appeal has expired, that he acted in bad faith or with no colorable
claim of success.
12.2 Binding on Successors. This Agreement will be binding
upon and inure to the benefit of the Company, the Executive and each of their
respective successors, assigns, personal and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable.
12.3 Governing Law. This Agreement will be governed,
construed, interpreted and enforced in accordance with the substantive laws of
the State of Delaware, without regard to conflicts of law principles.
12.4 Severability. Any provision of this Agreement that is
deemed invalid, illegal or unenforceable in any jurisdiction will, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provisions of this
Agreement invalid, illegal, or unenforceable in any other jurisdiction. If any
covenant should be deemed invalid, illegal or unenforceable because its scope
is considered excessive, such covenant will be modified so that the scope of
the covenant is reduced only to the minimum extent necessary to render the
modified covenant valid, legal and enforceable.
12.5 Notices. For all purposes of this Agreement, all
communications, including without limitation notices, consents,
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requests or approvals, required or permitted to be given hereunder will be in
writing and will be deemed to have been duly given when hand delivered or
dispatched by electronic facsimile transmission (with receipt thereof
confirmed), or five business days after having been mailed by United States
registered or certified mail, return receipt requested, postage prepaid, or
three business days after having been sent by a nationally recognized overnight
courier service such as Federal Express, UPS, or Purolator, addressed to the
Company (to the attention of the Secretary of the Company) at its principal
executive offices and to the Executive at his principal residence, or to such
other address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address will be
effective only upon receipt.
(i) To The Company. If to the Company, addressed to the
attention of General Counsel at 9830 Colonnade Boulevard, San Antonio, Texas
78230.
(ii) To the Executive. If to the Executive, to him in
care of the Company at the above address.
12.6 Counterparts. This Agreement may be executed in several
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one and the same Agreement.
12.7 Entire Agreement. The terms of this Agreement are
intended by the parties to be the final expression of their agreement with
respect to the Executive's employment by the Company and may not be
contradicted by evidence of any prior or contemporaneous agreement. The
parties further intend that this Agreement will constitute the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced in any judicial, administrative or other legal proceeding to vary
the terms of this Agreement.
12.8 Amendments; Waivers. This Agreement may not be modified,
amended, or terminated except by an instrument in writing, approved by the
Company and signed by the Executive and the Company. Failure on the part of
either party to complain of any action or omission, breach or default on the
part of the other party, no matter how long the same may continue, will never
be deemed to be a waiver of any rights or remedies hereunder, at law or in
equity. The Executive or the Company may waive compliance by the other party
with any provision of this Agreement that such other party was or is obligated
to comply with or perform only through an executed writing; provided, however,
that such waiver will not operate as a waiver of, or estoppel with respect to,
any other or subsequent failure.
12.9 No Inconsistent Actions. The parties will not voluntarily
undertake or fail to undertake any action or course of action that is
inconsistent with the provisions or essential
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intent of this Agreement. Furthermore, it is the intent of the parties hereto
to act in a fair and reasonable manner with respect to the interpretation and
application of the provisions of this Agreement.
12.10 Headings and Section References. The headings used in this
Agreement are intended for convenience or reference only and will not in any
manner amplify, limit, modify or otherwise be used in the construction or
interpretation of any provision of this Agreement. All section references are
to sections of this Agreement, unless otherwise noted.
13. Effectiveness, Prior Agreement and Consent. This Agreement will
become effective upon, and the Prior Agreement will terminate immediately prior
to, the Effective Date, whereupon all references to the "Company" herein will
be treated as references to Ultramar Corporation. By executing this Agreement,
Executive hereby consents to the assumption of this Agreement by Ultramar
Corporation upon the Effective Date. Notwithstanding any other provision of
this Agreement, if the Merger Agreement is terminated prior to the Effective
Date, this Agreement will have no further force or effect, and the Prior
Agreement will continue in effect as though this Agreement had not been entered
into.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date and year first above written but effective as provided in Section
13.
----------------------------------------
William R. Klesse
DIAMOND SHAMROCK, INC.,
a Delaware corporation
By:
-----------------------------------
Roger R. Hemminghaus
Chief Executive Officer
and President
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EXHIBIT
GENERAL RELEASE OF ALL CLAIMS
This General Release of all Claims (this "Agreement") is entered into by
and between _____________________ ("Executive") and Ultramar Diamond Shamrock
Corporation (including its subsidiaries) (collectively the "Company") effective
as of __________________.
In consideration of the promises set forth in the employment agreement
between Executive and the Company, dated _____________, 1996, as amended as of
the effective date hereof (the "Employment Agreement"), as well as any promises
set forth in this Agreement, Executive and the Company agree as follows:
(1) Employment Agreement Entitlements
The Company will provide Executive the post-termination payments and
benefits to which he is entitled under the Employment Agreement.
(2) Return of Property
All Company files, access keys, desk keys, ID badges and credit cards,
and such other property of the Company as the Company may reasonably
request, in Executive's possession must be returned no later than the
date of Executive's termination from the Company (the "Termination
Date").
(3) General Release and Waiver of Claims
Except as provided in the last sentence of this paragraph (3), Executive
hereby unconditionally and forever releases, discharges and waives any
and all claims of any nature whatsoever, whether legal, equitable or
otherwise, which Executive may have against the Company arising at any
time on or before the Termination Date, other than with respect to the
obligations of the Company to the Executive under the Employment
Agreement. This release of claims extends to any and all claims of any
nature whatsoever, other than with respect to the obligations of the
Company to the Executive under the Employment Agreement, whether known,
unknown or capable or incapable of being known as of the Termination
Date of thereafter. This Agreement is a release of all claims of any
nature whatsoever by Executive against the Company, other than with
respect to the obligations of the Company to the Executive under the
Employment Agreement, and includes, other than as herein provided, any
and all claims, demands, causes of action, liabilities whether known or
unknown including those caused by, arising from or related to
Executive's employment relationship with the Company
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including, but without limitation, any and all alleged discrimination or
acts of discrimination which occurred or may have occurred on or before
the Termination Date based upon race, color, sex, creed, national
origin, age, disability or any other violation of any Equal Employment
Opportunity Law, ordinance, rule, regulation or order, including, but
not limited to, Title VII of the Civil Rights Act of 1964, as amended;
the Civil Rights Act of 1991; the Age Discrimination in Employment Act,
as amended (as further described in Section 7 below); the Americans with
Disabilities Act; claims under the Employee Retirement Income Security
Act ("ERISA"); or any other federal, state or local laws or regulations
regarding employment discrimination or termination of employment. This
also includes claims for wrongful discharge, fraud, or misrepresentation
under any statute, rule, regulation or under the common law.
The Executive agrees and understands and knowingly agrees to this
release because it is his intent in executing this Agreement to forever
discharge the Company from any and all present, future, foreseen or
unforeseen causes of action except for the obligations of the Company
set forth in the Employment Agreement.
Notwithstanding the foregoing, Executive does not release, discharge or
waive any rights to indemnification that he may have under the By-Laws
of the Company, the laws of the State of Delaware, any indemnification
agreement between the Executive and the Company or any insurance
coverage maintained by or on behalf of the Company.
(4) Release and Waiver of Claims Under the Age Discrimination in Employment
Act
Executive acknowledges that the Company encouraged him to consult with
an attorney of his choosing, and through this Agreement encourages him
to consult with his attorney with respect to possible claims under the
Age Discrimination in Employment Act of 1967, as amended ("ADEA") and
that Executive acknowledges that he understands that the ADEA is a
federal statute that prohibits discrimination, on the basis of age, in
employment, benefits, and benefit plans. Executive wishes to waive any
and all claims under the ADEA that he may have, as of the Termination
Date, against the Company, its shareholders, employees, or successors
and hereby waives such claims. Executive further understands that by
signing this Agreement he is in fact waiving, releasing and forever
giving up any claim under the ADEA that may have existed on or prior to
the Termination Date. Executive acknowledges that the Company has
informed him that he has at his option, twenty-one (21) days in which to
sign the waiver of this claim under ADEA, and he does hereby knowingly
and voluntarily waive said twenty-one (21) day
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period. Executive also understands that he has seven (7) days following
the Termination Date within which to revoke the release contained in
this paragraph by providing a written notice of his revocation of the
release and waiver contained in this paragraph to the Company.
Executive further understands that this right to revoke the release
contained in this paragraph relates only to this paragraph and does not
act as a revocation of any other term of this Agreement.
(5) Proceedings
Executive has not filed, and agrees not to initiate or cause to be
initiated on his behalf, any complaint, charge, claim or proceeding
against the Company before any local, state or federal agency, court or
other body relating to his employment or the termination of his
employment (each individually, a "Proceeding"), and agrees not to
voluntarily participate in any Proceeding. Executive waives any right
he may have to benefit in any manner from any relief (whether monetary
or otherwise) arising out of any Proceeding.
(6) Remedies
In the event Executive initiates or voluntarily participates in any
Proceeding, or if he fails to abide by any of the terms of this
Agreement or his post-termination obligations contained in the
Employment Agreement, or if he revokes the ADEA release contained in
Paragraph 4 of this Agreement within the seven-day period provided under
Paragraph 4, the Company may, in addition to any other remedies it may
have, reclaim any amounts paid to him under the termination provisions
of the Employment Agreement or terminate any benefits or payments that
are subsequently due under the Employment Agreement, without waiving the
release granted herein. Executive acknowledges and agrees that the
remedy at law available to the Company for breach of any of his post-
termination obligations under the Employment Agreement or his
obligations under Paragraphs 3, 4, and 5 of this Agreement would be
inadequate and that damages flowing from such a breach may not readily
be susceptible to being measured in monetary terms. Accordingly,
Executive acknowledges, consents and agrees that, in addition to any
other rights or remedies which the Company may have at law, in equity or
under this Agreement, upon adequate proof of his violation of any such
provision of this Agreement, the Company shall be entitled to immediate
injunctive relief and may obtain a temporary order restraining any
threatened or further breach, without the necessity of proof of actual
damage.
Executive understands that by entering into this Agreement he will be
limiting the availability of certain remedies
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that he may have against the Company and limiting also his ability to
pursue certain claims against the Company.
(7) Severability Clause
In the event any provision or part of this Agreement is found to be
invalid or unenforceable, only that particular provision or part so
found, and not the entire agreement, will be inoperative.
(8) Non-Admission
Nothing contained in this Agreement will be deemed or construed as an
admission of wrongdoing or liability on the part of the Company.
(9) Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, applicable to agreements made and to be
performed in that State; and the parties agree to the jurisdiction of
the U.S. District Court for the District of Delaware, and agree to
appear in any action in such courts by service of process by certified
mail, return receipt requested, at the following addresses:
To Company: ULTRAMAR DIAMOND SHAMROCK CORPORATION
9830 Colonnade Boulevard
San Antonio, Texas 78230
and
To Executive:
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
THE EXECUTIVE ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT AND THAT HE FULLY
KNOWS, UNDERSTANDS, AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES
THE SAME AND MAKES THIS AGREEMENT AND THE RELEASE AND AGREEMENTS PROVIDED FOR
HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.
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IN WITNESS WHEREOF, the parties have executed this AGREEMENT as of the
date first set forth above.
---------------------------------------
William R. Klesse
ULTRAMAR DIAMOND SHAMROCK CORPORATION,
Delaware corporation
By:
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Name:
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Title:
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), dated as of
____________, 1996, but effective as provided herein, is made and entered into
by and between Diamond Shamrock, Inc., a Delaware corporation (the "Company" or
"Diamond Shamrock, Inc.", as the context requires), and J. Robert Mehall (the
"Executive").
WHEREAS, the Executive has been serving as a senior executive
officer of Diamond Shamrock, Inc.;
WHEREAS, the Executive is a party to an Employment Agreement with
Diamond Shamrock, Inc., dated as of February 6, 1996 (the "Prior Agreement");
WHEREAS, pursuant to the Agreement and Plan of Merger between
Ultramar Corporation, a Delaware corporation ("Ultramar Corporation") and
Diamond Shamrock, Inc., dated as of September 22, 1996 (the "Merger
Agreement"), as of the effective time of the Merger (the "Effective Date"),
Diamond Shamrock, Inc. will be merged with and into Ultramar Corporation, with
Ultramar Corporation as the surviving entity (the "Merger");
WHEREAS, pursuant to the Merger Agreement, the Company is
authorized to enter into this Agreement with Executive;
WHEREAS, the Company considers it in the best interests of its
stockholders to foster the continuous employment of certain key management
personnel;
WHEREAS, the Company recognizes that, as is the case for most
publicly held companies, the possibility of a Change in Control (as defined
herein) exists;
WHEREAS, the Company wishes to assure itself of both present and
future continuation of management in light of the Merger and in the event of a
Change in Control subsequent to the Merger;
WHEREAS, the Company wishes to employ the Executive and the
Executive is willing to render services, both on the terms and subject to the
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the promises and of the
mutual covenants herein contained, it is agreed as follows:
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1. Employment.
1.1 The Company hereby agrees to employ the Executive and the
Executive hereby agrees to undertake employment with the Company upon the terms
and conditions herein set forth.
1.2 Employment will be for a term commencing on the Effective
Date and, subject to earlier expiration upon the Executive's termination under
Section 5, expiring three years from the Effective Date (the "Term").
Notwithstanding the previous sentence, this Agreement and the employment of the
Executive will be automatically renewed and the Term extended, subject to
Section 5, for successive one-year periods upon the terms and conditions set
forth herein, commencing on the third anniversary of the date of this
Agreement, and on each anniversary date thereafter, unless either party to this
Agreement gives the other party written notice (in accordance with Section
12.5) of such party's intention to terminate this Agreement at least three
months prior to the end of such initial or extended term. For purposes of this
Agreement, any reference to the "Term" of this Agreement will include the
original term and any extension thereof.
2. Position and Duties.
2.1 Position and Duties. During the Term, the Executive will
serve as Executive Vice President, Corporate Development, of the Company and
will have such duties, functions, responsibilities and authority as are (i)
consistent with the Executive's position as Executive Vice President, Corporate
Development, of the Company; or (ii) assigned to his office in the Company's
bylaws; or (iii) reasonably assigned to him by the Company's Board of Directors
(the "Board").
2.2 Commitment. During the Term, the Executive will be the
Company's full-time employee and, except as may otherwise be approved in
advance in writing by the Board, and except during vacation periods and
reasonable periods of absence due to sickness, personal injury or other
disability, the Executive will devote substantially all of his business time
and attention to the performance of his duties to the Company.
3. Place of Performance. In connection with his employment during
the Term, unless otherwise agreed by the Executive, the Executive will be based
at the Company's principal executive offices. The Executive will undertake
normal business travel on behalf of the Company.
4. Compensation and Related Matters.
4.1 Compensation and Benefits.
(i) Annual Base Salary. During the Term of this
Agreement, the Company will pay to the Executive an annual base
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salary of not less than $335,000, which annual base salary may be modified from
time to time by the Board (or the Compensation Committee thereof) in its sole
discretion, payable at the times and in the manner consistent with the
Company's general policies regarding compensation of executive employees. The
Board may from time to time authorize such additional compensation to the
Executive, in cash or in property, as the Board may determine in its sole
discretion to be appropriate.
(ii) Annual Incentive Compensation. If the Board (or
the Compensation Committee thereof) authorizes any cash incentive compensation
or approves any other management incentive program or arrangement, the
Executive will be eligible to participate in such plan, program or arrangement
under the general terms and conditions applicable to executive and management
employees; provided, however, that so long as the Executive remains employed by
the Company at the end of the applicable fiscal year, (a) the annual cash
incentive compensation paid by the Company to the Executive for the Company's
fiscal year that includes the Effective Date, aggregated with any other annual
incentive compensation earned by the Executive for calendar year 1996, will be
in an amount not less than the greater of (1) 40% of the Executive's highest
annual base salary rate during the fiscal year to which such incentive
compensation relates, and (2) the Executive's actual annual incentive
compensation earned during such fiscal year, as determined by the Company's
Board (or the Compensation Committee thereof), and (b) the cash incentive
compensation paid to the Executive for the Company's next succeeding fiscal
year will be in an amount not less than the greater of (1) 40% of the
Executive's highest annual base salary rate during the fiscal year to which
such incentive compensation relates, and (2) the Executive's actual annual
incentive compensation during such fiscal year, as determined by the Board (or
the Compensation Committee thereof). Except as set forth in the proviso to the
preceding sentence, nothing in this Section 4.1(ii) will guarantee to the
Executive any specific amount of incentive compensation, or prevent the Board
(or the Compensation Committee thereof) from establishing performance goals and
compensation targets applicable only to the Executive.
4.2 Executive Benefits. In addition to the compensation
described in Section 4.1, the Company will make available to the Executive and
his eligible dependents, subject to the terms and conditions of the applicable
plans, including without limitation the eligibility rules, participation in all
Company-sponsored employee benefit plans including all employee retirement
income and welfare benefit policies, plans, programs or arrangements in which
senior executives of the Company participate, including any stock option, stock
purchase, stock appreciation, savings, pension, supplemental executive
retirement or other retirement income or welfare benefit, disability, salary
continuation, and any other deferred compensation, incentive compensation,
group and/or executive life, health,
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medical/hospital or other insurance (whether funded by actual insurance or
self-insured by the Company), expense reimbursement or other employee benefit
policies, plans, programs or arrangements or any equivalent successor policies,
plans, programs or arrangements that may now exist or be adopted hereafter by
the Company.
4.3 Expenses. The Company will promptly reimburse the
Executive for all travel and other business expenses the Executive incurs in
order to perform his duties to the Company under this Agreement in a manner
commensurate with the Executive's position and level of responsibility with the
Company, and in accordance with the Company's policy regarding substantiation
of expenses.
5. Termination. Notwithstanding the Term specified in Section 1.2,
the termination of the Executive's employment hereunder will be governed by the
following provisions:
5.1 Death. In the event of the Executive's death during the
Term, the Company will pay to the Executive's beneficiaries or estate, as
appropriate, promptly after the Executive's death, (i) the unpaid annual base
salary to which the Executive is entitled, pursuant to Section 4.1, through the
date of the Executive's death, and (ii) for any accrued but unused vacation
days, to the extent and in the amounts, if any, provided under the Company's
usual policies and arrangements. This Section 5.1 will not limit the
entitlement of the Executive's estate or beneficiaries to any death or other
benefits then available to the Executive under any life insurance, stock
ownership, stock options, or other benefit plan or policy that is maintained by
the Company for the Executive's benefit.
5.2 Disability.
(i) If the Company determines in good faith that the
Executive has incurred a Disability (as defined below) during the Term, the
Company may give the Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company will terminate effective on the 30th day after receipt of such notice
by the Executive, provided that within the 30 days after such receipt, the
Executive will not have returned to full-time performance of his duties. The
Executive will continue to receive his annual base salary and benefits until
the date of termination. In the event of the Executive's Disability, the
Company will pay the Executive, promptly after the Executive's termination, (a)
the unpaid annual base salary to which he is entitled, pursuant to Section 4.1,
through the date of the Executive's termination, (b) for any accrued but unused
vacation days, to the extent and in the amounts, if any, provided under the
Company's usual policies and arrangements, and (c) a lump sum in cash in an
amount equal to 50% of his annual base salary at the time of termination. This
Section 5.2 will not limit the entitlement of
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the Executive, the Executive's estate or beneficiaries to any disability or
other benefits then available to the Executive under any disability insurance
or other benefit plan or policy that is maintained by the Company for the
Executive's benefit.
(ii) For purposes of this Agreement, "Disability" will
mean the Executive's incapacity due to physical or mental illness substantially
to perform his duties on a full-time basis for six consecutive months and
within 30 days after a notice of termination is thereafter given by the Company
the Executive will not have returned to the full-time performance of the
Executive's duties; provided, however, if the Executive disagrees with a
determination to terminate him because of Disability, the question of the
Executive's disability will be subject to the certification of a qualified
medical doctor agreed to by the Company and the Executive or, in the event of
the Executive's incapacity to designate a doctor, the Executive's legal
representative. In the absence of agreement between the Company and the
Executive, each party will nominate a qualified medical doctor and the two
doctors will select a third doctor, who will make the determination as to
Disability. In order to facilitate such determination, the Executive will, as
reasonably requested by the Company, (a) make himself available for medical
examinations by a doctor in accordance with this Section 5.2(ii), and (b) grant
the Company and any such doctor access to all relevant medical information
concerning him, arrange to furnish copies of medical records to such doctor and
use his best efforts to cause his own doctor to be available to discuss his
health with such doctor.
5.3 Cause.
(i) The Company may terminate the Executive's
employment hereunder for Cause (as defined below). In the event of the
Executive's termination for Cause, the Company will promptly pay to the
Executive (or his representative) the unpaid annual base salary to which he is
entitled, pursuant to Section 4.1, through the date the Executive is terminated
and the Executive will be entitled to no other compensation, except as
otherwise due to him under applicable law.
(ii) For purposes of this Agreement, the Company will
have "Cause" to terminate the Executive's employment hereunder upon a finding
by the Board that (a) the Executive committed an illegal act or acts that were
intended to and did defraud the Company, (b) the Executive engaged in gross
negligence or gross misconduct against the Company or another employee, or in
carrying out his duties and responsibilities, or (c) the Executive materially
breached any of the express covenants set forth in Section 9.1, 9.2 or 9.3.
The Company will not have Cause unless and until the Company provides the
Executive with written notice that the Company intends to terminate his
employment for Cause. Such written notice will specify the particular act or
acts, or failure to act, that is or
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are the basis for the decision to so terminate the Executive's employment for
Cause. The Employee will be given the opportunity within 30 calendar days of
the receipt of such notice to meet with the Board to defend such act or acts,
or failure to act. The Executive's employment by the Company automatically
will be terminated under this Section 5.3 for Cause as of the receipt of the
written notice from the Company or, if later, the date specified in such
notice. A notice given under this Section 5.3 must set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive's employment for Cause, and if the termination date is other
than the date of receipt of such notice, specify the date on which the
Executive's employment is to be terminated (which date will not be earlier than
the date on which such notice is given in accordance with Section 13.5). Such
notice must be given no later than 180 business days after a director of the
Company (excluding the Executive, if applicable) first has actual knowledge of
the events justifying the purported termination.
5.4 Termination.
(i) Involuntary Termination. The Executive's
employment hereunder may be terminated by the Company for any reason by written
notice as provided in Section 12.5. The Executive will be treated for purposes
of this Agreement as having been involuntarily terminated by the Company other
than for Cause if the Executive terminates his employment with the Company for
any of the following reasons (each, a "Good Reason"): without the Executive's
written consent, (a) the Company has breached any material provision of this
Agreement and within 30 days after notice thereof from the Executive, the
Company fails to cure such breach; (b) a successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company fails to assume
liability under the Agreement; (c) at any time after the Company has notified
the Executive pursuant to Section 1.2 that the Company does not intend to renew
the Agreement and the Executive's employment at the end of the Term (including
any previous renewals) (rather than to allow the Agreement automatically to
renew); (d) a material reduction in the aggregate benefits described by Section
4.2 (other than stock-based compensation) provided to the Executive, unless
such decrease is required by law or is applicable to all employees of the
Company eligible to participate in any employee benefit arrangement affected by
such reduction; (e) a significant reduction in the Executive's duties or the
addition of duties, which in either case are materially inconsistent with the
Executive's title or position; or (f) a reduction in the Executive's annual
base salary.
(ii) Voluntary Termination. The Executive may voluntarily
terminate the Agreement at any time by notice to the Company as provided in
Section 12.5. The Executive's death or Disability (as defined in Section
5.2(ii)) during the term of the
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Agreement will constitute a voluntary termination of employment for purposes of
eligibility for termination payments and benefits as provided in Section 5.5,
but for no other purpose.
5.5 Termination Payments and Benefits.
(i) Form and Amount. Upon the Executive's involuntary
termination, other than for Cause, (a) subject to Section 5.5(iii), the Company
will pay or provide to the Executive (1) his annual base salary and benefits
until the date of termination, (2) within five business days after termination
of his employment, a lump sum cash payment equal in amount to three times the
sum of (x) the Executive's highest annual base salary in effect during the
three years prior to his date of termination, and (y) the highest annual
incentive compensation earned by the Executive during the same three-year
period, (3) three additional years of age and service credit under the
qualified and nonqualified defined benefit retirement plans of the Company in
which the Executive participates at the time of termination; provided, however,
that in the case of a qualified defined benefit pension plan, the present value
of the additional benefit the Executive would have accrued if he had been
credited for all purposes with the additional years of age and service under
such plan as of the Executive's date of termination with the Company will be
paid in a lump sum in cash within five business days after termination of the
Executive's employment, and (4) for a period of one year after termination of
his employment, the continuation of the employee welfare benefits set forth in
Section 4.2 except as offset by benefits paid by other sources as set forth in
Section 8, or as prohibited by law or as a condition of maintaining the tax-
favored status of any such benefits to the Company or its employees; (b) the
Executive's benefit under the applicable supplemental executive retirement plan
will be not less than the benefit the Executive would have received under the
terms of the corresponding plan (including any individual modifications
thereof) applicable to the Executive as in effect immediately prior to the
Effective Date determined as if the Executive had continued employment under
the terms of such corresponding plan (and modifications) until his actual
termination of employment. For purposes of Section 5.5(i)(a)(2), the three-
year period will include employment with Diamond Shamrock, Inc. or any of its
affiliates.
(ii) Maintenance of Benefits. During the period set
forth in Section 5.5(i)(a)(4), the Company will use its best efforts to
maintain in full force and effect for the continued benefit of the Executive
all referenced benefits or will arrange to make available to the Executive
benefits substantially similar to those that the Executive would otherwise have
been entitled to receive if his employment had not been terminated. Such
benefits will be provided to the Executive on the same terms and conditions
(including employee contributions toward the premium payments) under which the
Executive was entitled to participate immediately prior to his termination.
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(iii) Release. No benefit will be paid or made available
under Section 5.5(i) (a) unless the Executive first executes a release in the
form attached as an exhibit to this Agreement, and (b) to the extent any
portion of such release is subject to the seven-day revocation period
prescribed by the Age Discrimination in Employment Act of 1967, as amended, or
to any similar revocation period in effect on the date of termination of
Executive's employment, such revocation period has expired.
6. Change in Control Provisions.
6.1 Impact of Change in Control. In the event of a "Change in
Control" of the Company, as defined in Section 6.2, (i) the Company will cause
all cash benefits due under this Agreement to be secured by an irrevocable
trust for the benefit of the Executive, the assets of which will be subject to
the claims of the Company's creditors, and will transfer to such trust cash and
other property adequate to satisfy all of the expenses of the trust for at
least five years after the Change in Control and any of the Company's actual
and potential cash obligations under this Agreement, (ii) if the Executive's
employment is involuntarily terminated without Cause after the Change in
Control, (A) the covenants of Sections 9.1 and 10 will be inapplicable to the
Executive, and (B) the covenant of Section 9.2 will expire on the third
anniversary of the date of termination of the Executive's employment, and (iii)
the definition of Good Reason, as set forth in Section 5.4(i) above, will be
expanded to include the following:
(a) A good faith determination by the Executive that, as a
result of the Change in Control and a change in circumstances thereafter
significantly affecting his positions, including a change in the scope of
business or other activities for which he was responsible, he has been rendered
substantially unable to carry out, has been substantially hindered in the
performance of, or has suffered a substantial reduction in, any of the
authorities, powers, functions, responsibilities or duties attached to any of
the Executive's positions; the Executive's determination will be presumed to
have been made in good faith unless otherwise shown by the Company by clear and
convincing evidence;
(b) The relocation of the Company's principal executive
offices (but only if, immediately prior to the Change in Control, the
Executive's principal place of employment was at the Company's principal
executive offices), or requirement that the Executive have as his principal
location of work any location that is, in excess of 50 miles from the location
thereof immediately preceding the Change in Control or to travel away from his
home or office significantly more often that required immediately prior to the
Change in Control; or
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(c) For any reason, or without reason, during the 30-day
period immediately following the first anniversary of the first occurrence of a
Change in Control.
6.2 Definition of Change in Control. For purposes of this
Agreement, a "Change in Control" will be deemed to occur if at any time during
the term of the Agreement any of the following events will occur:
(i) The Company is merged, consolidated or reorganized
into or with another corporation or other legal person, and as a result of such
merger, consolidation or reorganization, less than 50% of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
Voting Stock (as that term is hereafter defined) of the Company immediately
prior to such transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal person,
and as a result of such sale or transfer, less than 50% of the combined voting
power of the then-outstanding voting securities of such corporation or person
are held in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale;
(iii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated pursuant
to the Securities Exchange Act of 1934 (the "Exchange Act"), disclosing that
any person (as the term "person" is used in Section 13(d)(3) or Section
14(d)(2) of the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing 20%
or more of the combined voting power of the then-outstanding securities of the
Company entitled to vote generally in the election of Directors of the Company
("Voting Stock");
(iv) The Company files a report or proxy statement with
the Securities and Exchange Commission pursuant to the Exchange Act disclosing
in response to Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; or
(v) If during the period of two consecutive years
individuals who at the beginning of any such period constitute the Directors of
the Company cease for any reason to constitute at least a majority thereof
unless the election, or the nomination for election by the Company's
shareholders, of each Director of the Company first elected during such period
was approved by a vote of at least two-thirds of the Directors of the
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Company then still in office who were Directors of the Company at the beginning
of any such period (excluding for this purpose the election of any new Director
in connection with an actual or threatened election or proxy contest).
Notwithstanding the foregoing provisions of Section 6.2(iii) or (iv) hereof,
unless otherwise determined in a specific case by majority vote of the Board
(or the Compensation Committee thereof), a "Change in Control" will not be
deemed to have occurred for purposes of this Agreement solely because the
Company, an entity in which the Company directly or beneficially owns 50% or
more of the voting securities of such entity, any Company-sponsored employee
stock ownership plan or any other employee benefit plan of the Company either
files or becomes obligated to file a report or a proxy statement under or in
response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) under the Exchange Act,
disclosing beneficial ownership by it of shares of voting securities of the
Company, whether in excess of 20% or otherwise, or because the Company reports
that a change in control of the Company has or may have occurred or will or may
occur in the future by reason of such beneficial ownership. Notwithstanding
the foregoing provisions of Section 6.2, the Merger will not constitute a
Change in Control.
7. Certain Additional Payments by the Company:
(i) Anything in this Agreement to the contrary notwithstanding,
if it is determined (as hereafter provided) that any payment or distribution by
the Company to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement, policy, plan,
program or arrangement, including without limitation any stock option, stock
appreciation right or similar right, or the lapse or termination of any
restriction on or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being "contingent on a
change in ownership or control" of Diamond Shamrock, Inc. or the Company,
within the meaning of Section 280G of the Code (or any successor provision
thereto) or to any similar tax imposed by state or local law, or any interest
or penalties with respect to such excise tax (such tax or taxes, together with
any such interest and penalties, are hereafter collectively referred to as the
"Excise Tax"), then the Executive will be entitled to receive an additional
payment or payments (a "Gross-Up Payment") in an amount such that, after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax, imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments. No Gross-Up Payment will be made
with respect to the Excise Tax, if any, attributable to (a) any incentive
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stock option, as defined by Section 422 of the Code ("ISO") granted prior to
the execution of this Agreement (unless a comparable Gross-Up Payment has
theretofore been made available with respect to such option), or (b) any stock
appreciation or similar right, whether or not limited, granted in tandem with
any ISO described in clause (a).
(ii) Subject to the provisions of Section 7(vi) hereof, all
determinations required to be made under this Section 7, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required and the amount of such Gross-Up Payment,
will be made by a nationally recognized firm of certified public accountants
(the "Accounting Firm") selected by the Executive in his sole discretion. The
Executive will direct the Accounting Firm to submit its determination and
detailed supporting calculations to both the Company and the Executive within
15 calendar days after the Termination Date, if applicable, and any other such
time or times as may be requested by the Company or the Executive. If the
Accounting Firm determines that any Excise Tax is payable by the Executive, the
Company will pay the required Gross-Up Payment to the Executive within five
business days after receipt of such determination and calculations. If the
Accounting Firm determines that no Excise Tax is payable by the Executive, it
will, at the same time as it makes such determination, furnish the Executive
with an opinion that he has substantial authority not to report any Excise Tax
on his federal, state, local income or other tax return. Any determination by
the Accounting Firm as to the amount of the Gross-Up Payment will be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto)
and the possibility of similar uncertainty regarding applicable state or local
tax law at the time of any determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts or fails
to pursue its remedies pursuant to Section 7(vi) hereof and the Executive
thereafter is required to make a payment of any Excise Tax, the Executive will
direct the Accounting Firm to determine the amount of the Underpayment that has
occurred and to submit its determination and detailed supporting calculations
to both the Company and the Executive as promptly as possible. Any such
Underpayment will be promptly paid by the Company to, or for the benefit of,
the Executive within five business days after receipt of such determination and
calculations.
(iii) The Company and the Executive will each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection
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with the preparation and issuance of the determination contemplated by Section
7(ii) hereof.
(iv) The federal, state and local income or other tax returns
filed by the Executive will be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive will make proper payment of the amount of any
Excise Tax, and at the request of the Company, provide to the Company true and
correct copies (with any amendments) of his federal income tax return as filed
with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment.
If prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive will within five business days pay to the Company the amount of such
reduction.
(v) The fees and expenses of the Accounting Firm for its services
in connection with the determinations and calculations contemplated by Sections
7(ii) and (iv) hereof will be borne by the Company. If such fees and expenses
are initially paid by the Executive, the Company will reimburse the Executive
the full amount of such fees and expenses within five business days after
receipt from the Executive of a statement therefor and reasonable evidence of
his payment thereof.
(vi) The Executive will notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notification will be given
as promptly as practicable but no later than 10 business days after the
Executive actually receives notice of such claim and the Executive will further
apprise the Company of the nature of such claim and the date on which such
claim is requested to be paid (in each case, to the extent known by the
Executive). The Executive will not pay such claim prior to the earlier of (a)
the expiration of the 30-calendar-day period following the date on which he
gives such notice to the Company and (b) the date that any payment of amount
with respect to such claim is due. If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive will:
(1) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(2) take such action in connection with contesting such
claim as the Company will reasonably request in writing from time
to time, including without limitation accepting legal
representation with respect to such
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claim by an attorney competent in respect of the subject matter
and reasonably selected by the Company;
(3) cooperate with the Company in good faith in order
effectively to contest such claim; and
(4) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company will bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and will indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of
this Section 7(vi), the Company will control all proceedings taken in
connection with the contest of any claim contemplated by this Section 7(vi)
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim (provided, however, that the Executive may participate
therein at his own cost and expense) and may, at its option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company will
determine; provided, however, that if the Company directs the Executive to pay
the tax claimed and sue for a refund, the Company will advance the amount of
such payment to the Executive on an interest-free basis and will indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax, including interest or penalties with respect thereto, imposed with
respect to such advance; and provided further, however, that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which the contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's control
of any such contested claim will be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive will be entitled
to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(vii) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(vi) hereof, the Executive
receives any refund with respect to such claim, the Executive will (subject to
the Company's complying with the requirements of Section 7(vi) hereof) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after any taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company
13
<PAGE> 37
pursuant to Section 7(vi) hereof, a determination is made that the Executive
will not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial
or refund prior to the expiration of 30 calendar days after such determination,
then such advance will be forgiven and will not be required to be repaid and
the amount of such advance will offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid pursuant to this Section 7.
8. Mitigation and Offset. The Executive is under no obligation to
mitigate damages or the amount of any payment or benefit provided for hereunder
by seeking other employment or otherwise; provided, however, that the
Executive's coverage under the Company's welfare benefit plans will be reduced
to the extent that the Executive becomes covered under any comparable employee
benefit plan made available by another employer and covering the same type of
benefits. The Executive will report to the Company any such benefits actually
received by him.
9. Competition; Confidentiality; Nonsolicitation
9.1 (i) Subject to Section 6.1(ii), the Executive hereby
covenants and agrees that during the Term and for one year following the Term
he will not, without the prior written consent of the Company, engage in
Competition (as defined below) with the Company. For purposes of this
Agreement, if the Executive takes any of the following actions he will be
engaged in "Competition": engaging in or carrying on, directly or indirectly,
any enterprise, whether as an advisor, principal, agent, partner, officer,
director, employee, stockholder, associate or consultant to any person,
partnership, corporation or any other business entity, that is principally
engaged in the business of refining and/or marketing oil or related products in
States or Provinces in which the Company (or any division or segment thereof)
has operations; provided, however, that "Competition" will not include (a) the
mere ownership of securities in any enterprise and exercise of rights
appurtenant thereto or (b) participation in management of any enterprise or
business operation thereof other than in connection with the competitive
operation of such enterprise.
(ii) Subject to Section 6.1(ii), the Executive hereby
covenants and agrees that during the Term and for three years following the
Term he will not assist a third party in preparing or making an unsolicited bid
for the Company, engaging in a proxy contest with the Company, or engaging in
any other similar activity.
9.2 During the Term, the Company agrees that it will disclose to
Executive its confidential or proprietary information (as defined in this
Section 9.2) to the extent necessary for Executive to carry out his obligations
under this Agreement. Subject to Section 6.1(ii), the Executive hereby
covenants and
14
<PAGE> 38
agrees that he will not, without the prior written consent of the Company,
during the Term or thereafter disclose to any person not employed by the
Company, or use in connection with engaging in Competition with the Company,
any confidential or proprietary information of the Company. For purposes of
this Agreement, the term "confidential or proprietary information" will include
all information of any nature and in any form that is owned by the Company and
that is not publicly available or generally known to persons engaged in
businesses similar or related to those of the Company. Confidential
information will include, without limitation, the Company's financial matters,
customers, employees, industry contracts, and all other secrets and all other
information of a confidential or proprietary nature. The foregoing obligations
imposed by this Section 9.2 will cease if such confidential or proprietary
information will have become, through no fault of the Executive, generally
known to the public or the Executive is required by law to make disclosure
(after giving the Company notice and an opportunity to contest such
requirement).
9.3 Subject to Section 6.1(ii), the Executive hereby covenants
and agrees that during the Term and for one year thereafter he will not attempt
to influence, persuade or induce, or assist any other person in so persuading
or inducing, any employee of the Company to give up, or to not commence,
employment or a business relationship with the Company.
9.4 Executive acknowledges and agrees that the remedy at law
available to the Company for breach of any of his post-termination obligations
under Sections 9.1, 9.2 and 9.3 would be inadequate and that damages flowing
from such a breach may not readily be susceptible to being measured in monetary
terms. Accordingly, Executive acknowledges, consents and agrees that, in
addition to any other rights or remedies which the Company may have at law, in
equity or under this Agreement, upon adequate proof of his violation of any
such provision of this Agreement, the Company will be entitled to immediate
injunctive relief and may obtain a temporary order restraining any threatened
or further breach, without the necessity of proof of actual damage.
10. Post-termination Assistance. Subject to Section 6.1(ii), the
Executive agrees that after his employment with the Company has terminated he
will provide, upon reasonable notice, such information and assistance to the
Company as may reasonably be requested by the Company in connection with any
audit, governmental investigation or litigation in which it or any of its
affiliates is or may become a party; provided, however, that (i) the Company
agrees to reimburse the Executive for any related out-of-pocket expenses,
including travel expenses, and to pay the Executive reasonable compensation for
his time based on his rate of annual salary at the time of termination and (ii)
any such assistance may not unreasonably interfere with the then-current
employment of the Executive.
15
<PAGE> 39
11. Survival. The expiration or termination of the Term will not
impair the rights or obligations of any party hereto that accrue hereunder
prior to such expiration or termination, except to the extent specifically
stated herein. In addition to the foregoing, the Executive's covenants
contained in Sections 9.1, 9.2, 9.3 and 10 and the Company's obligations under
Sections 5, 7 and 12.1 will survive the expiration or termination of
Executive's employment.
12. Miscellaneous Provisions.
12.1 Legal Fees and Expenses. Without regard to whether the
Executive prevails, in whole or in part, in connection therewith, the Company
will pay and be financially responsible for 100% of any and all attorneys' and
related fees and expenses incurred by the Executive in connection with any
dispute associated with the interpretation, enforcement or defense of the
Executive's rights under this Agreement by litigation or otherwise; provided
that, in regard to such dispute, the Executive has not acted in bad faith or
with no colorable claim of success. All such fees and expenses will be paid by
the Company as incurred by the Executive on a monthly basis upon an undertaking
by the Executive to repay such advanced amounts if a court determines, in a
decision against which no appeal may be taken or with respect to which the time
period to appeal has expired, that he acted in bad faith or with no colorable
claim of success.
12.2 Binding on Successors. This Agreement will be binding
upon and inure to the benefit of the Company, the Executive and each of their
respective successors, assigns, personal and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable.
12.3 Governing Law. This Agreement will be governed,
construed, interpreted and enforced in accordance with the substantive laws of
the State of Delaware, without regard to conflicts of law principles.
12.4 Severability. Any provision of this Agreement that is
deemed invalid, illegal or unenforceable in any jurisdiction will, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provisions of this
Agreement invalid, illegal, or unenforceable in any other jurisdiction. If any
covenant should be deemed invalid, illegal or unenforceable because its scope
is considered excessive, such covenant will be modified so that the scope of
the covenant is reduced only to the minimum extent necessary to render the
modified covenant valid, legal and enforceable.
12.5 Notices. For all purposes of this Agreement, all
communications, including without limitation notices, consents,
16
<PAGE> 40
requests or approvals, required or permitted to be given hereunder will be in
writing and will be deemed to have been duly given when hand delivered or
dispatched by electronic facsimile transmission (with receipt thereof
confirmed), or five business days after having been mailed by United States
registered or certified mail, return receipt requested, postage prepaid, or
three business days after having been sent by a nationally recognized overnight
courier service such as Federal Express, UPS, or Purolator, addressed to the
Company (to the attention of the Secretary of the Company) at its principal
executive offices and to the Executive at his principal residence, or to such
other address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address will be
effective only upon receipt.
(i) To The Company. If to the Company, addressed to the
attention of General Counsel at 9830 Colonnade Boulevard, San Antonio, Texas
78230.
(ii) To the Executive. If to the Executive, to him in
care of the Company at the above address.
12.6 Counterparts. This Agreement may be executed in several
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one and the same Agreement.
12.7 Entire Agreement. The terms of this Agreement are
intended by the parties to be the final expression of their agreement with
respect to the Executive's employment by the Company and may not be
contradicted by evidence of any prior or contemporaneous agreement. The
parties further intend that this Agreement will constitute the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced in any judicial, administrative or other legal proceeding to vary
the terms of this Agreement.
12.8 Amendments; Waivers. This Agreement may not be modified,
amended, or terminated except by an instrument in writing, approved by the
Company and signed by the Executive and the Company. Failure on the part of
either party to complain of any action or omission, breach or default on the
part of the other party, no matter how long the same may continue, will never
be deemed to be a waiver of any rights or remedies hereunder, at law or in
equity. The Executive or the Company may waive compliance by the other party
with any provision of this Agreement that such other party was or is obligated
to comply with or perform only through an executed writing; provided, however,
that such waiver will not operate as a waiver of, or estoppel with respect to,
any other or subsequent failure.
12.9 No Inconsistent Actions. The parties will not voluntarily
undertake or fail to undertake any action or course of action that is
inconsistent with the provisions or essential
17
<PAGE> 41
intent of this Agreement. Furthermore, it is the intent of the parties hereto
to act in a fair and reasonable manner with respect to the interpretation and
application of the provisions of this Agreement.
12.10 Headings and Section References. The headings used in this
Agreement are intended for convenience or reference only and will not in any
manner amplify, limit, modify or otherwise be used in the construction or
interpretation of any provision of this Agreement. All section references are
to sections of this Agreement, unless otherwise noted.
13. Effectiveness, Prior Agreement and Consent. This Agreement will
become effective upon, and the Prior Agreement will terminate immediately prior
to, the Effective Date, whereupon all references to the "Company" herein will
be treated as references to Ultramar Corporation. By executing this Agreement,
Executive hereby consents to the assumption of this Agreement by Ultramar
Corporation upon the Effective Date. Notwithstanding any other provision of
this Agreement, if the Merger Agreement is terminated prior to the Effective
Date, this Agreement will have no further force or effect, and the Prior
Agreement will continue in effect as though this Agreement had not been entered
into.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date and year first above written but effective as provided in Section
13.
-------------------------------------
J. Robert Mehall
DIAMOND SHAMROCK, INC.,
a Delaware corporation
By:
----------------------------------
Roger R. Hemminghaus
Chief Executive Officer
and President
18
<PAGE> 42
EXHIBIT
GENERAL RELEASE OF ALL CLAIMS
This General Release of all Claims (this "Agreement") is entered into by
and between _____________________ ("Executive") and Ultramar Diamond Shamrock
Corporation (including its subsidiaries) (collectively the "Company") effective
as of __________________.
In consideration of the promises set forth in the employment agreement
between Executive and the Company, dated _____________, 1996, as amended as of
the effective date hereof (the "Employment Agreement"), as well as any promises
set forth in this Agreement, Executive and the Company agree as follows:
(1) Employment Agreement Entitlements
The Company will provide Executive the post-termination payments and
benefits to which he is entitled under the Employment Agreement.
(2) Return of Property
All Company files, access keys, desk keys, ID badges and credit cards,
and such other property of the Company as the Company may reasonably
request, in Executive's possession must be returned no later than the
date of Executive's termination from the Company (the "Termination
Date").
(3) General Release and Waiver of Claims
Except as provided in the last sentence of this paragraph (3), Executive
hereby unconditionally and forever releases, discharges and waives any
and all claims of any nature whatsoever, whether legal, equitable or
otherwise, which Executive may have against the Company arising at any
time on or before the Termination Date, other than with respect to the
obligations of the Company to the Executive under the Employment
Agreement. This release of claims extends to any and all claims of any
nature whatsoever, other than with respect to the obligations of the
Company to the Executive under the Employment Agreement, whether known,
unknown or capable or incapable of being known as of the Termination
Date of thereafter. This Agreement is a release of all claims of any
nature whatsoever by Executive against the Company, other than with
respect to the obligations of the Company to the Executive under the
Employment Agreement, and includes, other than as herein provided, any
and all claims, demands, causes of action, liabilities whether known or
unknown including those caused by, arising from or related to
Executive's employment relationship with the Company
19
<PAGE> 43
including, but without limitation, any and all alleged discrimination or
acts of discrimination which occurred or may have occurred on or before
the Termination Date based upon race, color, sex, creed, national
origin, age, disability or any other violation of any Equal Employment
Opportunity Law, ordinance, rule, regulation or order, including, but
not limited to, Title VII of the Civil Rights Act of 1964, as amended;
the Civil Rights Act of 1991; the Age Discrimination in Employment Act,
as amended (as further described in Section 7 below); the Americans with
Disabilities Act; claims under the Employee Retirement Income Security
Act ("ERISA"); or any other federal, state or local laws or regulations
regarding employment discrimination or termination of employment. This
also includes claims for wrongful discharge, fraud, or misrepresentation
under any statute, rule, regulation or under the common law.
The Executive agrees and understands and knowingly agrees to this
release because it is his intent in executing this Agreement to forever
discharge the Company from any and all present, future, foreseen or
unforeseen causes of action except for the obligations of the Company
set forth in the Employment Agreement.
Notwithstanding the foregoing, Executive does not release, discharge or
waive any rights to indemnification that he may have under the By-Laws
of the Company, the laws of the State of Delaware, any indemnification
agreement between the Executive and the Company or any insurance
coverage maintained by or on behalf of the Company.
(4) Release and Waiver of Claims Under the Age Discrimination in Employment
Act
Executive acknowledges that the Company encouraged him to consult with
an attorney of his choosing, and through this Agreement encourages him
to consult with his attorney with respect to possible claims under the
Age Discrimination in Employment Act of 1967, as amended ("ADEA") and
that Executive acknowledges that he understands that the ADEA is a
federal statute that prohibits discrimination, on the basis of age, in
employment, benefits, and benefit plans. Executive wishes to waive any
and all claims under the ADEA that he may have, as of the Termination
Date, against the Company, its shareholders, employees, or successors
and hereby waives such claims. Executive further understands that by
signing this Agreement he is in fact waiving, releasing and forever
giving up any claim under the ADEA that may have existed on or prior to
the Termination Date. Executive acknowledges that the Company has
informed him that he has at his option, twenty-one (21) days in which to
sign the waiver of this claim under ADEA, and he does hereby knowingly
and voluntarily waive said twenty-one (21) day
20
<PAGE> 44
period. Executive also understands that he has seven (7) days following
the Termination Date within which to revoke the release contained in
this paragraph by providing a written notice of his revocation of the
release and waiver contained in this paragraph to the Company.
Executive further understands that this right to revoke the release
contained in this paragraph relates only to this paragraph and does not
act as a revocation of any other term of this Agreement.
(5) Proceedings
Executive has not filed, and agrees not to initiate or cause to be
initiated on his behalf, any complaint, charge, claim or proceeding
against the Company before any local, state or federal agency, court or
other body relating to his employment or the termination of his
employment (each individually, a "Proceeding"), and agrees not to
voluntarily participate in any Proceeding. Executive waives any right
he may have to benefit in any manner from any relief (whether monetary
or otherwise) arising out of any Proceeding.
(6) Remedies
In the event Executive initiates or voluntarily participates in any
Proceeding, or if he fails to abide by any of the terms of this
Agreement or his post-termination obligations contained in the
Employment Agreement, or if he revokes the ADEA release contained in
Paragraph 4 of this Agreement within the seven-day period provided under
Paragraph 4, the Company may, in addition to any other remedies it may
have, reclaim any amounts paid to him under the termination provisions
of the Employment Agreement or terminate any benefits or payments that
are subsequently due under the Employment Agreement, without waiving the
release granted herein. Executive acknowledges and agrees that the
remedy at law available to the Company for breach of any of his post-
termination obligations under the Employment Agreement or his
obligations under Paragraphs 3, 4, and 5 of this Agreement would be
inadequate and that damages flowing from such a breach may not readily
be susceptible to being measured in monetary terms. Accordingly,
Executive acknowledges, consents and agrees that, in addition to any
other rights or remedies which the Company may have at law, in equity or
under this Agreement, upon adequate proof of his violation of any such
provision of this Agreement, the Company shall be entitled to immediate
injunctive relief and may obtain a temporary order restraining any
threatened or further breach, without the necessity of proof of actual
damage.
Executive understands that by entering into this Agreement he will be
limiting the availability of certain remedies
21
<PAGE> 45
that he may have against the Company and limiting also his ability to
pursue certain claims against the Company.
(7) Severability Clause
In the event any provision or part of this Agreement is found to be
invalid or unenforceable, only that particular provision or part so
found, and not the entire agreement, will be inoperative.
(8) Non-Admission
Nothing contained in this Agreement will be deemed or construed as an
admission of wrongdoing or liability on the part of the Company.
(9) Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, applicable to agreements made and to be
performed in that State; and the parties agree to the jurisdiction of
the U.S. District Court for the District of Delaware, and agree to
appear in any action in such courts by service of process by certified
mail, return receipt requested, at the following addresses:
To Company: ULTRAMAR DIAMOND SHAMROCK CORPORATION
9830 Colonnade Boulevard
San Antonio, Texas 78230
and
To Executive:
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
THE EXECUTIVE ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT AND THAT HE FULLY
KNOWS, UNDERSTANDS, AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES
THE SAME AND MAKES THIS AGREEMENT AND THE RELEASE AND AGREEMENTS PROVIDED FOR
HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.
22
<PAGE> 46
IN WITNESS WHEREOF, the parties have executed this AGREEMENT as of the
date first set forth above.
-------------------------------------------
J. Robert Mehall
ULTRAMAR DIAMOND SHAMROCK CORPORATION,
a Delaware corporation
By:
---------------------------------------
Name:
---------------------------------
Title:
--------------------------------
23
<PAGE> 1
EXHIBIT 10.48
CONFORMED COPY
$500,000,000
CREDIT AGREEMENT
dated as of
December 19, 1996
among
Ultramar Diamond Shamrock Corporation
The Banks Party Hereto
and
Morgan Guaranty Trust Company of New York,
as Agent
J.P. Morgan Securities Inc.,
Arranger
Barclays Bank PLC,
Documentation Agent
The Chase Manhattan Bank,
Syndication Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1
DEFINITIONS
1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.3. Types of Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 2
THE CREDITS
2.1. Commitments to Lend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.2. Notice of Committed Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.3. Money Market Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.4. Notice to Banks; Funding of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.5. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.6. Maturity of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.7. Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.8. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.9. Termination or Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.10. Method of Electing Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.11. Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.12. General Provisions as to Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.13. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.14. Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.15. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.16. Regulation D Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.17. Increased Commitments; Additional Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 3
CONDITIONS
3.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.2. Borrowings and Issuances of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1. Existence and Business; Power and Authorization; Enforceable Obligations . . . . . . . . . . . . . . . 42
4.2. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.3. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.4. Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.5. Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.6. Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.7. Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.8. Investment Company Act; Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . 45
4.9. No Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.10. U.S. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.11. Foreign Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.12. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.13. Ownership of Property; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.14. Accuracy and Completeness of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.15. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.16. Significant Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE 5
AFFIRMATIVE COVENANTS
5.1. Information Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.2. Books, Records and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.3. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.4. Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.5. Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.6. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.7. Maintenance of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.8. Ownership of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE 6
NEGATIVE COVENANTS
6.1. Restriction on Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.2. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.3. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
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6.4. Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.5. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.6. Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.7. Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE 7
CASH COLLATERAL
7.1. Cash Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE 8
EVENTS OF DEFAULT; REMEDIES
8.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.2. Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE 9
THE AGENT
9.1. Appointment and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.2. Agent and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.3. Action by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.4. Consultation with Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.5. Liability of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.7. Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.8. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.9. Agent's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
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ARTICLE 10
CHANGE IN CIRCUMSTANCES
10.1. Basis for Determining Interest Rate Inadequate or Unfair . . . . . . . . . . . . . . . . . . . . . . 62
10.2. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
10.3. Increased Cost and Reduced Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
10.4. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.5. Base Rate Loans Substituted for Affected Fixed Rate Loans . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE 11
MISCELLANEOUS
11.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
11.2. No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.3. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.4. Sharing of Set-Offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
11.5. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
11.6. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
11.7. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
11.8. Governing Law; Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
11.9. Counterparts; Integration; Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
11.10. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
COMMITMENT SCHEDULE
PRICING SCHEDULE
SCHEDULE 1.1 - Significant Subsidiaries
SCHEDULE 4.12 - Plans
EXHIBIT A - Note
EXHIBIT B - Money Market Quote Request
EXHIBIT C - Invitation for Money Market Quotes
EXHIBIT D - Money Market Quote
EXHIBIT E - Opinion of Counsel for the Borrower
EXHIBIT F - Opinion of Special Counsel for the Agent
EXHIBIT G - Assignment and Assumption Agreement
</TABLE>
iv
<PAGE> 6
AGREEMENT dated as of December 19, 1996 among ULTRAMAR DIAMOND
SHAMROCK CORPORATION, the BANKS party hereto and MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent.
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein,
have the following meanings:
"Absolute Rate Auction" means a solicitation of Money Market
Quotes setting forth Money Market Absolute Rates pursuant to Section 2.3.
"Additional Bank" has the meaning set forth in Section 2.17(b)
"Adjusted CD Rate" has the meaning set forth in Section 2.7(b).
"Adjusted Consolidated Debt" means (i) Indebtedness which is or
should be reflected on a consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries, minus (ii) to the extent reflected as assets on a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries,
the sum of all (a) direct obligations of the United States of America, or of
any agency thereof, or obligations guaranteed as to principal and interest by
the United States of America, or of any agency thereof, in either case maturing
not more than 180 days from the date of acquisition thereof by such Person; (b)
cash; (c) time deposits, bankers acceptances or certificates of deposit issued
by a Restricted Bank maturing not more than 180
<PAGE> 7
days from the date of acquisition thereof; (d) commercial paper rated A-2 or
better or P-2 or better by S&P or Moody's, respectively, maturing not more than
180 days from the date of acquisition thereof; and (e) other debt obligations
rated at least A- by S&P or A3 or Moody's, respectively, maturing not more than
180 days from the date of acquisition thereof.
"Administrative Questionnaire" means, with respect to each Bank,
an administrative questionnaire in the form prepared by the Agent, completed by
such Bank and returned to the Agent (with a copy to the Borrower).
"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. For purposes of this definition, a Person
will be deemed to control another Person if such Person possesses, directly or
indirectly, the power to (a) vote 10% or more of the securities having ordinary
voting power for the election of directors of such other Person or (b) direct
or cause the direction of the management and policies of such other Person,
whether through the ownership of voting securities, by contract or otherwise.
"Agent" means Morgan Guaranty Trust Company of New York in 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, (ii) in the
case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the
case of its Money Market Loans, its Money Market Lending Office.
"Assessment Rate" has the meaning set forth in Section 2.7(b).
"Assignee" has the meaning set forth in Section 11.6(b).
"Authorized Officer" means (i) with respect to any Person that is
a corporation, the chief executive officer, the president, any executive vice
president, any senior vice president, any vice president, the treasurer, or the
chief financial officer of such Person, (ii) with respect to any
2
<PAGE> 8
Person that is a partnership, the president, any executive vice president, any
senior vice president, any vice president, the treasurer or the chief financial
officer of a general partner of such Person, (iii) with respect to any Person
that is a limited liability company, the president, any executive vice
president, any senior vice president, any vice president, the treasurer or the
chief financial officer of a member of such Person, or (iv) with respect to any
other Person, such representative of such Person that is approved by the Agent
in writing. No Person will be deemed to be an Authorized Officer until named
on a certificate of incumbency of such Person delivered to the Agent on or
after the Effective Date.
"Bank" means each bank listed on the signature pages hereof, each
Additional Bank which becomes a Bank pursuant to Section 2.17, each Assignee
which becomes a Bank pursuant to Section 11.6(b), and their respective
successors and will include as the context may require any Bank in its capacity
as Issuing Bank.
"Bankruptcy Code" means Title 11, Section 101 et seq. of the
United States Code titled "Bankruptcy," as amended from time to time, and any
successor statute thereto.
"Base Rate" means, for any day, a rate per annum equal to the
higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus
the Federal Funds Rate for such day.
"Base Rate Loan" means a Committed Loan which bears interest at
the Base Rate pursuant to the applicable Notice of Committed Borrowing or
Notice of Interest Rate Election or the provisions of Article 10.
"Borrower" means Ultramar Diamond Shamrock Corporation, a Delaware
corporation, and its successors.
"Borrowing" has the meaning set forth in Section 1.3.
3
<PAGE> 9
"Canadian Revolver" means the Credit Agreement dated as of
December 19, 1996 among the Borrower, Canadian Ultramar Company, the banks
listed therein and Canadian Imperial Bank of Commerce, as agent, as amended
from time to time.
"Capital Lease" means any lease which in accordance with GAAP is
required to be capitalized on a consolidated balance sheet of the Borrower and
its Consolidated Subsidiaries, and for purposes of this Agreement, the amount
of these obligations will be the amount so capitalized.
"CD Base Rate" has the meaning set forth in Section 2.7(b).
"CD Loan" means a Committed Loan which bears interest at a CD Rate
pursuant to the applicable Notice of Committed Borrowing or Notice of Interest
Rate Election.
"CD Margin" means a rate per annum determined in accordance with
the Pricing Schedule.
"CD Rate" means a rate of interest determined pursuant to Section
2.7(b) on the basis of an Adjusted CD Rate.
"CD Reference Banks" means Barclays Bank plc, The Chase Manhattan
Bank and Morgan Guaranty Trust Company of New York.
"Change of Control" will be deemed to have occurred at such time
as any Person or any Persons acting together which would constitute a "group"
(a "Group") for purposes of Section 13(d) of the Securities Exchange Act
becomes the beneficial owner of 35% or more of the total voting power of all
classes of voting stock of the Borrower or such Person or Group succeeds in
having sufficient of its nominees elected to the board of directors of the
Borrower such that such nominees, when added to any existing director remaining
on the board of directors of the Borrower after such election who is an
Affiliate of such Group, will
4
<PAGE> 10
constitute a majority of the board of directors of the Borrower.
"Closing Date" means the date on or after the Effective Date on
which the Agent shall have received all the documents specified in or pursuant
to Section 3.2.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor statute.
"Commitment" means (i) with respect to each Bank listed on the
Commitment Schedule, the amount set forth opposite the name of such Bank on the
Commitment Schedule and (ii) with respect to each Additional Bank or Assignee
which becomes a Bank pursuant to Section 2.17 or 11.6(c), the amount of the
Commitment thereby assumed by it, in each case as such amount may be changed
from time to time pursuant to Section 2.9, 2.17 or 11.6(b), or in any such case
the obligation to make Committed Loans hereunder at any time outstanding not to
exceed such amount, as the context may require.
"Committed Loan" means a loan made by a Bank pursuant to Section
2.1; provided that, if any such loan or loans (or portions thereof) are
combined or subdivided pursuant to a Notice of Interest Rate Election, the term
Committed Loan refers to the combined principal amount resulting from such
combination or to each of the separate principal amounts resulting from such
subdivision, as the case may be.
"Consolidated Cash Interest Expense" means, for any period,
Consolidated Interest Expense excluding, however, interest expense not payable
in cash (including amortization of discount).
"Consolidated EBITDA" means, for any period, the sum of (i)
Consolidated Net Income for such period plus (ii) to the extent deducted in the
determination of such Consolidated Net Income, (A) provisions for taxes based
on income, (B) Consolidated Interest Expense, (C) depreciation and (D)
amortization, all as determined on a consolidated basis for the Borrower and
its Consolidated Subsidiaries.
5
<PAGE> 11
"Consolidated Interest Expense" means, for any period, total
interest expense (including that portion attributable to Capital Leases in
accordance with GAAP and capitalized interest that is payable in cash) net of
interest income of the Borrower and its Consolidated Subsidiaries on a
consolidated basis with respect to all outstanding Indebtedness of the Borrower
an its Consolidated Subsidiaries, including without limitation, all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing.
"Consolidated Net Income" means, for any period, the net income
(or loss) of the Borrower and its Consolidated Subsidiaries for such period;
provided that there shall be excluded (i) any after-tax gains or losses
attributable to asset sales (other than sales in the ordinary course of
business) or returned surplus assets of any Plan and (ii) to the extent not
included in clause (i), any net extraordinary gains or net extraordinary
losses.
"Consolidated Net Tangible Assets" means at any date the total
consolidated assets of the Borrower and its Consolidated Subsidiaries less all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangible items.
"Consolidated Net Worth" shall mean, at any date, the consolidated
shareholders' equity of the Borrower and its Consolidated Subsidiaries
determined as of such date, all computed in conformity with GAAP.
"Consolidated Subsidiary" means at any date any Subsidiary or
other entity the accounts of which would be consolidated with those of the
Borrower in its consolidated financial statements if such statements were
prepared as of such date.
"Contest" means, with respect to any Tax, Lien, or claim, a
contest pursued in good faith and by appropriate proceedings diligently
conducted or pursued by other reasonable methods, so long as the failure to pay
or discharge any such Tax, Lien or claim during the pendency of
6
<PAGE> 12
such contest would not otherwise have a Material Adverse Effect on the Person
subject to any such Tax, Lien or claim.
"Contingent Obligation" means, with respect to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness ("primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent, (a) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor from the primary obligee, (b) to advance or supply
funds (1) for the payment of any such primary obligation or (2) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency of the primary obligor, (c) to purchase
property, securities or services primarily for the purpose of assuring the
primary obligee of the ability of the primary obligor to make payment of such
primary obligation, or (d) otherwise to assure or hold harmless the primary
obligee against loss in respect of such primary obligation; provided, however,
that the term Contingent Obligation does not include endorsements of
instruments for deposit or collection in the ordinary course of business.
"Default" means any event, act or condition which constitutes an
Event of Default or which with notice or lapse of time, or both, would
constitute an Event of Default.
"Designated Credit Facility" means the Second Amendment and
Restatement of Credit Agreement dated as of December 30, 1993, among Ultramar
Inc., the banks listed therein and Barclays Bank, plc, as agent, as amended to
the Effective Date.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to close.
"Domestic Lending Office" means, as to each Bank, its office
located at its address set forth in its Administrative Questionnaire (or
identified in its
7
<PAGE> 13
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Agent; provided that any Bank may so 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 refers 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
2.7(b).
"Effective Date" means the date this Agreement becomes effective
in accordance with Section 11.9.
"Environmental Approvals" means any Governmental Approvals
required under applicable Environmental Laws.
"Environmental Claim" means any written notice, claim, demand or
similar communication by any Person alleging potential liability (including,
without limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, fines or penalties) arising out of, based on or resulting
from (i) the presence, or release into the environment, of any Material of
Environmental Concern at any location, whether or not owned by such Person or
(ii) circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law or Environmental Approval.
"Environmental Laws" means all Laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata),
including, without limitation, Laws relating to emissions, discharges, releases
or threatened releases of Materials of Environmental Concern, or otherwise
relating to the manufacture, processing, distribution, use, treatment,
8
<PAGE> 14
storage, disposal, transport or handling of Materials of Environmental Concern.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement and any subsequent provisions of ERISA
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Controlled Group" means the group consisting of the
Borrower and all members of a controlled group of corporations and all trades
or businesses (whether or not incorporated) under common control with the
Borrower that, together with the Borrower, are treated as a single employer
under regulations of the PBGC.
"ERISA Plan" means (i) any Plan that (a) is not a Multiemployer
Plan and (b) has Unfunded Benefit Liabilities and (ii) any Plan that is a
Multiemployer Plan.
"Euro-Dollar Business Day" means any Domestic Business Day on
which commercial banks are open for international business (including dealings
in dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrower and the Agent.
"Euro-Dollar Loan" means a Committed Loan which bears interest at
a Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or
Notice of Interest Rate Election.
"Euro-Dollar Margin" means a rate per annum determined in
accordance with the Pricing Schedule.
9
<PAGE> 15
"Euro-Dollar Rate" means a rate of interest determined pursuant to
Section 2.7(c) on the basis of a London Interbank Offered Rate.
"Euro-Dollar Reference Banks" means the principal London offices
of Barclays Bank plc, The Chase Manhattan Bank and Morgan Guaranty Trust
Company of New York.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of any Bank to
United States residents).
"Event of Bankruptcy" means, with respect to any Person, the
occurrence of any of the following events:
(i) the commencement by such Person of a voluntary case
concerning itself under the Bankruptcy Code or similar Law;
(ii) an involuntary case is commenced against such Person and the
petition is not controverted within 30 days, or is not dismissed within 60
days, after commencement of the case;
(iii) a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property
of such Person or such Person commences any other proceedings under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar Law of any jurisdiction
whether now or hereafter in effect relating to such Person or there is
10
<PAGE> 16
commenced against such Person any such proceeding which remains undismissed
for a period of 60 days;
(iv) the entrance of any order for relief or other order
approving any such case or proceeding involving such Person;
(v) such Person is adjudicated insolvent or bankrupt;
(vi) such Person suffers any appointment of any custodian or the
like for it or any substantial part of its property to continue
undischarged or unstayed for a period of 60 days;
(vii) such Person makes a general assignment for the benefit of
creditors;
(viii) such Person shall fail to pay, or shall state that it is
unable to pay, or shall be unable to pay, its debts generally as they
become due;
(ix) such Person shall by any act or failure to act consent to,
approve of or acquiesce in any of the foregoing for a period of 60 days; or
(x) any partnership or corporate action, as the case may be, is
taken by such Person for the purpose of effecting any of the foregoing.
"Event of Default" means the occurrence of any of the events
described in Section 8.1.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Domestic
Business
11
<PAGE> 17
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 Morgan Guaranty Trust Company of New
York on such day on overnight Federal funds transactions as determined by the
Agent.
"Fiscal Quarter" means a fiscal quarter of the Borrower.
"Fiscal Year" means a fiscal year of the Borrower.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money
Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base
Rate pursuant to Section 10.1) or any combination of the foregoing.
"GAAP" means generally accepted accounting principles as in effect
from time to time, applied on a basis consistent (except for changes with
respect to which the Borrower's independent public accountants concur) with the
most recent audited consolidated financial statements of the Borrower and its
Consolidated Subsidiaries delivered to the Banks.
"Governmental Approval" means any authorization, consent,
approval, license, lease, ruling, permit, certification, exemption or filing
for registration by or with any Governmental Authority.
"Governmental Authority" means any nation, state, sovereign, or
government, any federal, regional, state, local or political subdivision and
any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Group of Loans" means at any time a group of Loans consisting of
(i) all Committed Loans which are Base Rate Loans at such time, (ii) all
Euro-Dollar Loans having the same Interest Period at such time or (iii) all CD
Loans having the same Interest Period at such time, provided that, if a
Committed Loan of any particular Bank is converted to or made as a Base Rate
Loan pursuant to Article 10, such
12
<PAGE> 18
Loan shall be included in the same Group or Groups of Loans from time to time
as it would have been in if it had not been so converted or made.
"Increased Commitments" has the meaning set forth in Section
2.17(a).
"Indebtedness" means, of any Person, without duplication, (i) all
obligations of such Person for borrowed money or for the deferred purchase
price of property or services (other than current trade payables within credit
terms normally prevailing in the industry and accrued liabilities incurred in
the ordinary course of business of such Person), (ii) all obligations of such
Person in respect of principal evidenced by a note, bond, debenture or similar
instrument, (iii) the obligations of such Person which are capitalized under
Capital Leases, (iv) all non-contingent obligations (and, for purposes of
Sections 6.3 and 8.1(d), all contingent obligations) of such Person to
reimburse any bank or other Person in respect of amounts paid under a letter of
credit or similar instrument, (v) all Indebtedness of any other Person secured
by any Lien on any property owned by such Person, whether or not such
Indebtedness has been assumed by such Person, (vi) all obligations of such
Person in respect of surety bonds, appeal bonds or other similar instruments
and (vii) all Contingent Obligations of such Person.
"Indemnitee" has the meaning set forth in Section 11.3(a).
"Interest Period" means: (1) with respect to each Euro-Dollar
Loan, the period commencing on the date of borrowing specified in the
applicable Notice of Borrowing or on the date specified in an applicable Notice
of Interest Rate Election and ending one, two, three or six months (or, if all
Banks at the time agree, nine or twelve months) thereafter, as the Borrower may
elect in such notice; provided that:
(a) any Interest Period which would otherwise end on a day which
is not a Euro-Dollar Business Day will be extended to the next succeeding
Euro-Dollar Business
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<PAGE> 19
Day unless such Euro-Dollar Business Day falls in another calendar month,
in which case such Interest Period will 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) will, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date will end on the Termination Date.
(2) with respect to each CD Loan, the period commencing on the
date of borrowing specified in the applicable Notice of Borrowing or on the
date specified in an applicable Notice of Interest Rate Election and ending 30,
60, 90 or 180 days (or, if all Banks at the time agree, 270 or 360 days)
thereafter, as the Borrower may elect in such notice; provided that:
(a) any Interest Period which would otherwise end on a day which
is not a Euro-Dollar Business Day will be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date will end on the Termination Date.
(3) with respect to each Money Market LIBOR Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing and ending such whole number of months thereafter as the Borrower may
elect in accordance with Section 2.3; provided that:
(a) any Interest Period which would otherwise end on a day which
is not a Euro-Dollar Business Day will be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
14
<PAGE> 20
another calendar month, in which case such Interest Period will 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) will, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date will end on the Termination Date.
(4) with respect to each Money Market Absolute Rate Loan, the
period commencing on the date of borrowing specified in the applicable Notice
of Borrowing and ending such number of days thereafter (but not less than 7
days) as the Borrower may elect in accordance with Section 2.3; provided that:
(a) any Interest Period which would otherwise end on a day which
is not a Euro-Dollar Business Day will be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date will end on the Termination Date.
"Interest Rate Protection Agreements" means any interest rate
exchange, collar, cap or similar agreements providing interest rate protection
entered into by the Borrower or any of its Subsidiaries.
"Investment" means any investment in any Person, whether by means
of share purchase, capital contribution, loan, Guarantee, time deposit or
otherwise (but not including any demand deposit).
"Issuing Bank" means The Industrial Bank of Japan, Ltd. and any
other Bank that may agree to issue letters of
15
<PAGE> 21
credit hereunder, in each case as issuer of a Letter of Credit hereunder.
"Joint Proxy Statement" means the Joint Proxy Statement of
Ultramar Corporation and Diamond Shamrock, Inc., dated October 29, 1996, issued
in connection with the Merger.
"Law" means, with respect to any Governmental Authority, any
constitutional provision, law, statute, rule, regulation, ordinance, treaty,
order, decree, judgment, decision, certificate, holding, injunction,
Governmental Approval or requirement of such Government Authority along with
the interpretation and administration thereof by any Governmental Authority
charged with the interpretation or administration thereof. Unless the context
clearly indicates otherwise, the term "Law" includes each of the foregoing (and
each provision thereof) as in effect at the time in question, including any
amendments, supplements, replacements, or other modifications thereto or
thereof, and whether or not in effect at the date of this Agreement.
"Letter of Credit" means a letter of credit to be issued hereunder
by an Issuing Bank in accordance with Section 2.15.
"Letter of Credit Liabilities" means, for any Bank and at any
time, such Bank's ratable participation in the sum of (x) the amounts then
owing by the Borrower in respect of amounts drawn under Letters of Credit and
(y) the aggregate amount then available for drawing under all Letters of
Credit.
"LIBOR Auction" means a solicitation of Money Market Quotes
setting forth Money Market Margins based on the London Interbank Offered Rate
pursuant to Section 2.3.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind, or any other type
of preferential arrangement that has substantially the same practical effect as
a security interest, in respect of such asset. For the purposes of this
Agreement, the Borrower or any Subsidiary
16
<PAGE> 22
will 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 Committed Loan or a Money Market Loan and "Loans"
means Committed Loans or Money Market Loans or any combination of the
foregoing.
"Loan Documents" means this Agreement and the Notes.
"London Interbank Offered Rate" has the meaning set forth in
Section 2.7(c).
"Margin Stock" has the meaning provided such term in Regulation U.
"Material Adverse Effect" means a material adverse effect upon (i)
the business, results of operations, financial condition or prospects of the
Borrower and its Consolidated Subsidiaries taken as a whole, (ii) the ability
of the Borrower to perform under any Loan Document or (iii) the ability of any
of the Banks to enforce any of the Obligations or any of their rights and
remedies against the Borrower under the Loan Documents.
"Material Financial Obligation" means a principal or face amount
of Indebtedness and/or payment or collateralization obligations in respect of
Interest Rate Protection Agreements of the Borrower and/or one or more of its
Subsidiaries, arising in one or more related or unrelated transactions,
exceeding in the aggregate $25,000,000.
"Materials of Environmental Concern" means all materials,
substances and wastes regulated as hazardous under Environmental Laws.
"Merger" means the merger of Diamond Shamrock, Inc. with and into
Ultramar Corporation pursuant to the Merger Agreement.
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<PAGE> 23
"Merger Agreement" means the Agreement and Plan of Merger dated as
of September 22, 1996 between Ultramar Corporation and Diamond Shamrock, Inc.
"Money Market Absolute Rate" has the meaning set forth in Section
2.3(d).
"Money Market Absolute Rate Loan" means a loan to be made by a
Bank pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank, its Domestic
Lending Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the
Borrower and the Agent; provided that any Bank may from time to time by notice
to the Borrower and the Agent designate separate Money Market Lending Offices
for its Money Market LIBOR Loans, on the one hand, and its Money Market
Absolute Rate Loans, on the other hand, in which case all references herein to
the Money Market Lending Office of such Bank will be deemed to refer to either
or both of such offices, as the context may require.
"Money Market LIBOR Loan" means a loan to be made by a Bank
pursuant to a LIBOR Auction (including such a loan bearing interest at the Base
Rate pursuant to Section 10.1).
"Money Market Loan" means a Money Market LIBOR Loan or a Money
Market Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section
2.3(d)(ii)(C).
"Moody's" means Moody's Investors Service, Inc.
"Money Market Quote" means an offer by a Bank to make a Money
Market Loan in accordance with Section 2.3.
"Multiemployer Plan" means a Plan which is a "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA.
"Notes" means promissory notes of the Borrower, substantially in
the form of Exhibit A hereto, evidencing
18
<PAGE> 24
the Borrower's obligation 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 2.2) or a Notice of Money Market Borrowing (as defined in
Section 2.3(f)).
"Notice of Interest Rate Election" has the meaning set forth in
Section 2.10.
"Notice of Issuance" has the meaning set forth in Section 2.15(b).
"Obligations" means all obligations, liabilities and indebtedness
of every nature of the Borrower from time to time owing to the Agent or any
Bank under any Loan Document including, without limitation, (i) all principal,
interest, and fees, (ii) any amounts the Agent or any Bank expends on behalf of
the Borrower because the Borrower under the Loan Documents fails to make any
such payment when required under the terms of any Loan Document, (iii) all
amounts required to be paid under any indemnification or similar provision,
(iv) all fees and expenses required to be paid pursuant to Section 11.3 of this
Agreement and (v) all obligations in respect of any Letter of Credit.
"Parent" means, with respect to any Bank, any Person controlling
such Bank.
"Participant" has the meaning set forth in Section 11.6(a)
"PBGC" means the Pension Benefit Guaranty Corporation established
under ERISA, or any successor thereto.
"Permitted Transaction" has the meaning set forth in Section
6.1(a).
"Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a
19
<PAGE> 25
government or political subdivision or an agency or instrumentality thereof.
"Plan" means any employee benefit plan covered by Title IV of
ERISA, the funding requirements of which: (i) were the responsibility of the
Borrower or a member of the ERISA Controlled Group at any time within the five
years immediately preceding the Effective Date, (ii) are currently the
responsibility of the Borrower or a member of the ERISA Controlled Group, or
(iii) hereafter become the responsibility of the Borrower or a member of the
ERISA Controlled Group, including any such plans as may have been, or may
hereafter be, terminated for whatever reason; provided, however, that solely
for purposes of Section 4.12 and Section 5.1(e) hereof, (A) the term "ERISA
Controlled Group" in clauses (i) and (ii) will not include a Person that was a
member of the ERISA Controlled Group solely as a result of the acquisition of a
member of such ERISA Controlled Group by Lasmo plc and (B) the Ultramar U.S.
Employees Retirement Plan with respect to any period on or after January 1,
1993 should not be considered a Plan under clause (i).
"Pricing Schedule" means the Pricing Schedule attached hereto.
"Prime Rate" means the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York in New York City from time to time as
its Prime Rate.
"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended.
"Quarterly Payment Dates" means each March 31, June 30, September
30 and December 31.
"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.
"Regulations D, G, T, U and X" means such Regulations of the
Federal Reserve Board as may be from time
20
<PAGE> 26
to time in effect and any successor to all or any portion thereof.
"Regulation S-X" means Regulation S-X of the SEC and any successor
to all or any portion thereof.
"Reimbursement Obligation" has the meaning provided in Section
2.2(d).
"Reportable Event" has the meaning set forth in Section 4043(c)
of ERISA (other than a Reportable Event as to which the provision of 30 days'
notice to the PBGC is waived under applicable regulations or with respect to
which the PBGC has by public notice announced that it will not impose penalties
for failure to comply), or is the occurrence of any of the events described in
Section 4063(a) or 4068(a) of ERISA.
"Required Banks" means at any time Banks having at least 66-2/3%
of the aggregate amount of the Commitments or, if the Commitments shall have
terminated, holding Notes evidencing at least 66-2/3% of the aggregate unpaid
principal amount of the Loans.
"Restricted Bank" means (i) any Bank, (ii) any Lender under the
Canadian Revolver and (iii) any other commercial bank whose unsecured long-term
debt is rated BBB+ or better by S&P and Baa1 or better by Moody's.
"Revolving Credit Period" means the period from and including the
Effective Date to but not including the Termination Date.
"S&P" means Standard & Poor's Ratings Services.
"SEC" means the Securities and Exchange Commission.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time.
"Significant Subsidiary" means (i) each of the Subsidiaries set
forth in Schedule 1.1 and their respective
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<PAGE> 27
successors and (ii) any other Subsidiary of the Borrower which is or would
hereafter be classified as a "significant subsidiary" of the Borrower under
Regulation S-X of the Securities and Exchange Commission as in effect on the
date hereof.
"Stated Amount" has the meaning set forth in the applicable Letter
of Credit.
"Subsidiary" means, with respect to any Person, (i) any
corporation 50% or more of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of
such corporation (irrespective of whether or not at the time stock of any class
or classes of such corporation have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, limited liability
company, association, joint venture or other entity in which such Person,
directly or indirectly through Subsidiaries, is either a general partner or has
a 50% or greater equity interest at the time.
"Termination Date" means December 19, 2001, 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 will be the next preceding Euro-Dollar Business Day.
"Termination Event" means (i) a Reportable Event, or (ii) the
initiation of any action by the Borrower, any member of the ERISA Controlled
Group or any ERISA Plan fiduciary to terminate an ERISA Plan (other than
pursuant to Section 4041(b) of ERISA) or the treatment of an amendment to an
ERISA Plan as a termination under ERISA, or (iii) the institution of
proceedings by the PBGC under Section 4042 of ERISA to terminate an ERISA Plan
or to appoint a trustee to administer any ERISA Plan.
"UCP" shall mean the Uniform Customs and Practice for Documentary
Credits (1993 revision) published by the
22
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International Chamber of Commerce as its Publication No. 500.
"Unfunded Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the actuarial present value of
accumulated 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 (on the basis of the assumptions used in
the most recent actuarial valuation report for such Plans).
"United States" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
SECTION 1.2. 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 GAAP; provided that, if the Borrower notifies the Agent that
the Borrower wishes to amend any covenant in Article 5 or Article 6 or the
definition of any term used therein to eliminate the effect of any change in
GAAP on the operation of such covenant (or if the Agent notifies the Borrower
that the Required Banks wish to amend Article 5 or Article 6 or any such
definition for such purpose), then the Borrower's compliance with such covenant
shall be determined on the basis of GAAP in effect immediately before the
relevant change in GAAP became effective, until either such notice is withdrawn
or such covenant or definition is amended in a manner satisfactory to the
Borrower and the Required Banks.
SECTION 1.3. Types of Borrowings. The term "Borrowing" denotes
the aggregation of Loans to be made by one or more Banks to the Borrower
pursuant to Article 2 on the same day, all of which Loans are of the same type
(subject to Article 10) and, except in the case of Base Rate Loans, have the
same initial Interest Period. Borrowings are classified for purposes of this
Agreement either (i) by reference to the pricing of Loans comprising such
Borrowing
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(e.g., a "Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans)
or (ii) by reference to the provisions of Article 2 under which participation
therein is determined (i.e., a "Committed Borrowing" is a Borrowing under
Section 2.1 in which all Banks participate in proportion to their Commitments,
while a "Money Market Borrowing" is a Borrowing under Section 2.3 in which the
Bank participants are determined on the basis of their bids).
ARTICLE 2
THE CREDITS
SECTION 2.1. 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 from time to time during the Revolving Credit
Period; provided that, immediately after each such loan is made, the aggregate
outstanding principal amount of all Committed Loans by such Bank shall not
exceed the amount of its Commitment. Each Borrowing under this Section 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 the aggregate amount
available in accordance with Section 3.2) 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, prepay Loans to
the extent permitted by Section 2.11 and reborrow at any time during the
Revolving Credit Period under this Section.
SECTION 2.2. Notice of Committed Borrowing. The Borrower shall
give the Agent notice (a "Notice of Committed Borrowing") not later than 10:30
A.M. (New York City time) on (x) the date of each Base 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:
(i) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Domestic
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Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar
Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) whether the Loans comprising such Borrowing are to bear
interest initially at the Base Rate, a CD Rate or a Euro-Dollar Rate; and
(iv) in the case of a CD Borrowing or a Euro-Dollar Borrowing,
the duration of the initial Interest Period applicable thereto, subject to
the provisions of the definition of Interest Period.
SECTION 2.3. Money Market Borrowings. (a) The Money Market
Option. In addition to Committed Borrowings pursuant to Section 2.1, the
Borrower may, as set forth in this Section, request the Banks to make offers to
make Money Market Loans to the Borrower from time to time during the Revolving
Credit Period. The Banks may, but shall have no obligation to, make such
offers and the Borrower may, but shall have no obligation to, accept any such
offers in the manner set forth in this Section.
(b) Money Market Quote Request. When the Borrower wishes to
request offers to make Money Market Loans under this Section, it shall transmit
to the Agent by telex or facsimile a Money Market Quote Request substantially
in the form of Exhibit B hereto so as to be received not later than 10:30 A.M.
(New York City time) on (x) the fifth Euro-Dollar Business Day before the date
of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the
Domestic Business Day next preceding the date of Borrowing proposed therein, in
the case of an Absolute Rate Auction (or, in either case, such other time or
date as the Borrower and the Agent shall have mutually agreed and shall have
notified to the Banks not later than the date of the Money Market Quote Request
for the first LIBOR Auction or Absolute Rate Auction for which such change is
to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day in the case of a LIBOR
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<PAGE> 31
Auction or a Domestic Business Day in the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$5,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period, and
(iv) whether the Money Market Quotes requested are to set forth a
Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or such other
number of days as the Borrower and the Agent may agree) of any other Money
Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly after
receiving a Money Market Quote Request, the Agent shall send to the Banks by
telex or facsimile an Invitation for Money Market Quotes substantially in the
form of Exhibit C hereto, which shall constitute an invitation by the Borrower
to each Bank to submit Money Market Quotes offering to make the Money Market
Loans to which such Money Market Quote Request relates in accordance with this
Section.
(d) Submission and Contents of Money Market Quotes. (i) Each
Bank may submit a Money Market Quote containing an offer or offers to make
Money Market Loans in response to any Invitation for Money Market Quotes. Each
Money Market Quote must comply with the requirements of this subsection (d) and
must be submitted to the Agent by telex or facsimile at its address referred to
in Section 11.1 not later than (x) 2:00 P.M. (New York City time) on the fourth
Euro-Dollar Business Day before the proposed date of Borrowing, in
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<PAGE> 32
the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the
proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the Agent shall have
mutually agreed and shall have notified to the Banks not later than the date of
the Money Market Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective); provided that Money Market
Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity
of a Bank may be submitted, and may only be submitted, if the Agent or such
affiliate notifies the Borrower of the terms of the offer or offers contained
therein not later than (x) one hour before the deadline for the other Banks, in
the case of a LIBOR Auction or (y) 15 minutes before the deadline for the other
Banks, in the case of an Absolute Rate Auction. Subject to Articles 3 and 8,
any Money Market Quote so made shall not be revocable except with the written
consent of the Agent given on the instructions of the Borrower.
(ii) Each Money Market Quote shall be substantially in the form
of Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for which each
such offer is being made, which principal amount (w) may be greater than or
less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a
larger multiple of $1,000,000, (y) may not exceed the principal amount of
Money Market Loans for which offers were requested and (z) may be subject
to an aggregate limitation as to the principal amount of Money Market Loans
for which offers being made by such quoting Bank may be accepted,
(C) in the case of a LIBOR Auction, the margin above or below the
applicable London Interbank Offered Rate (the "Money Market Margin")
offered for each such Money Market Loan, expressed as a percentage
(specified to the nearest 1/10,000th of 1%) to be added to or subtracted
from such base rate,
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(D) in the case of an Absolute Rate Auction, the rate of interest
per annum (specified to the nearest 1/10,000th of 1%) (the "Money Market
Absolute Rate") offered for each such Money Market Loan, and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with Exhibit D hereto or
does not specify all of the information required by subsection (d)(ii)
above;
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set forth
in the applicable Invitation for Money Market Quotes; or
(D) arrives after the time set forth in subsection (d)(i).
(e) Notice to Borrower. The Agent shall promptly notify the
Borrower of the terms of (i) any Money Market Quote submitted by a Bank that is
in accordance with subsection (d) and (ii) any Money Market Quote that amends,
modifies or is otherwise inconsistent with a previous Money Market Quote
submitted by such Bank with respect to the same Money Market Quote Request.
Any such subsequent Money Market Quote shall be disregarded by the Agent unless
such subsequent Money Market Quote is submitted solely to correct a manifest
error in such former Money Market Quote. The Agent's notice to the Borrower
shall specify (A) the aggregate principal amount of Money Market Loans for
which offers have been received for each Interest Period specified in the
related Money Market Quote Request, (B) the
28
<PAGE> 34
respective principal amounts and Money Market Margins or Money Market Absolute
Rates, as the case may be, so offered and (C) if applicable, limitations on the
aggregate principal amount of Money Market Loans for which offers in any single
Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:30
A.M. (New York City time) on (x) the third Euro-Dollar Business Day before the
proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed
date of Borrowing, in the case of an Absolute Rate Auction (or, in either case,
such other time or date as the Borrower and the Agent shall have mutually
agreed and shall have notified to the Banks not later than the date of the
Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction
for which such change is to be effective), the Borrower shall notify the Agent
of its acceptance or non-acceptance of the offers so notified to it pursuant to
subsection (e). In the case of acceptance, such notice (a "Notice of Money
Market Borrowing") shall specify the aggregate principal amount of offers for
each Interest Period that are accepted. The Borrower may accept any Money
Market Quote in whole or in part; provided that:
(i) the aggregate principal amount of each Money Market Borrowing
may not exceed the applicable amount set forth in the related Money Market
Quote Request;
(ii) the principal amount of each Money Market Borrowing must be
$5,000,000 or a larger multiple of $1,000,000;
(iii) acceptance of offers may only be made on the basis of ascending
Money Market Margins or Money Market Absolute Rates, as the case may be;
and
(iv) the Borrower may not accept any offer that is described in
subsection (d)(iii) or that otherwise fails to comply with the requirements
of this Agreement.
(g) Allocation by Agent. If offers are made by two or more
Banks with the same Money Market Margins or
29
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Money Market Absolute Rates, as the case may be, for a greater aggregate
principal amount than the amount in respect of which such offers are accepted
for the related Interest Period, the principal amount of Money Market Loans in
respect of which such offers are accepted shall be allocated by the Agent among
such Banks as nearly as possible (in multiples of $1,000,000, as the Agent may
deem appropriate) in proportion to the aggregate principal amounts of such
offers. Determinations by the Agent of the amounts of Money Market Loans shall
be conclusive in the absence of manifest error.
SECTION 2.4. Notice to Banks; Funding of Loans. (a) Promptly
after receiving a Notice of Borrowing, the Agent shall 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 1:00 P.M. (New York City time) on the date of
each Borrowing, each Bank participating therein shall make available its share
of such Borrowing, in Federal or other funds immediately available in New York
City, to the Agent at its address referred to in Section 11.1. Unless the
Agent determines that any applicable condition specified in Article 3 has not
been satisfied, the Agent will make the funds so received from the Banks
available to the Borrower at the Agent's aforesaid address.
(c) Unless the Agent shall have received notice from a Bank
before 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 subsection (b) of this Section 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, if such Bank shall have
failed to do so within three Domestic Business Days of demand therefor by the
Agent, the Borrower severally agree to repay to the Agent forthwith on demand
such corresponding amount together with interest thereon,
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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 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.
SECTION 2.5. Notes. (a) The Borrower's obligation to repay 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.
(b) Each Bank may, by notice to the Borrower and the Agent,
request that the Borrower's obligation to repay such Bank's Loans of a
particular type be evidenced by a separate Note in an amount equal to the
aggregate unpaid principal amount of such Loans. Each such Note shall be in
substantially the form of Exhibit A hereto with appropriate modifications to
reflect the fact that it relates solely to Loans of the relevant type. Each
reference in this Agreement to the "Note" of such Bank shall be deemed to refer
to and include any or all of such Notes, as the context may require.
(c) Promptly after receiving each Bank's Note pursuant to
Section 3.1(a), the Agent shall forward such Note to such Bank. Each Bank
shall record the date, amount and type of each Loan made by it and the date and
amount of each payment of principal made by the Borrower with respect thereto,
and may, if such Bank so elects in connection with any transfer or enforcement
of its Note, 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 a Bank's failure to make any such recordation
or endorsement shall not affect the Borrower's obligations 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.
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SECTION 2.6. Maturity of Loans. (a) Each Committed Loan shall
mature, and the principal amount thereof shall be due and payable (together
with interest accrued thereon), on the Termination Date.
(b) Each Money Market Loan included in any Money Market Borrowing
shall mature, and the principal amount thereof shall be due and payable
(together with interest accrued thereon), on the last day of the Interest
Period applicable to such Borrowing.
SECTION 2.7. Interest Rates. (a) The unpaid principal amount
of 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 quarterly in arrears on each Quarterly Payment Date and, with respect
to the principal amount of any Base Rate Loan converted to a CD Loan or a Euro-
Dollar Loan, on the date such amount is so converted. Any overdue principal of
or interest on any Base Rate Loan shall bear interest, payable on demand, for
each day until paid at a rate per annum equal to the sum of 1% plus the Base
Rate for such day.
(b) The unpaid principal amount of each CD Loan shall bear
interest on the outstanding principal amount thereof, for each day during each
Interest Period applicable thereto, at a rate per annum equal to the sum of the
CD Margin for such day plus the Adjusted CD Rate applicable to such Interest
Period; provided that if any CD Loan shall, as a result of clause (2)(b) of the
definition of Interest Period, have an Interest Period of less than 30 days,
such CD Loan shall bear interest for each day during such Interest Period at
the Base Rate for such day. 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 or interest on any CD Loan shall bear interest, payable on demand,
for each day until paid at a rate per annum equal to the sum of 1% plus the
higher of (i) the sum of the CD Margin for such day plus the Adjusted CD Rate
applicable to such Loan at the date
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such payment was due and (ii) the rate applicable to Base Rate Loans for such
day.
The "Adjusted CD Rate" applicable to any Interest Period means a
rate per annum determined pursuant to the following formula:
[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
__________
* The amount in brackets being rounded upward, if
necessary, to the next higher 1/100 of 1%
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 1%) of the prevailing rates per annum
bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable)
on the first day of such Interest Period by two or more New York certificate of
deposit dealers of recognized standing for the purchase at face value from each
CD Reference Bank of its certificates of deposit in an amount comparable to the
principal amount of the CD Loan of such CD 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 New York City with deposits exceeding five billion dollars in
respect of new non-personal time deposits in dollars in New York
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City 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.
"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 adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. Section 327.4(a) (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) The unpaid principal amount of each Euro-Dollar Loan shall
bear interest on the outstanding principal amount thereof, for each day during
each Interest Period applicable thereto, at a rate per annum equal to the sum
of the Euro-Dollar Margin for such day plus the London Interbank Offered Rate
applicable to such Interest Period. Such interest shall be payable for each
Interest Period on the last day thereof and, if such Interest Period is longer
than three months, at intervals of three months after the first day thereof.
The "London Interbank Offered Rate" applicable to any Interest
Period means the average (rounded upward, if necessary, to the next higher 1/16
of 1%) of the respective rates per annum at which deposits in dollars are
offered to each of the Euro-Dollar Reference Banks in the London interbank
market at approximately 11:00 A.M. (London 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 Euro-Dollar Reference
Bank to which such Interest Period is to apply and for a period of time
comparable to such Interest Period.
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(d) Any overdue principal of or interest on any Euro-Dollar Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the sum of 1% plus the Euro-Dollar Margin for such day plus the
higher of (i) the London Interbank Offered Rate applicable to such Loan at the
date such payment was due and (ii) the quotient obtained (rounded upwards, if
necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded
upwards, if necessary, to the next higher 1/16 of 1%) of the respective rates
per annum at which one day (or, if such amount due remains unpaid more than
three Euro-Dollar Business Days, then for such other period of time not longer
than six months as the Agent may select) deposits in dollars in an amount
approximately equal to such overdue payment due to each of the Euro-Dollar
Reference Banks are offered to such Euro-Dollar Reference Bank in the London
interbank market for the applicable period determined as provided above by (y)
1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances
described in clause (a) or (b) of Section 10.1 shall exist, at a rate per annum
equal to the sum of 1% plus the rate applicable to Base Rate Loans for such
day).
(e) Subject to Section 10.1, the unpaid principal amount of each
Money Market LIBOR 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 London Interbank Offered Rate for such Interest Period
(determined in accordance with Section 2.7(c) as if the related Money Market
LIBOR Borrowing were a Committed Euro-Dollar Borrowing) plus (or minus) the
Money Market Margin quoted by the Bank making such Loan. The unpaid principal
amount of each Money Market Absolute Rate Loan shall bear interest on the
outstanding principal amount thereof, for the Interest Period applicable
thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by
the Bank making such Loan. 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. Any
overdue principal of or interest on any Money Market Loan shall bear interest,
payable on demand, for each day until
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paid at a rate per annum equal to the sum of 1% plus the Base Rate for such
day.
(f) The Agent shall determine each interest rate applicable to
the Loans hereunder. The Agent shall promptly notify the Borrower and the
participating Banks of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of manifest error.
(g) Each Reference Bank agrees to use its best efforts to
furnish quotations to the Agent as contemplated by this Section. If any
Reference Bank does not furnish a timely quotation, the 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 10.1 shall
apply.
SECTION 2.8. Fees. (a) The Borrower shall pay to the Agent,
for the account of the Banks, a facility fee at the Facility Fee Rate
(determined daily in accordance with the Pricing Schedule). Such facility fee
shall accrue (i) from and including the Effective Date to but excluding the
date on which the Commitments terminate in their entirety, on the daily
aggregate amount of the Commitments (whether used or unused) and (ii) from and
including such date of termination to but excluding the date on which the Loans
shall be repaid in their entirety, on the daily aggregate outstanding principal
amount of the Loans. Such facility fee shall be allocated among the Banks
ratably in proportion to their Commitments; provided that any facility fee
accruing after the Commitments terminate in their entirety shall be allocated
among the Banks ratably in proportion to the unpaid principal amounts of their
respective Loans.
(b) The Borrower shall pay to the Agent (i) for the account of
the Banks ratably a Letter of Credit fee accruing daily on the aggregate amount
then available for drawing under all Letters of Credit at a rate per annum
determined in accordance with the Pricing Schedule and (ii) for the account of
each Issuing Bank a Letter of Credit fronting fee accruing daily on the
aggregate amount then
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available for drawing under all Letters of Credit issued by such Issuing Bank
at a rate per annum as determined from time to time by the Borrower and such
Issuing Bank.
(c) Fees accrued under this Section shall be payable quarterly
in arrears on each Quarterly Payment Date and on the date on which the
Commitments terminate in their entirety (and, if later, the date on which the
Loans shall be repaid in their entirety).
SECTION 2.9. Termination or Reduction of Commitments. (a) The
Borrower may, upon at least three Domestic Business Days' 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 amount of $5,000,000 or a
larger multiple thereof. Promptly after receiving a notice pursuant to this
subsection, the Agent shall notify each Bank of the contents thereof.
(b) Unless previously terminated, the Commitments shall terminate
in their entirety on the Termination Date.
SECTION 2.10. Method of Electing Interest Rates. (a) The Loans
included in each Committed Borrowing shall bear interest initially at the type
of rate specified by the Borrower in the applicable Notice of Committed
Borrowing. Thereafter, the Borrower may from time to time elect to change or
continue the type of interest rate borne by each Group of Loans (subject to
subsection (d) of this Section and the provisions of Article 10), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to CD Loans as of any Domestic Business Day or to
Euro-Dollar Loans as of any Euro-Dollar Business Day;
(ii) if such Loans are CD Loans, the Borrower may elect to convert
such Loans to Base Rate Loans or Euro-Dollar Loans or elect to continue
such Loans as CD Loans for an additional Interest Period, subject to
Section 2.13 if any such conversion is effective on any day other than the
last day of the then current Interest Period applicable to such Loans; and
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(iii) if such Loans are Euro-Dollar Loans, the Borrower may elect
to convert such Loans to Base Rate Loans or CD Loans or elect to continue
such Loans as Euro-Dollar Loans for an additional Interest Period, subject
to Section 2.13 if any such conversion is effective on any day other than
the last day of the then current Interest Period applicable to such Loans.
Each such election shall be made by delivering a notice (a "Notice of Interest
Rate Election") to the Agent not later than 10:30 A.M. (New York City time) on
the third Euro-Dollar Business Day before the conversion or continuation
selected in such notice is to be effective (unless the relevant Loans are to be
converted from Domestic Loans of one type to Domestic Loans of the other type
or are CD Loans to be continued as CD Loans for an additional Interest Period,
in which case such notice shall be delivered to the Agent not later than 10:30
A.M. (New York City time) on the second Domestic Business Day before such
conversion or continuation is to be effective). A Notice of Interest Rate
Election may, if it so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans; provided that (i) such portion
is allocated ratably among the Loans comprising such Group and (ii) the portion
to which such Notice applies, and the remaining portion to which it does not
apply, are each $5,000,000 or any larger multiple of $1,000,000. If no such
notice is timely received before the end of an Interest Period for any Group of
CD Loans or Euro-Dollar Loans, the Borrower shall be deemed to have elected
that such Group of Loans be converted to Base Rate Loans at the end of such
Interest Period.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective, which shall comply with the applicable
clause of subsection (a) above;
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(iii) if the Loans comprising such Group are to be converted, the
new type of Loans and, if the Loans resulting from such conversion are to
be CD Loans or Euro-Dollar Loans, the duration of the next succeeding
Interest Period applicable thereto; and
(iv) if such Loans are to be continued as CD Loans or Euro-Dollar
Loans for an additional Interest Period, the duration of such additional
Interest Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Promptly after receiving a Notice of Interest Rate Election
from the Borrower pursuant to subsection (a) above, the Agent shall notify each
Bank of the contents thereof and such notice shall not thereafter be revocable
by the Borrower.
(d) The Borrower shall not be entitled to elect to convert any
Committed Loans to, or continue any Committed Loans for an additional Interest
Period as, CD Loans or Euro-Dollar Loans if a Default shall have occurred and
be continuing when the Borrower delivers notice of such election to the Agent.
SECTION 2.11. Optional Prepayments. (a) Subject in the case of
any Fixed Rate Loans to Section 2.13, the Borrower may, upon at least one
Domestic Business Day's notice to the Agent, without penalty or premium except
as specified herein, prepay any Group of Domestic Loans (or any Money Market
Borrowing bearing interest at the Base Rate pursuant to Section 10.1) or upon
at least three Euro-Dollar Business Days' notice to the Agent, prepay any Group
of Euro-Dollar Loans, in each case in whole at any time, or from time to time
in part in amounts aggregating $5,000,000 or any larger multiple of $1,000,000,
by paying the principal amount to be prepaid together with interest accrued
thereon to the date of prepayment. Each such optional prepayment shall be
applied to prepay ratably the Loans of the several Banks included in such Group
of Loans (or such Money Market Borrowing).
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(b) Except as provided in subsection (a) above, the Borrower may
not prepay all or any portion of the principal amount of any Money Market Loan
before the maturity thereof.
(c) Promptly upon receiving a notice of prepayment pursuant to
this Section, the Agent shall 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 Letters of Credit Liabilities and of fees hereunder, not later than 1:00
P.M. (New York City time) on the date when due, in Federal or other funds
immediately available in New York City, to the Agent at its address referred to
in Section 11.1. The Agent will promptly distribute to each Bank its ratable
share 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
Letter of Credit Liabilities 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. Whenever any payment of
principal of, or interest on, the Money Market 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. 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 Borrower notifies the Agent before the date on
which any payment is due to the Banks hereunder that the Borrower will not make
such
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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 on 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. Funding Losses. If the Borrower makes any payment
of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is
converted (pursuant to Article 2 or 8 or Section 10.2) on any day other than
the last day of an Interest Period applicable thereto, or the last day of an
applicable period fixed pursuant to Section 2.7(d), or if the Borrower fails to
borrow, prepay, convert or continue any Fixed Rate Loans after notice has been
given to any Bank in accordance with Section 2.4(a), 2.10(c) or 2.11(c), by
reason of a failure to satisfy a condition thereto or otherwise, the Borrower
shall reimburse each Bank within 15 days after demand for any resulting loss or
expense incurred by it (or by an existing or prospective Participant in the
related Loan), including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, but excluding loss of
margin for the period after such payment or conversion or failure to borrow,
prepay, convert or continue; provided that such Bank shall have delivered to
the Borrower a certificate as to the amount of such loss or expense, which
certificate shall be conclusive in the absence of manifest error.
SECTION 2.14. Computation of Interest and Fees. Interest based
on the Prime Rate hereunder shall be computed on the basis of a year of 365
days (or 366 days in a leap year) and paid for the actual number of days
elapsed (including the first day but excluding the last day). All other
interest and 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).
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SECTION 2.15. Letters of Credit. (a) Subject to the terms and
conditions hereof, each Issuing Bank agrees to issue Letters of Credit
hereunder from time to time before the tenth day before the Termination Date
upon the request of the Borrower; provided that, immediately after each Letter
of Credit is issued (i) the aggregate amount of the Letter of Credit
Liabilities plus the aggregate outstanding amount of all Loans shall not exceed
the aggregate amount of the Commitments and (ii) the aggregate Letter of Credit
Liabilities in respect of Letters of Credit issued by such Issuing Bank shall
not exceed any applicable limitation mutually agreed upon by the Borrower and
such Issuing Bank. Upon the date of issuance by an Issuing Bank of a Letter of
Credit, the Issuing Bank shall be deemed, without further action by any party
hereto, to have sold to each Bank, and each Bank shall be deemed, without
further action by any party hereto, to have purchased from the Issuing Bank, a
participation in such Letter of Credit and the related Letter of Credit
Liabilities in the proportion their respective Commitments bear to the
aggregate Commitments.
(b) The Borrower shall give the Issuing Bank notice at least five
Domestic Business Days prior to the requested issuance of a Letter of Credit
specifying the date such Letter of Credit is to be issued, and describing the
terms of such Letter of Credit and the nature of the transactions to be
supported thereby (such notice, including any such notice given in connection
with the extension of a Letter of Credit, a "Notice of Issuance"). Upon
receipt of a Notice of Issuance, the Issuing Bank shall promptly notify the
Agent, and the Agent shall promptly notify each Bank of the contents thereof
and of the amount of such Bank's participation in such Letter of Credit. The
issuance by the Issuing Bank of each Letter of Credit shall, in addition to the
conditions precedent set forth in Article 3, be subject to the conditions
precedent that such Letter of Credit shall be in such form and contain such
terms as shall be satisfactory to the Issuing Bank and that the Borrower shall
have executed and delivered such other instruments and agreements relating to
such Letter of Credit as the Issuing Bank shall have reasonably requested. The
Borrower shall also pay to the Issuing Bank for its own account issuance,
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drawing, amendment and extension charges in the amounts and at the times as
agreed between the Borrower and the Issuing Bank. The extension or renewal of
any Letter of Credit shall be deemed to be an issuance of such Letter of
Credit, and if any Letter of Credit contains a provision pursuant to which it
is deemed to be extended unless notice of termination is given by the Issuing
Bank, the Issuing Bank shall timely give such notice of termination unless it
has theretofore timely received a Notice of Issuance and the other conditions
to issuance of a Letter of Credit have also theretofore been met with respect
to such extension. No Letter of Credit shall have a term extending or be so
extendible beyond the fifth Domestic Business Day preceding the Termination
Date.
(c) Upon receipt from the beneficiary of any Letter of Credit of
any notice of a drawing under such letter of Credit, the Issuing Bank shall
notify the Agent and the Agent shall promptly notify the Borrower and each
other Bank as to the amount to be paid as a result of such demand or drawing
and the payment date. The Borrower shall be irrevocably and unconditionally
obligated forthwith to reimburse the Issuing Bank for any amounts paid by the
Issuing Bank upon any drawing under any Letter of Credit, without presentment,
demand, protest or other formalities of any kind. All such amounts paid by the
Issuing Bank and remaining unpaid by the Borrower shall bear interest, payable
on demand, for each day until paid at a rate per annum equal to the sum of 1%
plus the Base Rate for such day. In addition, each Bank will pay to the Agent,
for the account of the Issuing Bank, immediately upon the Issuing Bank's demand
at any time during the period commencing after such drawing until reimbursement
therefor in full by the Borrower, an amount equal to such Bank's ratable share
of such drawing (in proportion to its participation therein), together with
interest on such amount for each day from the date of the Issuing Bank's demand
for such payment (or, if such demand is made after 12:00 Noon (New York City
time) on such date, from the next succeeding Domestic Business Day) to the date
of payment by such Bank of such amount at a rate of interest per annum equal to
the Federal Funds Rate. The Issuing Bank will pay to each Bank ratably all
amounts received from the Borrower for application in payment of its
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reimbursement obligations in respect of any Letter of Credit, but only to the
extent such Bank has made payment to the Issuing Bank in respect of such Letter
of Credit pursuant hereto.
(d) The obligations of the Borrower and each Bank under
subsection (c) above shall be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of this Agreement,
under all circumstances whatsoever, including without limitation the following
circumstances:
(i) the use which may be made of the Letter of Credit by, or
any acts or omission of, a beneficiary of a Letter of Credit (or
any Person for whom the beneficiary may be acting);
(ii) the existence of any claim, set-off, defense or other
rights that the Borrower may have at any time against a
beneficiary of a Letter of Credit (or any Person for whom the
beneficiary may be acting), the Banks (including the Issuing Bank)
or any other Person, whether in connection with this Agreement or
the Letter of Credit or any document related hereto or thereto or
any unrelated transaction;
(iii) any statement or any other document presented under a
Letter of Credit proving to be forged, fraudulent or invalid in
any respect or any statement therein being untrue or inaccurate in
any respect whatsoever;
(iv) payment under a Letter of Credit to the beneficiary of
such Letter of Credit against presentation to the Issuing Bank of
a draft or certificate that does not comply with the terms of the
Letter of Credit; or
(v) any other act or omission to act or delay of any kind by
any Bank (including the Issuing Bank), the Agent or any other
Person or any other event or circumstance whatsoever that might,
but
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for the provisions of this subsection (v), constitute a legal or
equitable discharge of the Borrower's or the Bank's obligations
hereunder.
(e) The Borrower hereby indemnifies and holds harmless each Bank
(including each Issuing Bank) and the Agent from and against any and all
claims, damages, losses, liabilities, costs or expenses which such Bank or the
Agent may incur (including, without limitation, any claims, damages, losses,
liabilities, costs or expenses which the Issuing Bank may incur by reason of or
in connection with the failure of any other Bank to fulfill or comply with its
obligations to such Issuing Bank hereunder (but nothing herein contained shall
affect any rights the Borrower may have against such defaulting Bank)), and
none of the Banks (including an Issuing Bank) nor the Agent nor any of their
officers or directors or employees or agents shall be liable or responsible, by
reason of or in connection with the execution and delivery or transfer of or
payment or failure to pay under any Letter of Credit, including without
limitation any of the circumstances enumerated in subsection (d) above, as well
as (i) any error, omission, interruption or delay in transmission or delivery
of any messages, by mail, cable, telegraph, telex or otherwise, (ii) any loss
or delay in the transmission of any document required in order to make a
drawing under a Letter of Credit, and (iii) any consequences arising from
causes beyond the control of the Issuing Bank, including without limitation any
government acts, or any other circumstances whatsoever in making or failing to
make payment under such Letter of Credit; provided that the Borrower shall not
be required to indemnify the Issuing Bank for any claims, damages, losses,
liabilities, costs or expenses, and the Borrower shall have a claim for direct
(but not consequential) damage suffered by it, to the extent found by a court
of competent jurisdiction to have been caused by (x) the failure of the Issuing
Bank to comply in any material respect with the UCP in determining whether a
request presented under any Letter of Credit complied with the terms of such
Letter of Credit or (y) the Issuing Bank's failure to pay under any Letter of
Credit after the presentation to it of a request strictly complying with the
terms and conditions of the Letter of Credit. Nothing in this subsection (e)
is intended to limit
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the obligations of the Borrower under any other provision of this Agreement.
To the extent the Borrower does not indemnify an Issuing Bank as required by
this subsection, the Banks agree to do so ratably in accordance with their
Commitments.
SECTION 2.16. Regulation D Compensation. Each Bank may require
the Borrower to pay, contemporaneously with each payment of interest on the
Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such
Bank at a rate per annum determined by such Bank up to but not exceeding the
excess of (i) (A) the applicable London Interbank Offered Rate divided by (B)
one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London
Interbank Offered Rate. Any Bank wishing to require payment of such additional
interest (x) shall so notify the Borrower and the Agent, in which case such
additional interest on the Euro-Dollar Loans of such Bank shall be payable to
such Bank at the place indicated in such notice with respect to each Interest
Period commencing at least three Euro-Dollar Business Days after such Bank
gives such notice and (y) shall notify the Borrower at least five Euro-Dollar
Business Days before each date on which interest is payable on the Euro-Dollar
Loans of the amount then due it under this Section.
SECTION 2.17. Increased Commitments; Additional Banks. (a)
Subsequent to the Effective Date, the Borrower may, upon at least 30 days'
notice to the Agent (which shall promptly provide a copy of such notice to the
Banks), propose to increase the aggregate amount of the Commitments by an
amount not to exceed $125,000,000 (the amount of any such increase, the
"Increased Commitments"). Each Bank party to this Agreement at such time shall
have the right (but no obligation), for a period of 15 days following receipt
of such notice, to elect by notice to the Borrower and the Agent to increase
its Commitment by a principal amount which bears the same ratio to the
Increased Commitments as its then Commitment bears to the aggregate Commitments
then existing.
(b) If any Bank party to this Agreement shall not elect to
increase its Commitment pursuant to subsection (a)
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of this Section, the Borrower may designate another bank or other banks (which
may be, but need not be, one or more of the existing Banks) which at the time
agree to (i) in the case of any such bank that is an existing Bank, increase
its Commitment and (ii) in the case of any other such bank (an "Additional
Bank"), become a party to this Agreement. The sum of the increases in the
Commitments of the existing Banks pursuant to this subsection (b) plus the
Commitments of the Additional Banks shall not in the aggregate exceed the
unsubscribed amount of the Increased Commitments.
(c) An increase in the aggregate amount of the Commitments
pursuant to this Section 2.17 shall become effective upon the receipt by the
Agent of an agreement in form and substance satisfactory to the Agent signed by
the Borrower, by each Additional Bank and by each other Bank whose Commitment
is to be increased, setting forth the new Commitments of such Banks and setting
forth the agreement of each Additional Bank to become a party to this Agreement
and to be bound by all the terms and provisions hereof, together with such
evidence of appropriate corporate authorization on the part of the Borrower
with respect to the Increased Commitments and such opinions of counsel for the
Borrower with respect to the Increased Commitments as the Agent may reasonably
request.
ARTICLE 3
CONDITIONS
SECTION 3.1. Closing. The closing hereunder shall occur when
the Agent has received all the following documents, each dated the Closing Date
unless otherwise indicated:
(a) a duly executed Note for the account of each Bank dated on or
before the Closing Date and complying with the provisions of Section 2.5;
(b) an opinion of the General Counsel of the Borrower,
substantially in the form of Exhibit E hereto and covering such additional
matters relating to the
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transactions contemplated hereby as the Required Banks may reasonably
request;
(c) an opinion of Davis Polk & Wardwell, special counsel for the
Agent, substantially in the form of Exhibit F hereto and covering such
additional matters relating to the transactions contemplated hereby as the
Required Banks may reasonably request;
(d) all documents the Agent 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;
(e) a certificate from the President or Chief Executive
Officer of the Borrower to the effect that the Merger has been consummated
in accordance with the Merger Agreement, without waiver of any of the
conditions thereof;
(f) a certificate from an Officer of the Borrower to the
effect that the entire principal amount of any Indebtedness outstanding
under:
(i) Credit Agreement I dated as of April 14, 1987, as amended
and restated through April 15, 1993, among Diamond Shamrock, Inc.,
Diamond Shamrock Refining and Marketing Company, the guarantors named
therein, the banks named therein and Chemical Bank, as agent, as amended
to the Effective Date;
(ii) Credit Agreement II dated as of April 14, 1987, as amended
and restated through April 15, 1993, among Diamond Shamrock, Inc.,
Diamond Shamrock Refining and Marketing Company, the guarantors named
therein, the banks named therein and Chemical Bank, as agent, as amended
to the Effective Date; and
(iii) the Credit Agreement dated as of December 11, 1995 among
Diamond Shamrock, Inc., Diamond
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Shamrock Refining and Marketing Company, the guarantors named therein,
the banks named therein, Bank of America National Trust and Savings
Association, as agent and Chemical Bank, Royal Bank of Canada and
Societe Generale, as co-agents, as amended to the Effective Date;
together with accrued interest, fees and other amounts in respect
thereof, have been paid in full and the commitments thereunder have been
terminated; and
(g) an instrument in a form satisfactory to the Agent from
Ultramar Inc. to the effect that the entire principal amount of any
Indebtedness outstanding under the Designated Credit Facility, together
with accrued interest, fees and other amounts in respect thereof, shall
have been paid in full and the commitments thereunder shall have
terminated.
The Banks (which comprise the "Required Banks" as defined in the Designated
Credit Facility) hereby agree that the commitments under the Designated Credit
Facility unless earlier terminated shall terminate automatically upon the
Closing Date without further action by any party.
Promptly after the Closing Date occurs, the Agent shall notify the Borrower and
the Banks thereof, and such notice shall be conclusive and binding on all
parties hereto.
SECTION 3.2. Borrowings and Issuances of Letters of Credit. The
obligation of any Bank to make a Loan on the occasion of any Borrowing and the
obligation of an Issuing Bank to issue (or renew or extend the term of) any
Letter of Credit is subject to the satisfaction of the following conditions:
(a) the fact that a Closing Date shall have occurred on or
before December 31, 1996;
(b) receipt by the Agent of a Notice of Borrowing as required by
Section 2.2 or 2.3, or receipt by the Issuing Bank of a Notice of Issuance
as required by Section 2.15(b), as the case may be;
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(c) the fact that, immediately after such Borrowing or issuance
of a Letter of Credit, the sum of the aggregate outstanding amount of the
Loans and the aggregate amount of Letter of Credit Liabilities will not
exceed the aggregate amount of the Commitments;
(d) the fact that, immediately before and after such Borrowing or
issuance of a Letter of Credit, no Default shall have occurred and be
continuing; and
(e) 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 or issuance of a Letter of Credit.
Each Borrowing and issuance of a Letter of Credit hereunder shall be deemed to
be a representation and warranty by the Borrower on the date of such Borrowing
or issuance as to the facts specified in clauses (c), (d) and (e) of this
Section.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Banks to enter into this
Agreement and to make the Loans, and to induce the Issuing Bank and the Banks
to issue the Letters of Credit, the Borrower makes the following
representations and warranties:
SECTION 4.1. Existence and Business; Power and Authorization;
Enforceable Obligations. (a)The Borrower is a corporation duly organized in
accordance with the Laws of the State of Delaware. The Borrower (i) has the
corporate power and authority to own its property and assets and to transact
the business in which it is engaged or presently proposes to engage and (ii) is
authorized to do business as a corporation and is in good standing in each
jurisdiction in which it is required to be authorized to do business, except
where the failure to be so authorized or in good standing could not reasonably
be expected to have a Material Adverse Effect. No Governmental Approval (other
than those already obtained) is necessary in connection with the
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formation and continued existence of the Borrower, except where the failure to
obtain such Governmental Approval could not reasonably be expected to have a
Material Adverse Effect.
(b) The Borrower has the corporate power and authority to
execute, deliver, and perform its obligations under this Agreement and the
other Loan Documents. The Borrower has corporate power and authority to borrow
hereunder.
(c) The Borrower has taken all necessary corporate action to
authorize the execution, delivery and performance of the Loan Documents. No
consent or authorization of, filing with or other act by or in respect of any
Governmental Authority or other Person is required in connection with the
execution, delivery and performance by the Borrower of the Loan Documents or
the validity and enforceability of the Loan Documents.
(d) This Agreement and each other Loan Document has been duly
executed and delivered on behalf of the Borrower and is a legal, valid and
binding obligation of the Borrower enforceable in accordance with its terms
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency or similar Laws affecting the enforcement of rights of creditors
generally and except to the extent that enforcement of rights and remedies set
forth therein may be limited by equitable principles (regardless of whether
enforcement is considered in a court of law or a proceeding in equity).
SECTION 4.2. No Violation. Neither the execution, delivery and
performance by the Borrower of the Loan Documents, nor compliance by it with
the terms and provisions thereof nor the consummation of the transactions
contemplated thereby, (i) will contravene in any material respect any
applicable provision of Law, (ii) will conflict with or result in any breach of
any of the terms and conditions of, or result in the creation or imposition of
(or the obligation to create or impose) any Lien upon any of the property or
assets of the Borrower pursuant to the terms of, any material agreement or
instrument to which the
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Borrower is a party or by which it or any of its property or assets is bound,
or (iii) will violate any provision of the certificate of incorporation or
by-laws or other organizational documents of the Borrower.
SECTION 4.3. Litigation. There are no actions, suits,
investigations or proceedings by or before any Governmental Authority or
arbitrator pending or, to the best knowledge of the Borrower, threatened which
could reasonably be expected to have a Material Adverse Effect.
SECTION 4.4. Financial Information. (a) The consolidated
balance sheet of Ultramar Corporation and its Consolidated Subsidiaries as of
December 31, 1995 and the related consolidated statements of income and cash
flows for the fiscal year then ended, reported on by Ernst & Young LLP and set
forth in the Joint Proxy Statement, a copy of which has been delivered to each
of the Banks, fairly present, in conformity with GAAP the consolidated
financial position of Ultramar Corporation and its Consolidated Subsidiaries as
of such date and their consolidated results of operations and cash flows for
such fiscal year.
(b) The unaudited consolidated balance sheet of Ultramar
Corporation and its Consolidated Subsidiaries as of June 30, 1996 and the
related unaudited consolidated statements of income and cash flows for the six
months then ended, set forth in the Joint Proxy Statement, fairly present, in
conformity with GAAP, the consolidated financial position of Ultramar
Corporation and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such six month period
(subject to year-end adjustments);
(c) The consolidated balance sheet of Diamond Shamrock, Inc. and
its Consolidated Subsidiaries as of December 31, 1995 and the related
consolidated statements of income and cash flows for the fiscal year then
ended, reported on by Price Waterhouse LLP and set forth in the Joint Proxy
Statement, a copy of which has been delivered to each of the Banks, fairly
present, in conformity with GAAP, the consolidated financial position of
Diamond Shamrock, Inc. and its Consolidated Subsidiaries as of such date and
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their consolidated results of operations and cash flows for such fiscal year.
(d) The unaudited consolidated balance sheet of Diamond
Shamrock, Inc. and its Consolidated Subsidiaries as of June 30, 1996 and the
related unaudited consolidated statements of income and cash flows for the six
months then ended, set forth in the Joint Proxy Statement, fairly present, in
conformity with GAAP, the consolidated financial position of Diamond Shamrock,
Inc. and its Consolidated Subsidiaries as of such date and their consolidated
results of operations and cash flows for such six month period (subject to
year-end adjustments).
(e) The unaudited pro forma condensed consolidated balance
sheet of the Borrower and its Consolidated Subsidiaries as of June 30, 1996 and
the related unaudited pro forma condensed consolidated statements of income for
the years ended December 31, 1993, 1994, and 1995 and the six-month periods
ended June 30, 1995 and 1996, set forth in the Joint Proxy Statement, are
complete and correct in all material respects and, subject to the footnotes
thereto, have been prepared on the basis described therein and otherwise in
conformity with GAAP applied on a basis consistent with the financial
statements referred to in subsections (a) and (c) of this Section and show the
consolidated financial position and results of operations of the Borrower and
its Consolidated Subsidiaries as if the Merger had occurred, in the case of the
condensed consolidated statements of income, as of January 1, 1993, and in the
case of the condensed consolidated balance sheets, as of the respective balance
sheet dates (subject in the case of the interim financial statements to
year-end adjustments).
SECTION 4.5. Material Adverse Change. Since December 31, 1995,
there has occurred no event, act or condition which has had, or could
reasonably be expected to have, a Material Adverse Effect except for certain
changes to conform accounting practices of Ultramar Corporation and Diamond
Shamrock, Inc. as described in the Joint Proxy Statement.
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SECTION 4.6. Use of Proceeds; Margin Regulations. All proceeds
of each Loan will be used by the Borrower only in accordance with the
provisions of Section 6.4.
SECTION 4.7. Governmental Approvals. All Governmental Approvals
which under applicable Law are required to have been obtained prior to the date
this representation is made or deemed made in connection with the due
execution, delivery and performance by the Borrower of the Loan Documents to
which it is a party have been obtained.
SECTION 4.8. Investment Company Act; Public Utility Holding
Company Act. The Borrower is not (i) an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended, or (ii) a "holding company" or a company
controlled by a "holding company" within the meaning of PUHCA.
SECTION 4.9. No Defaults. No Default has occurred and is
continuing.
SECTION 4.10. U.S. Taxes. The Borrower and each of its
Subsidiaries have filed all United States Federal income tax returns and all
other material United States tax returns which to their knowledge are required
to be filed by them and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by them, except as are being contested in
good faith or which could not reasonably be expected to have a Material Adverse
Effect.
SECTION 4.11. Foreign Taxes. The Borrower and each of its
Subsidiaries have filed or caused to be filed all income tax returns in all
relevant foreign jurisdictions and all other material foreign tax returns which
are to their knowledge required to be filed by them and have paid all taxes due
pursuant to such returns or pursuant to any assessment received by the Borrower
or any of its Subsidiaries, except as are being contested in good faith or
which could not reasonably be expected to have a Material Adverse Effect.
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SECTION 4.12. ERISA. As of the Closing Date, the Borrower is
responsible for funding no Plans other than those listed on the Schedule having
the same number as this Section. No accumulated funding deficiency (as defined
in Section 412 of the Code or Section 302 of ERISA) or Reportable Event has
occurred with respect to any Plan which could reasonably be expected to have a
Material Adverse Effect. There are no Unfunded Liabilities under any Plan
which when added to the aggregate amount of Unfunded Liabilities with respect
to all other Plans at such time could reasonably be expected to have a Material
Adverse Effect. The Borrower and each member of the ERISA Controlled Group
have not failed to comply with the requirements of Section 515 of ERISA with
respect to any Multiemployer Plan and are not in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan
to an extent which could reasonably be expected to have a Material Adverse
Effect. The aggregate potential total withdrawal liability payments of the
Borrower and the members of the ERISA Controlled Group as determined in
accordance with Title IV of ERISA as if the Borrower and the members of the
ERISA Controlled Group had completely withdrawn from all Multiemployer Plans is
not equal to or greater than an amount which could reasonably be expected to
have a Material Adverse Effect. To the knowledge of the Borrower and each
member of the ERISA Controlled Group, no Multiemployer Plan is or is likely to
be in reorganization (as defined in Section 4241 or ERISA or Section 418 of the
Code) or is insolvent (as defined in Section 4245 of ERISA). No liability to
the PBGC (other than required premium payments), the Internal Revenue Service,
any Plan or any trust established under Title IV of ERISA has been, or is
expected by the Borrower or any member of the ERISA Controlled Group to be,
incurred by the Borrower or any member of the ERISA Controlled Group which
could reasonably be expected to have a Material Adverse Effect. No Lien under
Section 412(n) of the Code or 302(f) of ERISA or requirement to provide
security under Section 401(a)(29) of the Code or Section 307 of ERISA has been
or is reasonably expected by the Borrower or any member of the ERISA Controlled
Group to be imposed on the assets of the Borrower or any member of the ERISA
Controlled Group. With respect to any employee benefit plan covered under
Title IV
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of ERISA that is excluded from the definition of Plan by the proviso at the end
of such definition, no liability, penalty, Lien or security interest has been
incurred or is expected to be incurred which could reasonably be expected to
have a Material Adverse Effect, and to the Borrower's knowledge no other event
or condition has occurred or exists which could reasonably be expected to have
a Material Adverse Effect.
SECTION 4.13. Ownership of Property; Liens. The Borrower and
each of its Consolidated Subsidiaries has good and marketable title to all of
its property except for any defects which could not reasonably be expected to
have a Material Adverse Effect, subject to no Lien of any kind except Liens
permitted pursuant to Section 6.3 hereof.
SECTION 4.14. Accuracy and Completeness of Information. All
historical information heretofore or contemporaneously furnished by the
Borrower in writing to the Agent or any Bank for purposes of or in connection
with this Agreement is, to the knowledge of the Borrower, true and accurate in
all material respects on the date as of which such information is dated and not
incomplete by omitting to state any material fact necessary to make such
information (taken as a whole) not misleading at such time.
SECTION 4.15. Environmental Matters.
(a) Except in each case as could not reasonably be expected to
have a Material Adverse Effect (i) the Borrower and its Significant
Subsidiaries are in compliance with all applicable Environmental Laws, (ii) the
Borrower and its Significant Subsidiaries have all Environmental Approvals
required to operate its business as presently conducted and is in compliance
with the terms and conditions thereof, (iii) the Borrower and its Significant
Subsidiaries have not received any communication (written or oral) from a
Governmental Authority that alleges that the Borrower is not in compliance with
all Environmental Laws and Environmental Approvals and (iv) to the Borrower's
knowledge there are no circumstances that may prevent or interfere with such
compliance in the future.
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(b) There is no Environmental Claim pending or, to the
Borrower's knowledge, threatened against the Borrower or any Significant
Subsidiary which could reasonably be expected to have a Material Adverse
Effect.
(c) Without in any way limiting the generality of the
foregoing, except in each case as could not reasonably be expected to have a
Material Adverse Effect (i) there are no on-site or off-site locations in which
the Borrower or any Significant Subsidiary have stored, disposed or arranged
for the disposal of Materials of Environmental Concern in violation of any
Environmental Law (ii) there are no underground storage tanks located on
property owned or leased by the Borrower or any Significant Subsidiary in
violation of any Environmental Law, (iii) there is no asbestos contained in or
forming part of any building, building component, structure or office space
owned or leased by the Borrower or any Significant Subsidiary and (iv) no
polychlorinated - biphenyles (PCB's) are used or stored at any property or
leased by the Borrower or any Significant Subsidiary in violation of any
Environmental Law.
SECTION 4.16. Significant Subsidiaries. Each of the Borrower's
Significant Subsidiaries is a corporation, partnership, limited liability
company, association or other entity duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization, and has all
powers and all material government licenses, authorizations, consents and
approvals required to carry on its business as now conducted except for such
powers, licenses, authorizations, consents or approvals the absence of which
could not reasonably be expected to have a Material Adverse Effect.
ARTICLE 5
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as any Bank has
any Commitment hereunder or any amount payable under any Note remains unpaid or
any Letter of
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Credit Liabilities remain outstanding unless otherwise agreed by the Required
Banks:
SECTION 5.1. Information Covenants. The Borrower will furnish
to each Bank:
(a) Quarterly Financial Statements. Within 60 days after the
close of each fiscal quarter (other than the fourth fiscal quarter) in each
fiscal year of the Borrower, the unaudited consolidated balance sheet of
the Borrower as at the end of such quarterly period and the related
consolidated statements of income and cash flows for such quarterly period
and for the elapsed portion of the fiscal year ended with the last day of
such quarterly period, and in each case setting forth comparative figures
for the related periods in the prior fiscal year;
(b) Annual Financial Statements. Within 120 days after the
close of each fiscal year of the Borrower, the audited consolidated balance
sheet of the Borrower as at the end of such fiscal year and the related
consolidated statements of income and cash flows for such fiscal year,
setting forth in each case in comparative form the figures for the previous
fiscal year, all reported on in a manner acceptable to the SEC by
independent public accountants of nationally recognized standing;
(c) Officer's Certificate. At the time of the delivery of the
financial statements referred to in clauses (a) and (b) above, a
certificate of an Authorized Officer of the Borrower which certifies (x)
that such financial statements fairly present the financial condition and
the results of operations of the Borrower on the dates and for the period
indicated, except as disclosed in the notes thereto, in accordance with
GAAP, subject, in the case of interim financial statements, to normally
recurring year-end adjustments, (y) the detailed calculations made pursuant
to Sections 6.6 and 6.7 as of the last day of such period and (z) that such
Authorized Officer has reviewed the terms of the Loan Documents and has
made, or caused to be made
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under his or her supervision, a review in reasonable detail of the business
and financial condition of the Borrower during the accounting period
covered by such financial statements, and that as a result of such review
such Authorized officer has concluded that no Default has occurred and is
continuing as of the date of such certificate or, if any Default has
occurred and is continuing, specifying the nature and extent thereof and
the action the Borrower proposes to take in respect thereof;
(d) Notice of Default, Litigation or Other Event Promptly and in
any event within three Domestic Business Days after the Borrower obtains
knowledge thereof, notice of (i) the occurrence of any Event of Default and
(ii) any litigation or governmental proceeding pending or threatened
against the Borrower or any Significant Subsidiary which could reasonably
be expected to have a Material Adverse Effect;
(e) ERISA.
(i) Except as could not reasonably be expected to have a
Material Adverse Effect, as soon as possible and in any event within twenty
days after the Borrower or any member of its ERISA Controlled Group knows,
or has reason to know, that:
(A) any Termination Event with respect to a Plan has
occurred or will occur, or
(B) any condition exists with respect to a Plan which
presents a material risk of termination of the Plan (if such Plan
has Unfunded Liabilities) or imposition of an excise tax or other
material liability on the Borrower or any member of the ERISA
Controlled Group, or
(C) the Borrower or any member of the ERISA
Controlled Group has applied for a waiver of the minimum funding
standard under Section 412 of the Code or Section 302 of ERISA or
an accumulated funding deficiency has been incurred, or
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(D) the Borrower or any member of the ERISA
Controlled Group has engaged in a "prohibited transaction," as
defined in Section 4975 of the Code or as described in Section 406
of ERISA, that is not exempt under Section 4975 of the Code and
Section 408 of ERISA, or
(E) there exists any Unfunded Liabilities under any
Plan giving rise to a Lien under ERISA or the Code, or
(F) any condition exists with respect to a
Multiemployer Plan which presents a material risk of a partial or
complete withdrawal (as described in Section 4203 or 4205 of
ERISA) by the Borrower or any member of the ERISA Controlled Group
from a Multiemployer Plan, or
(G) the Borrower or any member of the ERISA
Controlled Group is in "default" (as defined in Section 4219(c)(5)
of ERISA) with respect to payments to a Multiemployer Plan, or
(H) a Multiemployer Plan is in "reorganization" (as
defined in Section 418 of the Code or Section 4241 of ERISA) or is
"insolvent" (as defined in Section 4245 of ERISA), or
(I) the Borrower and/or any member of the ERISA
Controlled Group have incurred any withdrawal liability (as
determined in accordance with Title IV of ERISA), or
(J) there is an action brought against the Borrower
or any member of the ERISA Controlled Group under Section 502 of
ERISA with respect to its failure to comply with Section 515 of
ERISA,
a certificate of an Authorized Officer of the Borrower setting forth the
details of each of the events described in clauses (A) through (J) above,
as applicable, and the action which the Borrower or the applicable member
of the ERISA Controlled Group
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proposes to take with respect thereto, together with a copy of any notice
or filing from the PBGC or which may be required by the PBGC or other
agency of the United States government with respect to each of the events
described in clauses (A) through (J) above, as applicable.
(ii) As soon as possible and in any event within ten days after
the receipt by the Borrower or any member of its ERISA Controlled Group of
a demand letter from the PBGC notifying the Borrower or such member of the
ERISA Controlled Group of its final decision finding liability which, if
remaining unpaid, could reasonably be expected to have a Material Adverse
Effect and the date by which such liability must be paid, a copy of such
letter, together with a certificate an Authorized Officer of the Borrower
setting forth the action which the Borrower or such member of the ERISA
Controlled Group proposes to take with respect thereto.
(iii) With respect to any employee benefit plan covered by Title
IV of ERISA that is excluded from the definition of Plan by the proviso at
the end of such definition, as soon as possible and in any event within ten
days after the receipt by the Borrower or any member of the ERISA
Controlled Group of any notice, whether or not in writing, that any
material liability, penalty or Lien has been or could reasonably be
expected to be asserted against it with respect to such plan, a certificate
of an Authorized Officer of the Borrower setting forth the relevant details
and the action which the Borrower or the applicable member of its ERISA
Controlled Group proposes to take with respect thereto, together with a
copy of such notice, if any.
(f) Environmental Matters. Promptly and in any event within ten
Domestic Business Days after the existence of any of the following conditions,
a certificate of an Authorized Officer of the Borrower specifying in detail the
nature of such condition and the Borrower's proposed response thereto, in each
case if the occurrence of such
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event could reasonably be expected to have a Material Adverse Effect: (i) the
receipt by the Borrower of any communication (written or oral), whether from a
Governmental Authority or other Person that alleges that the Borrower or any
Significant Subsidiary is not in compliance with applicable Environmental Laws
or Environmental Approvals, (ii) any Authorized Officer of the Borrower shall
obtain actual knowledge that there exists any Environmental Claim pending or
threatened against the Borrower or any Significant Subsidiary, or (iii) any
release, emission, discharge or disposal of any Material of Environmental
Concern that could reasonably be expected to form the basis of any
Environmental Claim against the Borrower or any Significant Subsidiary. The
Borrower will also maintain and make available for inspection by the Agent and
the Banks and their agents and employees accurate and complete records of all
investigations, studies, sampling and testing conducted, and any and all
remedial actions taken, by the Borrower or, to its knowledge and to the extent
obtained by the Borrower, by any Governmental Authority or other Person in
respect of Materials of Environmental Concern on or affecting the properties of
the Borrower and its Subsidiaries.
(g) Other Information. From time to time, such other
information or documents (financial or otherwise) as the Agent or any Bank may
reasonably request.
SECTION 5.2. Books, Records and Inspections. The Borrower will
keep proper books of record and account in which full, true and correct entries
in conformity with GAAP and all requirements of Law shall be made of all
dealings and transactions in relation to its business and activities. The
Borrower will permit officers and designated representatives of the Agent or
any Bank to visit and inspect any of the properties of the Borrower, and to
examine the books of record and account of the Borrower, and discuss the
affairs, finances and accounts of the Borrower with, and be advised as to the
same by, its and their officers and independent accountants, all upon
reasonable notice and at such reasonable times and intervals as the Agent or
such Bank may desire.
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SECTION 5.3. Payment of Taxes. The Borrower will, and will cause
its Subsidiaries to, pay and discharge all material taxes, assessments and
governmental charges or levies imposed on it or on its income or profits or on
any of its property prior to the date on which penalties attach hereto, except
that neither the Borrower nor any such Subsidiary will be required hereby to
pay any such tax, assessment, charge or levy the payment of which is the
subject of a Contest.
SECTION 5.4. Compliance with Law.
(a) The Borrower will own, operate and maintain its business
in compliance with all Laws, except such noncompliance as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(b) The Borrower will keep each of its property and assets
free of any Lien imposed pursuant to Environmental Laws which could reasonably
be expected to have a Material Adverse Effect and is not the subject of a
Contest, and will pay or cause to be paid when due any and all costs necessary
to accomplish the foregoing, including, without limitation, the cost of
identifying the nature and extent of the presence of any such Materials of
Environmental Concern on any real property owned or leased by the Borrower, and
the cost of delineation, removal, treatment and disposal of any such Materials
of Environmental Concern.
SECTION 5.5. Existence, Etc. The Borrower will preserve and
maintain its corporate existence, and all material rights and material
franchises, and cause each of its Subsidiaries to preserve and maintain its
material rights and material franchises except as permitted under Section 6.1;
provided that neither the Borrower not any of its Subsidiaries shall be
required to maintain any such rights or franchises, the maintenance of which is
determined by it in good faith not to be in its best interest in the conduct of
business.
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SECTION 5.6. Insurance. The Borrower will maintain or cause to
be maintained with financially sound and reputable insurers, insurance with
respect to its properties and business, and the properties and business of its
Subsidiaries, against loss or damages of the kinds customarily insured against
by reputable companies in the same or similar businesses, such insurance to be
of such types and in such amounts (with such deductible amounts or other forms
of self-insurance) as is customary for such companies under similar
circumstances.
SECTION 5.7. Maintenance of Property. The Borrower will keep,
and cause each of its Subsidiaries to keep, all property necessary to their
respective businesses in good working order and condition (ordinary wear and
tear excepted); provided that neither the Borrower nor any of its Subsidiaries
shall be required to maintain any property, the maintenance of which is
determined by it in good faith not to be in its best interest in the conduct of
business.
SECTION 5.8. Ownership of Subsidiaries. The Borrower will own,
directly or indirectly, 100% of the outstanding voting securities of each of
its Significant Subsidiaries.
ARTICLE 6
NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as any Bank has
any Commitment hereunder or any amount payable under any Note remains unpaid or
any Letter of Credit Liabilities remain outstanding, unless otherwise agreed by
the Required Banks:
SECTION 6.1. Restriction on Fundamental Changes.
(a) The Borrower will not enter into any merger or
consolidation, liquidate, wind-up or dissolve (or suffer any liquidation or
dissolution), discontinue substantially all of its business or convey, lease,
sell, transfer or otherwise dispose of, in one transaction or series of
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transactions, all or substantially all of its business or property, provided
that the Borrower may effect such a merger, consolidation or sale (a "Permitted
Transaction") so long as after giving effect to such transaction, (x) no
Default shall exist, (y) the surviving entity or purchaser, if other than the
Borrower, assumes, pursuant to the terms of such transaction, each of the
obligations of the Borrower under the Loan Documents and (z) such assumption is
expressly evidenced by an agreement executed and delivered to the Banks within
30 days of such transaction in a form reasonably satisfactory to the Agent.
Without limiting the generality of the foregoing, the transfer of more than 50%
of the Borrower's Consolidated Net Tangible Assets shall be deemed, for the
purposes of this Section 6.1(a), a transfer of all or substantially all of the
assets of the Borrower.
(b) No transaction permitted by this Section 6.1 shall result
in a discharge or novation of the Borrower under the Loan Documents. The Agent
may require as a condition to any transaction permitted by this Section 6.1
evidence (including legal opinions) reasonably satisfactory to the Agent
establishing satisfaction of the conditions set forth in this Section 6.1.
SECTION 6.2. Transactions with Affiliates. Neither the Borrower
nor any Subsidiary will enter into any transaction or series of related
transactions, whether or not in the ordinary course of business, with any
Affiliate (other than in any such Affiliate's capacity as a director or
executive officer of the Borrower) on terms that are less favorable to the
Borrower than those terms that might be obtained in a comparable arms-length
transaction at the time from a Person who is not an Affiliate, in each case
excluding transactions among the Borrower and its Subsidiaries.
SECTION 6.3. Liens. Neither the Borrower nor any Subsidiary will
create, incur, assume or suffer to exist, directly or indirectly, any Lien on
any of its assets now owned or hereinafter acquired, other than the following:
(i) Liens existing on the date hereof which are not otherwise
permitted under paragraphs (ii) through
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(xi) below and which Liens secure Indebtedness outstanding on the date
hereof in an aggregate principal amount not exceeding $10,000,000;
(ii) Liens for taxes not yet due or which are subject to a
Contest;
(iii) Statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen, and other similar Liens and any other
Liens imposed by Law (other than any Lien imposed by ERISA or pursuant to
any Environmental Law) created in the ordinary course of business for
amounts not yet due or which are subject to a Contest;
(iv) Liens (other than any Lien imposed by ERISA or pursuant to
any Environmental Law) incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, performance and return-of-money bonds, and other
similar obligations (exclusive of obligations for the payment of borrowed
money);
(v) Easements, rights-of-way, zoning, and similar restrictions
and other similar charges or encumbrances that do not materially interfere
with the conduct of the business of the Borrower or any of its Subsidiaries
and which do not detract materially from the value of the property to which
they attach or impair materially the use thereof by the Borrower or any of
its Subsidiaries or have a Material Adverse Effect;
(vi) purchase money Liens not to exceed 100% of the applicable
purchase price; provided that such Lien shall attach within 180 days of the
acquisition of the related asset and in no event shall such Lien attach to
current assets of the Borrower or any of its Significant Subsidiaries;
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(vii) any Lien existing on any asset prior to the acquisition
thereof by the Borrower or any of its Subsidiaries, whether by purchase,
consolidation, merger, exchange or otherwise and not created in
contemplation of such acquisition; provided that in no event shall such
Lien attach to current assets of the Borrower or any of its Significant
Subsidiaries;
(viii) Liens securing Environmental Claims (which, for the
purposes of this paragraph (viii) shall be limited to undetermined or
inchoate Liens arising pursuant to applicable Environmental Laws, arising
in the ordinary course of business of the Borrower, and in respect of which
no steps or proceedings have been taken to enforce such Lien);
(ix) Liens imposed by ERISA which could not reasonably be
expected to have a Material Adverse Effect;
(x) Liens on time deposit, demand, custodial or other banking
accounts of the Borrower or any Subsidiary, if such accounts exist for the
purpose of funding or securing insurance obligations of any Subsidiary
engaged in the business of providing commercial insurance or reinsurance
and which are in accordance with prudent business practices and industry
standards;
(xi) extensions, renewals and replacements of Liens referred to
in paragraphs (i) through (x); provided, that any such extension, renewal
or replacement Lien shall be limited to the property or assets covered by
the Lien extended, renewed or replaced and that the obligations secured by
any such extension, renewal or replacement Lien shall be in an amount not
greater than the amount of the obligations secured by the Lien extended,
renewed or replaced; and
(xii) Liens other than those described in paragraphs (i) through
(xi) above; provided that the aggregate outstanding principal amount of
Indebtedness
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secured by such Liens shall at no time exceed 10% of Consolidated Net
Worth.
SECTION 6.4. Use of Proceeds; Margin Regulations. No part of the
proceeds of any Loan will be used by the Borrower to purchase or carry any
Margin Stock or to extend credit to others for the purpose of purchasing or
carrying any Margin Stock. The Borrower shall not use the proceeds of any Loan
in a manner that will violate or be inconsistent with the provisions of
Regulations G, T, U or X.
SECTION 6.5. Environmental Matters. Except in each case where
such activity could not reasonably be expected to have a Material Adverse
Effect, the Borrower shall not permit (a) any underground storage tanks to be
located on any property owned or leased by the Borrower in violation of any
Environmental Law, (b) any asbestos to be contained in or form part of any
building, building component, structure or office space owned or leased by the
Borrower, and (c) any polychlorinated biphenyls (PCB's) to be used or stored at
any property owned or leased by the Borrower.
SECTION 6.6. Leverage Ratio. Adjusted Consolidated Debt will at
no time exceed 60% of the sum of Adjusted Consolidated Debt and Consolidated
Net Worth.
SECTION 6.7. Interest Coverage Ratio. The ratio (the "Interest
Coverage Ratio") of (x) Consolidated EBITDA to (y) Consolidated Cash Interest
Expense will not, for any period of four consecutive Fiscal Quarters, be less
than 2.5:1.0.
ARTICLE 7
CASH COLLATERAL
SECTION 7.1. Cash Collateral. (a) Upon the occurrence of the
circumstances and the continuance of any Event of Default, the Borrower shall
deposit with the Agent an amount in cash equal to the aggregate Stated Amount
of
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all outstanding Letters of Credit. The Agent shall hold and apply such cash to
each drawing made in respect of each Letter of Credit.
(b) Amounts on deposit pursuant to Section 7.1(a) shall be
held by the Agent for the benefit of the Issuing Bank and the other Banks and
shall be used and held as security for each Reimbursement Obligation or other
Obligations of the Borrower until the Obligations have been paid in full.
ARTICLE 8
EVENTS OF DEFAULT; REMEDIES
SECTION 8.1. Events of Default. Each of the following events,
acts, occurrences or conditions shall constitute an Event of Default under this
Agreement, regardless of whether such event, act, occurrence or condition is
voluntary or involuntary or results from the operation of Law or pursuant to or
as a result of compliance by any Person with any judgment, decree, order, rule
or regulation of any Governmental Authority:
(a) Failure to Make Payments. The Borrower shall (i) default
in the payment when due of any principal on the Loans or on any Reimbursement
Obligation or (ii) default in the payment when due of any interest or fees
hereunder for a period of five Domestic Business Days after such interest or
fees are due and payable.
(b) Breach of Representation or Warranty. Any representation
or warranty made in any Loan Document or in any certificate or statement
delivered pursuant thereto shall prove to be false or misleading in any
material respect on the date as of which made or deemed made.
(c) Breach of Covenants. (i) The Borrower shall fail to
perform or observe any covenant or obligation arising under Section 6.1, 6.4,
6.6 or 6.7, or (ii) the Borrower shall fail to perform or observe any other
covenant or obligation arising under this Agreement or under any
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other Loan Document and, in the case of this clause (ii), such failure shall
continue for a period of 30 days.
(d) Default Under Other Agreements. The Borrower or any
Significant Subsidiary shall default in the payment when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) of
any amount owing in respect of principal or interest (subject, in the case of
interest, to any applicable grace period) in respect of any Material Financial
Obligation; or the Borrower or any Significant Subsidiary shall default in the
performance or observance of any other obligation or condition with respect to
any Material Financial Obligation or any other event shall occur or condition
exist, if, as a result, such Material Financial Obligation has become or can
then be declared to be due and payable prior to its stated maturity other than
as a result of a regularly scheduled payment.
(e) Bankruptcy, Etc. Any Event of Bankruptcy shall occur with
respect to the Borrower or any Significant Subsidiary.
(f) Dissolution. Any order, judgment, or decree shall be
entered against the Borrower or any Significant Subsidiary decreeing its
involuntary dissolution or split up and such order shall remain undischarged
and unstayed for a period in excess of 30 days; or the Borrower shall otherwise
dissolve or cease to exist (except as permitted by Section 6.1).
(g) ERISA. (i) Any Termination Event shall occur, or (ii)
any Plan shall incur an "accumulated funding deficiency" (as defined in Section
412 of the Code or Section 302 of ERISA), whether or not waived or (iii) the
Borrower or a member of its ERISA Controlled Group shall have engaged in a
transaction which is prohibited under Section 4975 of the Code or Section 406
of ERISA which could result in the imposition of liability on the Borrower or
any member of its ERISA Controlled Group, or (iv) the Borrower or any member of
its ERISA Controlled Group shall fail to pay when due an amount which it shall
have become liable to pay to the PBGC, any Plan or a trust established under
Title IV of ERISA, or (v) a condition shall exist by reason
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of which the PBGC would be entitled to obtain a decree adjudicating that an
ERISA Plan must be terminated or have a trustee appointed to administer any
ERISA Plan, or (vi) the Borrower or a member of its ERISA Controlled Group
suffers a partial or complete withdrawal from a Multiemployer plan or is in
"default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments
to a Multiemployer Plan, or (vii) a proceeding shall be instituted against the
Borrower or any member of its ERISA Controlled Group to enforce Section 515 of
ERISA, or (viii) any other event or condition shall occur or exist with respect
to any Plan which could subject the Borrower or any member of its ERISA
Controlled Group to any tax, penalty or other liability, and in each case in
clauses (i) through (viii) of this Section 8.1(h), such event or condition,
together with all other such events or conditions, if any, could reasonably be
expected to result in a lien, security interest, liability or penalty which in
the aggregate could reasonably be expected to have a Material Adverse Effect.
(h) Judgments. Any judgment or decree shall be entered by a
court or courts of competent jurisdiction against the Borrower or any
Significant Subsidiary and such judgment or decree (i) shall be in an aggregate
amount greater than or equal to $25,000,000 and (ii) has not been discharged,
bonded, or vacated within thirty days from entry.
(i) Change of Control. A Change of Control shall occur.
SECTION 8.2. Rights and Remedies. (a) Upon the occurrence of any
Event of Default described in Section 8.1(e), the Commitments shall
automatically and immediately terminate and the unpaid principal amount of any
and all accrued interest on the Loans and any and all accrued fees and other
Obligations shall automatically become immediately due and payable, with all
additional interest from time to time accrued thereon and without presentation,
demand, or protest or other requirements of any kind (including, without
limitation, diligence, presentment, notice of intent to demand or accelerate
and notice of acceleration), all of which are hereby expressly waived by the
Borrower, and the
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obligation of each Bank to make any Loan hereunder shall thereupon terminate.
(b) Upon the occurrence and during the continuance of any
Event of Default (other than an Event of Default described in Section 8.1(e)),
the Agent shall at the request of the Required Banks, by notice to the Borrower
(i) declare that the Commitments are terminated, whereupon the Commitments and
the obligation of each Bank to make any Loan hereunder shall immediately
terminate, and (ii) declare the unpaid principal amount of and any and all
accrued and unpaid Fees and other Obligations to be, and the same shall
thereupon be, immediately due and payable with all additional interest from
time to time accrued thereon and without presentation, demand, or protest or
other requirements of any kind (including, without limitation, diligence,
presentment, notice of intent to demand or accelerate and notice of
acceleration), all of which are hereby expressly waived by the Borrower.
ARTICLE 9
THE AGENT
SECTION 9.1. 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 9.2. Agent and Affiliates. Morgan Guaranty Trust
Company of New York 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 Morgan Guaranty Trust Company of New York 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 affiliate of the
Borrower as if it were not the Agent.
SECTION 9.3. Action by Agent. The obligations of the Agent
hereunder are only those expressly set forth
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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 8.
SECTION 9.4. 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.
SECTION 9.5. Liability of Agent. Neither the Agent nor any of
its affiliates nor any of their respective directors, officers, agents or
employees shall be liable 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 such
different number of Banks as any provision hereof expressly requires for such
consent or request) or (ii) in the absence of its own gross negligence or
willful misconduct. Neither the Agent nor any of its affiliates nor any of
their respective directors, officers, agents or employees shall be responsible
for or have any duty to ascertain, inquire into or verify (i) any statement,
warranty or representation made in connection with this Agreement or any
borrowing 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 3, 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, facsimile or similar writing) believed by it to be genuine or to be
signed by the proper party or parties. Without limiting the generality of the
foregoing, the use of the term "agent" in this Agreement with reference to the
Agent is not intended to connote any fiduciary or other implied (or express)
obligations arising under agency doctrine of any applicable Law. Instead, such
term is used merely as a matter of
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market custom and is intended to create or reflect only an administrative
relationship between independent contracting parties.
SECTION 9.6. Indemnification. Each Bank shall, ratably in
accordance with its Commitment, indemnify the Agent, its affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitees' gross negligence or willful misconduct) that such
indemnitees may suffer or incur in connection with this Agreement or any action
taken or omitted by such indemnitees hereunder.
SECTION 9.7. 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.
SECTION 9.8. Successor Agent. The Agent may resign at any time
by giving notice thereof to the Banks and the Borrower. Upon any such
resignation, the Required Banks shall have the right to appoint a successor
Agent. If no successor Agent shall have been so appointed by the Required
Banks, and shall have accepted such appointment, within 30 days after the
retiring Agent gives notice of resignation, then the retiring Agent may, on
behalf of the Banks, appoint a successor Agent, which shall be a commercial
bank organized or licensed under the Laws of the United States or of any State
thereof and having a combined capital and surplus of at least $100,000,000.
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,
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and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent resigns as Agent hereunder, the provisions
of this Article shall inure to its benefit as to actions taken or omitted to be
taken by it while it was Agent.
SECTION 9.9. Agent's Fee. The Borrower shall pay to the Agent
for its own account fees in the amounts and at the times previously agreed upon
by the Borrower and the Agent.
ARTICLE 10
CHANGE IN CIRCUMSTANCES
SECTION 10.1. Basis for Determining Interest Rate Inadequate or
Unfair. If on or before the first day of any Interest Period for any CD Loan,
Euro-Dollar Loan or Money Market LIBOR Loan:
(a) the 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
(b) in the case of CD Loans or Euro-Dollar Loans, Banks having
66 2/3% or more of the aggregate principal amount of the affected Loans
advise the Agent that the Adjusted CD Rate or the London Interbank Offered
Rate, as the case may be, as determined by the Agent will not adequately
and fairly reflect the cost to such Banks of funding their CD Loans or
Euro-Dollar Loans, as the case may be, for such Interest Period,
the Agent shall forthwith give notice thereof to the Borrower and the Banks,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, (i) the obligations of the Banks to
make CD Loans or Euro-Dollar Loans, as the case may be, or to continue or
convert outstanding Loans as or into CD Loans or Euro-Dollar Loans, as the case
may be, shall be
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suspended and (ii) each outstanding CD Loan or Euro-Dollar Loan, as the case
may be, shall be converted into a Base Rate Loan on the last day of the then
current Interest Period applicable thereto. Unless the Borrower notifies the
Agent at least two Domestic Business Days before the date of any affected
Borrowing for which a Notice of Borrowing has previously been given that it
elects not to borrow on such date, (i) if such affected Borrowing is a CD
Borrowing or Euro-Dollar Borrowing, such Borrowing shall instead be made as a
Base Rate Borrowing and (ii) if such affected Borrowing is a Money Market LIBOR
Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear
interest for each day from and including the first day to but excluding the
last day of the Interest Period applicable thereto at the Base Rate for such
day.
SECTION 10.2. Illegality. If, on or after the date hereof, the
adoption of any applicable Law, rule or regulation, or any change in any
applicable Law, rule or regulation, 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, or to continue or convert outstanding Loans as or into
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 notice is given, each Euro-Dollar Loan of such Bank then
outstanding shall be converted to a Base Rate Loan either (a) on the last day
of the then current
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Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully
continue to maintain and fund such Loan as a Euro-Dollar Loan to such day or
(b) immediately if such Bank shall determine that it may not lawfully continue
to maintain and fund such Loan as a Euro-Dollar Loan to such day.
SECTION 10.3. Increased Cost and Reduced Return. (a) If on or
after (x) the date hereof, in the case of any Committed Loan or Letter of
Credit or any obligation to make Committed Loans or issue or participate in any
Letter of Credit or (y) the date of the related Money Market Quote, in the case
of any Money Market Loan, the adoption of any applicable Law, rule or
regulation, or any change in any applicable Law, rule or regulation, 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 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 (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve System,
but excluding (i) with respect to any CD Loan any such requirement included in
an applicable Domestic Reserve Percentage and (ii) 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
2.16), special deposit, insurance assessment (excluding, with respect to any CD
Loan, any such requirement reflected in an applicable Assessment Rate) or
similar requirement 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 Note or its obligation to make Fixed Rate
Loans or its obligations hereunder in respect to Letters of Credit and the
result of any of the foregoing is to increase the cost to such Bank (or its
Applicable Lending Office) of making or maintaining any Fixed Rate Loan or of
issuing or
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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 Note with respect thereto, by an amount deemed by
such Bank to be material, then, within 15 days after demand by such Bank (with
a copy to the Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such increased cost or
reduction.
(b) If any Bank shall have determined that, after the date
hereof, the adoption of any applicable Law, rule or regulation regarding
capital adequacy, or any change in any such Law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of Law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Bank (or its Parent) as a consequence of such Bank's
obligations hereunder to a level below that which such Bank (or its Parent)
could have achieved but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Bank to be material, then from time to time, within 15 days
after demand by such Bank (with a copy to the Agent), the Borrower shall pay to
such Bank 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 date hereof, which
will entitle such Bank to compensation pursuant to this Section and will
designate a different Lending Office if such designation will avoid the need
for, or reduce the amount of, such compensation and will not, in the judgment
of such Bank, be otherwise disadvantageous to such Bank. A certificate of any
Bank claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive in the absence
of manifest
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error. In determining such amount, such Bank may use any reasonable averaging
and attribution methods.
SECTION 10.4. Taxes. (a) For the purposes of this Section, the
following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties,
levies, imposts, deductions, charges or withholdings with respect to any
payment by the Borrower pursuant to this Agreement or under any Note, and all
liabilities with respect thereto, excluding (i) in the case of each Bank and
the Agent, taxes imposed on its income, and franchise or similar taxes imposed
on it, by a jurisdiction under the Laws of which such Bank or the Agent (as the
case may be) is organized or in which its principal executive office is located
or, in the case of each Bank, in which its Applicable Lending Office is located
and (ii) in the case of each Bank, any United States withholding tax imposed on
such payment at a rate up to (but not exceeding) the rate at which United
States withholding tax would have been imposed on such a payment to such Bank
under the Laws and treaties in effect when such Bank first became a party to
this Agreement.
"Other Taxes" means any present or future stamp or documentary
taxes and any other excise or property taxes, or similar charges or levies,
which arise from any payment made pursuant to this Agreement or under any Note
or from the execution or delivery of, or otherwise with respect to, this
Agreement or any Note.
(b) All payments by the Borrower to or for the account of any
Bank or the Agent hereunder or under any Note shall be made without deduction
for any Taxes or Other Taxes; provided that, if the Borrower shall be required
by Law to deduct any Taxes or Other Taxes from any such payment, (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section) such Bank or the Agent (as the case may be) receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Borrower shall
79
<PAGE> 85
make such deductions, (iii) the Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with
applicable Law and (iv) the Borrower shall furnish to the Agent, at its address
referred to in Section 11.1, the original or a certified copy of a receipt
evidencing payment thereof.
(c) The Borrower agrees to indemnify each Bank and the Agent
for the full amount of Taxes and Other Taxes (including, without limitation,
any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts
payable under this Section) paid by such Bank or the Agent (as the case may be)
and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto. This indemnification shall be paid within
15 days after such Bank or the Agent (as the case may be) makes demand
therefor.
(d) Each Bank organized under the Laws of a jurisdiction
outside the United States, before it signs and delivers this Agreement in the
case of each Bank listed on the signature pages hereof and before it becomes a
Bank in the case of each other Bank, and from time to time thereafter if
requested in writing by the Borrower (but only so long as such Bank remains
lawfully able to do so), shall provide the Borrower and the Agent with Internal
Revenue Service form 1001 or 4224, as appropriate, or any successor form
prescribed by the Internal Revenue Service, certifying that such Bank is
entitled to benefits under an income tax treaty to which the United States is a
party which exempts the Bank from United States withholding tax or reduces the
rate of withholding tax on payments of interest for the account of such Bank or
certifying that the income receivable pursuant to this Agreement is effectively
connected with the conduct of a trade or business in the United States.
(e) For any period with respect to which a Bank has failed to
provide the Borrower or the Agent with the appropriate form pursuant to Section
8.4(d) (unless such failure is due to a change in treaty, Law or regulation
occurring after the date on which such form originally was required to be
provided), such Bank shall not be entitled to
80
<PAGE> 86
indemnification under Section 8.4(b) or (c) with respect to Taxes imposed by
the United States; provided that if a Bank, which is otherwise exempt from or
subject to a reduced rate of withholding tax, becomes subject to Taxes because
of its failure to deliver a form required hereunder, the Borrower shall take
such steps as such Bank shall reasonably request to assist such Bank to recover
such Taxes.
(f) If the Borrower is required to pay additional amounts to
or for the account of any Bank pursuant to this Section, then such Bank will
change the jurisdiction of its Applicable Lending Office if, in the judgment of
such Bank, such change (i) will eliminate or reduce any such additional payment
which may thereafter accrue and (ii) is not otherwise disadvantageous to such
Bank.
SECTION 10.5. Base Rate Loans Substituted for Affected Fixed
Rate Loans. If (i) the obligation of any Bank to make, or to continue or
convert outstanding Loans as or to, Euro-Dollar Loans has been suspended
pursuant to Section 10.2 or (ii) any Bank has demanded compensation under
Section 10.3 or 10.3 with respect to its CD Loans or Euro- Dollar Loans, and in
either case the Borrower shall, by at least five 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 exist, all Loans which would otherwise be
made by such Bank as (or continued as or converted into) CD Loans or
Euro-Dollar Loans, as the case may be, shall instead be Base Rate Loans (on
which interest and principal shall be payable contemporaneously with the
related Fixed Rate Loans of the other Banks). If such Bank notifies the
Borrower that the circumstances giving rise to such suspension or demand for
compensation no longer exist, the principal amount of each such Base Rate Loan
shall be converted into a CD Loan or Euro-Dollar Loan, as the case may be, on
the first day of the next succeeding Interest Period applicable to the related
CD Loans or Euro-Dollar Loans of the other Banks.
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<PAGE> 87
ARTICLE 11
MISCELLANEOUS
SECTION 11.1. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile or similar writing) and shall be given to such party: (a) in
the case of the Borrower or the Agent, at its address, facsimile number or
telex number set forth on the signature pages hereof, (b) in the case of any
Bank, at its address, facsimile number or telex number set forth in its
Administrative Questionnaire or (c) in the case of any party, at such other
address, facsimile number or telex number as such party may hereafter specify
for the purpose by notice to the Agent and the Borrower. Each such notice,
request or other communication shall be effective (i) if given by telex, when
such telex is transmitted to the telex number referred to in this Section and
the appropriate answerback is received, (ii) if given by facsimile, when
transmitted to the facsimile number referred to in this Section and
confirmation of receipt is received, (iii) if given by mail, 72 hours after
such communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iv) if given by any other means, when delivered at
the address referred to in this Section; provided that notices to the Agent and
the Issuing Bank under Article 2 or Article 10 shall not be effective until
received.
SECTION 11.2. No Waivers. No failure or delay by the Agent or
any Bank in exercising any right, power or privilege hereunder or under any
Note shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by Law.
SECTION 11.3. Expenses; Indemnification. (a) The Borrower shall
pay (i) all reasonable out-of-pocket expenses of the Agent, including
reasonable fees and
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<PAGE> 88
disbursements of special counsel for the Agent, in connection with the
preparation and administration 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 reasonable out-of-pocket expenses
incurred by the Agent and each Bank, including the reasonable fees and
disbursements of counsel, in connection with such Event of Default and
collection, bankruptcy, insolvency and other enforcement proceedings resulting
therefrom.
(b) The Borrower agrees to indemnify the Agent and each Bank,
their respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in
connection with any investigative, administrative or judicial proceeding
(whether or not such Indemnitee shall be designated a party thereto) brought or
threatened relating to or arising out of this Agreement or any actual or
proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall
have the right to be indemnified hereunder for such Indemnitee's own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction.
SECTION 11.4. Sharing of Set-Offs. Each Bank agrees that if it
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest then
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 then due with respect to any Note held by such other Bank, the Bank
receiving such proportionately greater payment shall purchase such
participations 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
83
<PAGE> 89
this Section shall impair the right of any Bank to exercise any right of
set-off or counterclaim it may have and to apply the amount subject to such
exercise to the payment of indebtedness of the Borrower other than its
indebtedness hereunder. The Borrower agrees, to the fullest extent it may
effectively do so under applicable Law, that any holder of a participation in a
Note, whether or not acquired pursuant to the foregoing arrangements, may
exercise rights of set-off or counterclaim and other rights with respect to
such participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
SECTION 11.5. Amendments and Waivers . Any provision of this
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Borrower and the Required Banks
(and, if the rights or duties of the Agent or any Issuing Bank are affected
thereby, by the Agent or such Issuing Bank); provided that no such amendment or
waiver shall, unless signed by all the Banks, (i) except as contemplated in
Section 2.17, increase or decrease the Commitment of any Bank (except for a
ratable decrease in the Commitments of all Banks) or subject any Bank to any
additional obligation, (ii) reduce the principal of or rate of interest on any
Loan or the amount to be reimbursed in respect of any Letter of Credit or any
interest thereon or any fees hereunder, (iii) postpone the date fixed for any
payment of principal of or interest on any Loan or for reimbursement in respect
of any Letter of Credit or interest thereon or any fees hereunder or for the
termination of any Commitment or (iv) change the percentage of the Commitments
or of the aggregate unpaid principal amount of the Notes and Letter of Credit
Liabilities, 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.
SECTION 11.6. 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 (other than pursuant to a
84
<PAGE> 90
Permitted Transaction) 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 and Letter of Credit Liabilities. If a
Bank grants any such 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 Borrower's obligations 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) or (iii) of Section 11.5 without the consent of
the Participant. The Borrower agrees that each Participant shall, to the
extent provided in its participation agreement, be entitled to the benefits of
Section 2.16 and Article 10 with respect to its participating interest. An
assignment or other transfer which is not permitted by subsection (c) or (d)
below shall be given effect for purposes of this Agreement only to the extent
of a participating interest granted in accordance with this subsection.
(c) Any Bank may at any time assign to one or more banks or
other institutions (each an "Assignee") all, or a proportionate part
(equivalent to an initial Commitment of not less than $10,000,000) of all, of
its rights and obligations under this Agreement and the Notes, and such
Assignee shall assume such rights and obligations, pursuant to an Assignment
and Assumption Agreement in substantially the form of Exhibit G hereto signed
by such Assignee and such transferor Bank, with (and subject to) the subscribed
consent of the Borrower, which shall not be unreasonably
85
<PAGE> 91
withheld, and each Issuing Bank and the Agent; provided that if an Assignee is
an affiliate of such transferor Bank or was a Bank immediately before such
assignment, no such consent of the Borrower or the Agent shall be required; and
provided further that such assignment may, but need not, include rights of the
transferor Bank in respect of outstanding Money Market Loans. When such
instrument has been signed and delivered by the parties thereto and such
Assignee has paid to such transferor Bank 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 a corresponding
extent, and no further consent or action by any party shall be required. Upon
the consummation of any assignment pursuant to this subsection, the transferor
Bank, the Agent and the Borrower shall make appropriate arrangements so that,
if required, a new Note is issued to the Assignee. In connection with any such
assignment, the transferor Bank shall pay to the Agent an administrative fee
for processing such assignment in the amount of $2,500. If the Assignee is not
incorporated under the Laws of the United States or a state thereof, it shall
deliver to the Borrower and the Agent certification as to exemption from
deduction or withholding of any United States federal income taxes in
accordance with Section 10.3.
(d) Any Bank may at any time assign all or any portion of its
rights under this Agreement and its Note to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's
rights shall be entitled to receive any greater payment under Section 10.3 or
10.4 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 10.2, 10.3 or 10.4
requiring such Bank to designate a different Applicable Lending Office under
certain circumstances or at a time when the circumstances giving rise to such
greater payment did not exist.
86
<PAGE> 92
SECTION 11.7. 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 11.8. Governing Law; Submission to Jurisdiction. This
Agreement and each Note shall be governed by and construed in accordance with
the Laws of the State of New York. The Borrower hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York State court sitting in New York City
for purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. 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 proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum.
SECTION 11.9. Counterparts; Integration; Effectiveness. This
Agreement may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. 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. This Agreement shall become effective when the Agent has received from
each of the parties hereto a counterpart hereof signed by such party or
facsimile or other written confirmation satisfactory to the Agent confirming
that such party has signed a counterpart hereof.
SECTION 11.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
87
<PAGE> 93
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
By /s/ Steven Blank
-------------------------
Title: Vice President and Treasurer
Address: 9830 Colonnade Boulevard
San Antonio, TX
Facsimile: 210-641-8484
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ Kathryn Sayko-Yanes
-------------------------
Title: Vice President
Address: 60 Wall Street
New York, NY 10260
Facsimile: 212-648-5014
BARCLAYS BANK PLC,
as Documentation Agent
By /s/ D. Neider
-------------------------
Title: Director
THE CHASE MANHATTAN BANK
as Syndication Agent
By /s/ Laurie B. Perper
-------------------------
Title: Attorney-in-fact
88
<PAGE> 94
CO-AGENTS:
----------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ David E. Sisler
-------------------------
Title: Vice President
CIBC, INC
By Michael A. G. Corkum
-------------------------
Title: Authorized Signatory
ROYAL BANK OF CANADA
By /s/ Gil J. Benard
-------------------------
Title: Senior Manager
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By /s/ Robert W. Ramage, Jr.
-------------------------
Title: Senior Vice President
PARTICIPANTS:
-------------
BANK OF TOKYO-MITSUBISHI, LTD.
By /s/ Michael Meiss
-------------------------
Title: Vice President
89
<PAGE> 95
THE FUJI BANK, LIMITED
HOUSTON AGENCY
By /s/ Yutaka Taniuchi
-------------------------
Title: Joint General Manager
NATIONSBANK OF TEXAS, N.A.
By /s/ James R. Allred
-------------------------
Title: Senior Vice President
SOCIETE GENERALE
By /s/ Richard A. Gould
-------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/ J.R. Trimble
-------------------------
Title: Senior Relationship
Manager
BANK ONE TEXAS, N.A.
By /s/ Mark A. Miller
-------------------------
Title: Senior Vice President
90
<PAGE> 96
THE FROST NATIONAL BANK
By /s/ Gregg Chinn
-------------------------
Title: Vice President
THE SANWA BANK LIMITED,
DALLAS AGENCY
By /s/ R. Blake Wright
-------------------------
Title: Vice President
THE SUMITOMO BANK, LIMITED
By /s/ Harumitsu Seki
-------------------------
Title: General Manager
UNION BANK OF SWITZERLAND
By /s/ Ben Vance
-------------------------
Title: Assistant Treasurer
By /s/ Dan O. Boyle
-------------------------
Title: Managing Director
BANK OF SCOTLAND
By /s/ Elizabeth Wilson
-------------------------
Title: Vice President and
Branch Manager
91
<PAGE> 97
TORONTO DOMINION
(NEW YORK), INC.
By /s/ David G. Parker
-------------------
Title: Vice President
92
<PAGE> 98
COMMITMENT SCHEDULE
<TABLE>
<CAPTION>
Name of Lender and
applicable Lending
Office Bank Commitment
- ------------------ ---------------
<S> <C>
Morgan Guaranty Trust
Company of New York $40,000,000
Barclays Bank Plc $40,000,000
The Chase Manhattan Bank $40,000,000
Bank of America National
Trust and Savings Association $35,000,000
CIBC, Inc. $35,000,000
Royal Bank of Canada $35,000,000
The Industrial Bank of Japan,
Limited $35,000,000
Bank of Tokyo-Mitsubishi, Ltd. $28,000,000
The Fuji Bank, Limited
Houston Agency $28,000,000
Nationsbank of Texas, N.A. $28,000,000
Societe Generale $28,000,000
The Bank of Nova Scotia $18,000,000
Bank One Texas, N.A. $18,000,000
The Frost National Bank $18,000,000
The Sanwa Bank Limited,
Dallas Agency $18,000,000
The Sumitomo Bank, Limited $18,000,000
Union Bank of Switzerland $18,000,000
Bank of Scotland $10,000,000
Toronto Dominion,
(New York), Inc. $10,000,000
TOTAL: $500,000,000
</TABLE>
<PAGE> 99
PRICING SCHEDULE
Each of "Facility Fee Rate", "Euro-Dollar Margin," "CD Margin" and "LC
Fee Rate" means, for any day, the rate set forth below in the row opposite such
term and in the column corresponding to the Pricing Level that applies for such
day:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Pricing Level Level I Level II Level III Level IV Level V Level VI
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Facility Fee Rate .07% .08% .09% .11% .15% .1875%
- ------------------------------------------------------------------------------------------------------
Euro-Dollar Margin .155% .17% .185% .215% .3% .4375%
- ------------------------------------------------------------------------------------------------------
CD Margin .28% .295% .31% .34% .425% .5625%
- ------------------------------------------------------------------------------------------------------
LC Fee Rate .155% .17% .185% .215% .3% .4375%
- ------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings, subject to the final paragraph of this Pricing Schedule:
"Level I Pricing" applies for any day if, on such day, the Borrower's
long-term debt is rated A or higher by S&P or A2 or higher by Moody's.
"Level II Pricing" applies for any day if, on such day, (i) the
Borrower's long-term debt is rated A- or higher by S&P or A3 or higher by
Moody's and (ii) Level I Pricing does not apply.
<PAGE> 100
"Level III Pricing" applies for any day if, on such day, (i) the
Borrower's long-term debt is rated BBB+ or higher by S&P or Baa1 or higher by
Moody's and (ii) neither Level I Pricing nor Level II Pricing applies
"Level IV Pricing" applies for any day if, on such day, (i) the
Borrower's long-term debt is rated BBB or higher by S&P or Baa2 or higher by
Moody's and (ii) none of Level I Pricing, Level II Pricing and Level III
Pricing applies.
"Level V Pricing" applies for any day if, on such day, (i) the Borrower's
long-term debt is rated BBB- or higher by S&P or Baa3 or higher by Moody's and
(ii) none of Level I Pricing, Level II Pricing, Level III Pricing and Level IV
Pricing applies.
"Level VI Pricing" applies for any day if no other Pricing Level applies for
such day.
"Pricing Level" refers to the determination of which of Level I, Level
II, Level III, Level IV or Level V Pricing applies for any day.
The credit ratings to be utilized for purposes of this Schedule are those
assigned to the senior unsecured long-term debt securities of the Borrower
without third-party credit enhancement, and any rating assigned to any other
debt security of the Borrower shall be disregarded. The ratings in effect for
any day are those in effect at the close of business on such day. In the case
of split ratings from S&P and Moody's, the rating to be used to determine
Pricing is the higher of the two (e.g. BBB+/Baa2 results in Level III Pricing),
provided that in the event the split is more than one full category, the
average (or the higher of the two intermediate ratings) shall be used (e.g.
BBB+/Baa3 results in Level IV Pricing, as does BBB+/Ba1).
3
<PAGE> 101
SCHEDULE 1.1
SIGNIFICANT SUBSIDIARIES
Canadian Ultramar Company
Diamond Shamrock Refining and Marketing Company
D-S Venture Company, L.L.C.
Diamond Shamrock Refining Company, L.P.
Ultramar Credit Corporation
Ultramar Inc.
Ultramar Ltee
<PAGE> 102
SCHEDULE 4.12
PLANS
Diamond Shamrock Corporation Career Average Retirement Income Plan
Diamond Shamrock Corporation Retirement Income Plan
Diamond Shamrock Corporation Employees' Retirement Plan
Ultramar Corporation U.S. Employee's Retirement Plan
MULTIEMPLOYER PLANS
New England Teamsters & Trucking Industry Pension Fund
Automotive Industries Welfare Fund
Western Conference of Teamsters Pension Trust Fund - Northern California Area
Western Conference of Teamsters Pension Trust Fund - Southern Area
<PAGE> 103
EXHIBIT A - Note
NOTE
New York, New York
___________ __, 199_
For value received, Ultramar Diamond Shamrock Corporation, a Delaware
corporation (the "Borrower"), promises to pay to the order of
______________________ (the "Bank"), for the account of its Applicable Lending
Office, the unpaid principal amount of each Loan made by the Bank to the
Borrower pursuant to the Credit Agreement referred to below on the maturity
date provided for in the Credit Agreement. The Borrower promises to pay
interest on the unpaid principal amount of each such Loan on the dates and at
the rate or rates provided for in the Credit Agreement. All such payments of
principal and interest shall be made in lawful money of the United States in
Federal or other immediately available funds at the office of Morgan Guaranty
Trust Company of New York, 60 Wall Street, New York, New York.
All Loans made by the Bank, the respective types thereof and all
repayments of the principal thereof shall be recorded by the Bank and, if the
Bank so elects in connection with any transfer or
<PAGE> 104
enforcement hereof, appropriate notations to evidence the foregoing information
with respect to each such Loan then outstanding may be endorsed by the Bank on
the schedule attached hereto, or on a continuation of such schedule attached to
and made a part hereof; provided that the failure of the Bank to make any such
recordation or endorsement shall not affect the Borrower's obligations
hereunder or under the Credit Agreement.
This note is one of the Notes referred to in the Credit Agreement
dated as of December 19, 1996 among Ultramar Diamond Shamrock Corporation, the
Banks party thereto and Morgan Guaranty Trust Company of New York, as Agent (as
the same may be amended from time to time, the "Credit Agreement"). Terms
defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the prepayment
hereof and the acceleration of the maturity hereof.
Ultramar Diamond Shamrock Corporation
By
-----------------------------------
Name:
Title:
2
<PAGE> 105
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount Type Amount of
of of Principal Notation
Date Loan Loan Repaid Made By
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
</TABLE>
3
<PAGE> 106
EXHIBIT B - Money Market Quote Request
FORM OF MONEY MARKET QUOTE REQUEST
[Date]
To: Morgan Guaranty Trust Company of New York
(the "Agent")
From: Ultramar Diamond Shamrock Corporation
Re: Credit Agreement (the "Credit Agreement") dated as of December
19, 1996 among Ultramar Diamond Shamrock Corporation, the
Banks party thereto and the Agent
We hereby give notice pursuant to Section 2.3 of the Credit
Agreement that we request Money Market Quotes for the following proposed Money
Market Borrowing(s):
Date of Borrowing: __________________
Principal Amount(1) Interest Period(2)
$
____________________
(1) Amount must be $5,000,000 or a larger multiple of
$1,000,000.
(2) Not less than one month (LIBOR Auction) or not less than 7
days (Absolute Rate Auction), subject to the provisions of the
definition of Interest Period.
<PAGE> 107
Such Money Market Quotes should offer a Money Market [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]
Terms used herein have the meanings assigned to them in the
Credit Agreement.
Ultramar Diamond Shamrock Corporation
By
-----------------------------------
Name:
Title:
2
<PAGE> 108
EXHIBIT C - Invitation for Money Market Quotes
FORM OF INVITATION FOR MONEY MARKET QUOTES
To: [Name of Bank]
Re: Invitation for Money Market Quotes to Ultramar Diamond Shamrock
Corporation (the "Borrower")
Pursuant to Section 2.3 of the Credit Agreement dated as of
December 19, 1996 among Ultramar Diamond Shamrock Corporation, the Banks party
thereto and the undersigned, as Agent, we are pleased on behalf of the Borrower
to invite you to submit Money Market Quotes to the Borrower for the following
proposed Money Market Borrowing(s):
Date of Borrowing: __________________
Principal Amount Interest Period
$
Such Money Market Quotes should offer a Money Market [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]
Please respond to this invitation by no later than [2:00
P.M.] [9:30 A.M.] (New York City time) on [date].
<PAGE> 109
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By
-----------------------------------
Authorized Officer
2
<PAGE> 110
EXHIBIT D - Money Market Quote
FORM OF MONEY MARKET QUOTE
To: Morgan Guaranty Trust Company of New York, as Agent
Re: Money Market Quote to Ultramar Diamond Shamrock Corporation (the
"Borrower")
In response to your invitation on behalf of the Borrower
dated _____________, 19__, we hereby make the following Money Market Quote on
the following terms:
1. Quoting Bank: ________________________________
2. Person to contact at Quoting Bank:
_____________________________
3. Date of Borrowing: ____________________*
4. We hereby offer to make Money Market Loan(s) in the following
principal amounts, for the following Interest Periods and at the
following rates:
<TABLE>
<CAPTION>
Principal Interest Money Market
Amount** Period*** [Margin****] [Absolute Rate*****]
- -------- --------- ---------------------------------
<S> <C> <C>
$
$
</TABLE>
[Provided, that the aggregate principal amount of Money Market Loans
for which the above offers may be accepted shall not exceed
$____________.]**
__________
* As specified in the related Invitation.
** Principal amount bid for each Interest Period may not exceed principal
amount requested. Specify aggregate limitation if the sum of the
individual offers exceeds the
<PAGE> 111
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Credit Agreement
dated as of December 19, 1996 among Ultramar Diamond Shamrock Corporation, the
Banks party thereto and yourselves, as Agent, irrevocably obligates us to make
the Money Market Loan(s) for which any offer(s) are accepted, in whole or in
part.
Very truly yours,
[NAME OF BANK]
Dated: By:
------------------ -----------------------------------
Authorized Officer
__________
amount the Bank is willing to lend. Each bid must be made for
$5,000,000 or a larger multiple of $1,000,000.
*** Not less than one month or not less than 30 days, as specified in the
related Invitation. No more than five bids are permitted for each
Interest Period.
**** Margin over or under the London Interbank Offered Rate determined for
the applicable Interest Period. Specify percentage (to the nearest
1/10,000 of 1%) and specify whether "PLUS" or "MINUS".
***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%).
2
<PAGE> 112
EXHIBIT E - Opinion of Counsel for the Borrower
OPINION OF
GENERAL COUNSEL OF THE BORROWER
December 19, 1996
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
I am Executive Vice President, General Counsel and Secretary of
Ultramar Diamond Shamrock Corporation (the "Borrower") and I am familiar with
the Credit Agreement dated as of December 19, 1996 (the "Credit Agreement")
among the Borrower, the Banks party thereto, and Morgan Guaranty Trust Company
of New York, as Agent. Terms defined in the Credit Agreement are used herein
as therein defined. The Credit Agreement and the Notes are collectively
referred to as the "Documents." This opinion is being rendered to you pursuant
to Section 3.2(b) of the Credit Agreement.
I have examined such corporate documents of the Borrower, certificates
of public officials, and other agreements, instruments, certificates and
documents as I have deemed necessary as a basis for the opinions expressed
herein.
In rendering the opinions expressed below, I have assumed,
with your permission and without independent verification, that:
<PAGE> 113
(a) the signatures of all persons (other than the
Borrower) signing documents in connection with which this opinion is
rendered are genuine and authorized;
(b) all documents submitted to me as originals or
duplicate originals are authentic;
(c) all documents submitted to me as copies, whether
certified or not, conform to authentic original documents; and
(d) all parties to the Credit Agreement (other than the
Borrower) have full power and authority to execute, deliver and
perform their obligations under such documents, and all such documents
have been duly authorized by all necessary action on the part of
parties thereto (other than the Borrower), have been duly executed and
delivered by such other parties, and are valid, binding and
enforceable obligations of such other parties.
Subject to the foregoing and to further qualifications and limitations
set forth below, I am of the opinion that:
1. The Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of Delaware and has all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes (a) are within the Borrower's corporate powers,
(b) have been duly authorized by all necessary corporate action, (c) do not
require any action by or in respect of, or filing with, any governmental body,
agency or official and (d) do not contravene, or constitute a default under,
any provision of applicable Law or regulation or of the Borrower's certificate
of incorporation or by-laws or, to the best
2
<PAGE> 114
of my knowledge, of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Borrower or any of its Subsidiaries or result in
the creation or imposition of any Lien on any asset of the Borrower or any of
its Significant Subsidiaries.
3. The Credit Agreement constitutes a valid and binding agreement
of the Borrower and each Note issued thereunder today constitutes a valid and
binding obligation of the Borrower, in each case enforceable in accordance with
its terms.
4. There is no action, suit or proceeding pending against, or to
the best of my knowledge threatened against or affecting, the Borrower or any
of its Subsidiaries before any court or arbitrator or any governmental body,
agency or official which could reasonably be expected to have a Material
Adverse Effect or which in any manner draws into question the validity of the
Credit Agreement or the Notes.
5. Each of the Borrower's corporate Significant Subsidiaries is a
corporation validly existing and in good standing under the laws of its
jurisdiction of incorporation except where the failure to validly exist or to
be in good standing could not reasonably be expected to have a Material Adverse
Effect.
My opinions are subject to the following qualifications:
(i) my opinions are subject to the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar
laws affecting creditors' or secured creditors' rights generally;
(ii) the binding effect and enforceability of the
Documents and the availability of injunctive relief or other equitable
remedies thereunder are subject to the effect of general principles of
equity (regardless of whether enforcement is considered in proceedings
at law or in equity);
3
<PAGE> 115
(iii) the binding effect and the enforceability of the
Documents are subject to the effect of laws and judicial decisions
which have imposed duties and standards of conduct (including, without
limitation, obligations of good faith, fair dealing and
reasonableness) upon creditors or secured creditors;
(iv) I express no opinion as to the enforceability of
cumulative remedies to the extent such cumulative remedies purport to
or would have the effect of compensating the party entitled to the
benefits thereof in amounts in excess of the actual loss suffered by
such party;
(v) requirements in the Documents specifying that
provisions thereof may only be waived in writing may not be valid,
binding or enforceable to the extent that an oral agreement or an
implied agreement by trade practice or course of conduct has been
created modifying any provision of such documents;
(vi) waivers of equitable rights and defenses may not be
valid, binding or enforceable under state or federal law;
(vii) I express no opinion as to the enforceability of the
indemnification provisions of the Documents insofar as said provisions
contravene public policy; and
(viii) I am admitted to practice law in the State of New
York and as such, I express no opinion as to, or the effect or
applicability of, any laws other than the General Corporation Law of
the State of Delaware, the laws of the State of New York and the
federal laws of the United States of America.
My opinions are limited to the specific issues addressed and are
limited in all respects to laws and facts existing on the date hereof. By
rendering these opinions, I do not
4
<PAGE> 116
undertake to advise you of any changes in such laws or facts which may occur
after the date hereof.
This letter is furnished to you pursuant to the Credit Agreement and
is not to be relied upon by any other person or entity or used, circulated,
quoted or otherwise relied upon for any other purpose except that it may be
relied upon as of the date hereof by persons which become Banks after the date
hereof.
Sincerely,
5
<PAGE> 117
EXHIBIT F - Opinion of Special Counsel for the Agent
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE AGENT
December 19, 1996
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the Credit
Agreement dated as of December 19, 1996 (the "Credit Agreement") among Ultramar
Diamond Shamrock Corporation, a Delaware corporation (the "Borrower"), the
Banks party thereto, and Morgan Guaranty Trust Company of New York, as Agent
and have acted as special counsel for the Agent for the purpose of rendering
this opinion pursuant to Section 3.2(b) of the Credit Agreement. Terms defined
in the Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and Law as we have deemed necessary or advisable
for purposes of this opinion.
<PAGE> 118
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Borrower of
the Credit Agreement and the Notes are within the Borrower's corporate powers,
and have been duly authorized by all necessary corporate action.
2. The Credit Agreement constitutes a valid and binding
agreement of the Borrower and each Note issued thereunder today constitutes a
valid and binding obligation of the Borrower, in each case enforceable in
accordance with its terms except as the same may be limited by bankruptcy,
insolvency or similar Laws affecting creditors' rights generally and by general
principles of equity.
We are members of the Bar of the State of New York and the
foregoing opinion is limited to the Laws of the State of New York, the federal
Laws of the United States of America and the General Corporation Law of the
State of Delaware. In giving the foregoing opinion, we express no opinion as
to the effect (if any) of any Law of any jurisdiction (except the State of New
York) in which any Bank is located which limits the rate of interest that such
Bank may charge or collect.
This opinion is rendered solely to you in connection with the
above matter. This opinion may not be relied upon by you for any other purpose
or relied upon by any other person without our prior written consent.
Very truly yours,
2
<PAGE> 119
EXHIBIT G - Assignment and Assumption Agreement
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among (NAME OF ASSIGNOR)
(the "Assignor"), (NAME OF ASSIGNEE) (the "Assignee"), Ultramar Diamond
Shamrock Corporation (the "Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as Agent (the "Agent").
WHEREAS, this Assignment and Assumption Agreement (the
"Agreement") relates to the Credit Agreement dated as of December 19, 1996
among the Borrower, the Assignor and the other Banks party thereto, as Banks,
and the Agent (as amended from time to time, the "Credit Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor
has a Commitment to make Loans to the Borrower and participate in Letters of
Credit in an aggregate principal amount at any time outstanding not to exceed
$____________;
WHEREAS, Committed Loans made to the Borrower by the Assignor
under the Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof; and
WHEREAS, Letters of Credit with a total amount available for
drawing thereunder of $__________ are outstanding at the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all
of the rights of the Assignor under the Credit Agreement in respect of a
portion of its Commitment thereunder in an amount equal to $__________ (the
"Assigned Amount"), together with a corresponding portion of its
<PAGE> 120
outstanding Committed Loans and Letter of Credit Liabilities, and the Assignee
proposes to accept assignment of such rights and assume the corresponding
obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise
defined herein have the respective meanings set forth in the Credit Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells
to the Assignee all of the rights of the Assignor under the Credit Agreement to
the extent of the Assigned Amount, and the Assignee hereby accepts such
assignment from the Assignor and assumes all of the obligations of the Assignor
under the Credit Agreement to the extent of the Assigned Amount, including the
purchase from the Assignor of the corresponding portion of the principal amount
of each of the Committed Loans made by, and Letter of Credit Liabilities of,
the Assignor outstanding at the date hereof. Upon the execution and delivery
hereof by the Assignor, the Assignee, [the Borrower, the Issuing Banks and the
Agent] and the payment of the amounts specified in Section 3 required to be
paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed
to the rights and be obligated to perform the obligations of a Bank under the
Credit Agreement with a Commitment in an amount equal to the Assigned Amount,
and (ii) the Commitment of the Assignor shall, as of the date hereof, be
reduced by a like amount and the Assignor released from its obligations under
the Credit Agreement to the extent such obligations have been assumed by the
Assignee. The assignment provided for herein shall be without recourse to the
Assignor.
SECTION 3. Payments. As consideration for the assignment and
sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor
on the date hereof in
2
<PAGE> 121
Federal funds the amount heretofore agreed between them.(1) It is understood
that commitment and/or facility fees accrued before the date hereof are for the
account of the Assignor and such fees accruing on and after the date hereof are
for the account of the Assignee. Each of the Assignor and the Assignee agrees
that if it receives any amount under the Credit Agreement which is for the
account of the other party hereto, it shall receive the same for the account of
such other party to the extent of such other party's interest therein and
promptly pay the same to such other party.
SECTION 4. Consent of the [Borrower, the Agent and] the
Issuing Banks. This Agreement is conditioned upon the consent of [the
Borrower, the Agent and] the Issuing Banks pursuant to Section 11.6(c) of the
Credit Agreement. The execution of this Agreement by such Persons is evidence
of their consent. [Pursuant to Section 11.6(c), the Borrower agrees to execute
and deliver a Note payable to the order of the Assignee to evidence the
assignment and assumption provided for herein.]
SECTION 5. Non-Reliance on Assignor. The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of the
Borrower, or the validity and enforceability of the Borrower's obligations
under the Credit Agreement or any Note. The Assignee acknowledges that it has,
independently and without reliance on the Assignor, and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and will continue to be responsible for
making its own independent appraisal
____________________
(1) Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any portion
of any upfront fee to be paid by the Assignor to the Assignee. It may be
preferable in an appropriate case to specify these amounts generically or by
formula rather than as a fixed sum.
3
<PAGE> 122
of the business, affairs and financial condition of the Borrower.
SECTION 6. Governing Law. This Agreement shall be governed
by and construed in accordance with the Laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
4
<PAGE> 123
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date
first above written.
(NAME OF ASSIGNOR)
By
-----------------------------------
Name:
Title:
(NAME OF ASSIGNEE)
By
-----------------------------------
Name:
Title:
[ULTRAMAR DIAMOND SHAMROCK
CORPORATION
By
-----------------------------------
Name:
Title:]
[MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By
-----------------------------------
Name:
Title:]
5
<PAGE> 124
[LETTER OF CREDIT ISSUING BANK]
By
-----------------------------------
Name:
Title:
6
<PAGE> 1
EXHIBIT 10.49
EXECUTION COPY
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT dated as of December 31, 1996 among ULTRAMAR DIAMOND
SHAMROCK CORPORATION (the "Borrower"), the BANKS listed on the signature pages
hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent
(the "Agent").
W I T N E S S E T H :
WHEREAS, the parties hereto have heretofore entered into a
Credit Agreement dated as of December 19, 1996 (the "Agreement"); and
WHEREAS, the parties hereto desire to amend certain provisions
of the Agreement in the manner set forth below;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise
specifically defined herein, each term used herein which is defined in the
Agreement shall have the meaning assigned to such term in the Agreement. Each
reference to "hereof", "hereunder", "herein" and "hereby" and each other
similar reference and each reference to "this Agreement" and each other similar
reference contained in the Agreement shall from and after the date hereof refer
to the Agreement as amended hereby.
SECTION 2. Amendment of Section 1.1 of the Agreement. The
definition of "Consolidated Net Income" in Section 1.1 is amended to read in
its entirety as follows:
<PAGE> 2
"Consolidated Net Income" means, for any period, the net
income (or loss) of the Borrower and its Consolidated Subsidiaries for
such period; provided that there shall be excluded (i) any after-tax
gains or losses attributable to asset sales (other than sales in the
ordinary course of business) or returned surplus assets of any Plan,
(ii) up to $127,800,000 of non-recurring charges in connection with or
as a result of (A) the Merger or (B) certain changes to conform the
accounting practices of Ultramar Corporation and Diamond Shamrock,
Inc. and (iii) to the extent not included in clauses (i) and (ii), any
net extraordinary gains or net extraordinary losses.
SECTION 3. Governing Law. This Amendment shall be governed
by and construed in accordance with the laws of the State of New York.
SECTION 4. Counterparts; Effectiveness. This Amendment may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective as of the date hereof when
the Agent shall have received duly executed counterparts hereof signed by the
Borrower and the Required Banks (or, in the case of any party as to which an
executed counterpart shall not have been received, the Agent shall have
received telegraphic, telex or other written confirmation from such party of
execution of a counterpart hereof by such party).
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first above written.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
By
-----------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
-----------------------------------
Title:
BARCLAYS BANK PLC
By
-----------------------------------
Title:
THE CHASE MANHATTAN BANK
By
-----------------------------------
Title:
3
<PAGE> 4
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By
--------------------------------
Title:
CIBC INC
By
----------------------------------
Title:
ROYAL BANK OF CANADA
By
----------------------------------
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By
--------------------------------
Title:
BANK OF TOKYO-MITSUBISHI, LTD.
By
--------------------------------
Title:
4
<PAGE> 5
THE FUJI BANK, LIMITED HOUSTON AGENCY
By
---------------------------------
Title:
NATIONSBANK OF TEXAS, N.A.
By
----------------------------------
Title:
SOCIETE GENERALE
By
----------------------------------
Title:
THE BANK OF NOVA SCOTIA
By
---------------------------------
Title:
BANK ONE, TEXAS N.A.
By
----------------------------------
Title:
5
<PAGE> 6
THE FROST NATIONAL BANK
By
----------------------------------
Title:
THE SANWA BANK LIMITED,
DALLAS AGENCY
By
----------------------------------
Title:
THE SUMITOMO BANK, LIMITED
By
----------------------------------
Title:
UNION BANK OF SWITZERLAND
By
---------------------------------
Title:
BANK OF SCOTLAND
By
---------------------------------
Title:
6
<PAGE> 7
TORONTO DOMINION (NEW YORK), INC.
By
--------------------------------
Title:
7
<PAGE> 1
EXHIBIT 10.50
CREDIT AGREEMENT
CDN. $200,000,000
DECEMBER 19, 1996
BETWEEN
CANADIAN ULTRAMAR COMPANY
- and -
ULTRAMAR DIAMOND SHAMROCK CORPORATION
- and -
THE LENDERS HERETO
- and -
CANADIAN IMPERIAL BANK OF COMMERCE
<PAGE> 2
CREDIT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1
DEFINITIONS
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.3 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.5 Certificates and Opinions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.6 Evidence of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 2
THE CREDIT AND DRAWDOWNS
2.1 Establishment of Credit and Replacement of Existing Credit Agreement . . . . . . . . . . . 20
2.2 Drawdown Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.3 Availment of the Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.4 Drawdown Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.5 Rollover/Conversion Drawdowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.6 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.7 Pro-Rata Availment and Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.8 Maximum Rate of Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.9 Hostile Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 3
REDUCTION OF THE CREDIT
3.1 Revolving Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.2 Mandatory Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.3 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.4 Cancellation of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 4
LOANS
4.1 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.2 Accrual and Payment of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
4.3 Default Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.4 LIBOR Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.5 Selection of Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.6 Determination of Credit Rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.7 Effective Date for Changes in Credit Ratings . . . . . . . . . . . . . . . . . . . . . . . 29
4.8 Credit Ratings no Longer Provided . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.9 Agent's Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 5
BANKERS' ACCEPTANCES
5.1 Creation of Bankers' Acceptances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2 Stamping Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.3 Pre-Signed Bankers' Acceptances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.4 Execution of Bankers' Acceptances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.5 Sale of Bankers' Acceptances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.6 Discharge of Bankers' Acceptances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.7 Bankers' Acceptances Outstanding upon Default . . . . . . . . . . . . . . . . . . . . . . . 32
5.8 Obligations Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.9 Discount Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 6
LETTERS OF CREDIT
6.1 Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.2 Issuance of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.4 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.5 Discharge of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.6 Letters of Credit Outstanding Upon Default . . . . . . . . . . . . . . . . . . . . . . . . 35
6.7 Non-Syndicated LCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 7
CHANGE IN CIRCUMSTANCES AND INDEMNITIES
7.1 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.2 Lack of LIBOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.3 Unlawful, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.4 Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.5 Currency Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.6 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
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<TABLE>
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ARTICLE 8
PAYMENTS
8.1 Place and Manner of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.2 Payment by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.3 Net Payments, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.5 Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 9
CONDITIONS PRECEDENT
9.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.2 Conditions Precedent to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.3 Condition Precedent to Each Drawdown . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.4 Conditions Precedent to Certain Drawdowns . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
10.1 Existence and Business; Power and Authorization; Enforceable Obligations. . . . . . . . . . 42
10.2 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.3 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.4 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.5 Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.6 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.7 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.8 Investment Company Act; Public Utility Holding Company Act . . . . . . . . . . . . . . . . 46
10.9 No Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.11 Foreign Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.13 Ownership of Property; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.14 Accuracy and Completeness of Information . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.16 Significant Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
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<TABLE>
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ARTICLE 11
AFFIRMATIVE COVENANTS
11.1 Information Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.2 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.3 Notice of Default, Litigation or Other Event . . . . . . . . . . . . . . . . . . . . . . . 50
11.4 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.5 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11.6 Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11.7 Books, Records and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
11.8 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
11.9 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
11.10 Existence, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
11.11 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
11.12 Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
11.13 Ownership of Significant Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
11.14 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 12
NEGATIVE COVENANTS
12.1 Restriction on Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.2 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.3 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.4 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.5 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.6 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.7 Holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE 13
EVENTS OF DEFAULT; REMEDIES
13.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(a) Failure to Make Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(b) Breach of Representation or Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(c) Breach of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(d) Default Under Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(e) Bankruptcy, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(f) Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(g) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(h) Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(i) Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
13.2 Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
</TABLE>
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<TABLE>
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ARTICLE 14
THE AGENT
14.1 Appointment and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
14.2 Agent and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
14.3 Action by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
14.4 Consultation with Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
14.5 Liability of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
14.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
14.7 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
14.8 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
14.9 Agent's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE 15
MISCELLANEOUS
15.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
15.2 No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
15.3 Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
15.4 Sharing of Set-Offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
15.5 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
15.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
15.7 Governing Law; Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . 66
15.8 Counterparts; Integration; Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . 67
15.9 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SCHEDULES
Schedule "A" - Commitments
Schedule "B" - Drawdown Notice
Schedule "C" - Guarantees
Schedule "D" - Pricing Schedule
Schedule "E" - Significant Subsidiaries
Schedule "F" - Plans
Schedule "G" - Assignment and Assumption Agreement
Schedule "H" - Opinion of Counsel for UDSC
Schedule "I" - Opinion of Canadian Counsel to the Borrower
</TABLE>
<PAGE> 7
CREDIT AGREEMENT
THIS AGREEMENT dated December 19, 1996.
BETWEEN:
CANADIAN ULTRAMAR COMPANY
- and -
ULTRAMAR DIAMOND SHAMROCK CORPORATION
- and -
THE LENDERS HERETO
- and -
CANADIAN IMPERIAL BANK OF COMMERCE
PREAMBLE:
1. The Lenders have agreed to provide the Credit to the
Borrower and in support, UDSC has agreed to guarantee all of the obligations of
the Borrower under the Credit, on the terms and conditions provided for by this
Agreement and the Guarantee.
2. At the request of the Lenders and the Borrower, CIBC has
agreed to act as agent for the Lenders.
3. The Credit replaces in all respects the credit established
under the Existing Credit Agreement.
<PAGE> 8
- 2 -
AGREEMENT:
In consideration of the covenants and agreements between the
Parties contained in this Agreement and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties agree
as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. In this Agreement the following terms have the
meanings set forth below.
"ACCOMMODATION" means an Advance by way of the following:
(a) Prime Rate Loans, including by way of Overdraft;
(b) Base Rate Loans, including by way of Overdraft;
(c) LIBOR Loans;
(d) Letters of Credit and Non-Syndicated LCs issued by CIBC; or
(e) Bankers' Acceptances.
"ADJUSTED CONSOLIDATED DEBT" means with respect to any Person, Indebtedness
which is or should be reflected on a consolidated balance sheet of such Person,
minus, to the extent reflected as assets on a consolidated balance sheet of
such Person, the sum of the following:
(a) direct obligations of the Government of Canada or of the
United States of America, or of any agency thereof or
obligations guaranteed as to principal and interest by the
United States of America or any agency thereof, in either
case, maturing not more than 180 days from the date of
acquisition thereof by such Person;
(b) cash;
<PAGE> 9
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(c) time deposits, bankers' acceptances or certificates of deposit
issued by a Restricted Bank maturing not more than 180 days
from the date of acquisition thereof;
(d) commercial paper rated A-2 or better or P-2 or better by S&P
or Moody's, respectively, maturing not more than 180 days from
the date of acquisition thereof; and
(e) other debt obligations rated at least A- by S&P or A3 by
Moody's, respectively, maturing not more than 180 days from
the date of acquisition thereof.
"ADVANCE" means the advance of funds or the providing of credit by the Lenders
to the Borrower under the Credit by way of an Accommodation, including all
conversions and rollovers thereof.
"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. For purposes of this definition, a Person will be
deemed to control another Person if such Person possesses, directly or
indirectly, the power to (a) vote 10% or more of the securities having ordinary
voting power for the election of directors of such other Person or (b) direct
or cause the direction of the management and policies of such other Person,
whether through the ownership of voting securities, by contract or otherwise.
"AGENT" means CIBC and its successors in such capacity as agent for the
Lenders.
"APPLICABLE CREDIT SPREAD" means as at the date of determination, the
applicable spread based on the Credit Ratings, over LIBOR, the facility fee
payable pursuant to Section 2.6, the stamping fee payable pursuant to Section
5.2, and the Letter of Credit fee payable pursuant to Section 6.3(a), all as
set forth in the Pricing Schedule.
"AUTHORIZED OFFICER" means (a) with respect to any Person that is a
corporation, the chief executive officer, the president, any executive vice
president, any senior vice president, any vice president, the treasurer, or the
chief financial officer of such Person, (b) with respect to any Person that is
a partnership, the president, any executive vice president, any senior vice
president, any vice president, the treasurer or the chief financial officer of
a general partner of such Person, (c) with respect to any Person that is a
limited liability company, the president, any executive vice president, any
senior vice president, any vice president, the treasurer or the chief financial
officer of such Person, or (d) with respect to any other Person, such
representative of such Person that is approved by the Agent in writing. No
Person will be deemed to be an Authorized Officer until named on a certificate
of incumbency of such Person delivered to the Agent from time to time.
<PAGE> 10
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"BANKERS' ACCEPTANCE" means a bill of exchange drawn by the Borrower and
accepted by the Lenders or a permitted participant, transferee or assignee of
the Lenders payable in Canada, and to the extent applicable, includes a
Discount Note issued by the Borrower and purchased by a Lender pursuant to
Section 5.9.
"BANKING DAY" means any day on which the Lenders are open for business in
Montreal, Quebec, Toronto, Ontario and, in the case of any determination to be
made in respect of a LIBOR Loan, on a Banking Day on which dealings are carried
out in the London inter-bank market and banks are open for business in New
York, New York, U.S.A.
"BASE RATE" means the rate of interest per annum which is the greater of (a)
the rate established by the Agent from time to time as a reference for the
determination of interest rates that the Agent charges for US dollar loans made
by it in Canada, as adjusted from time to time and without notice to the
Borrower upon change by the Agent, and (b) the Federal Funds Rate plus 50 basis
points.
"BASE RATE LOAN" means a Loan on which interest is calculated with reference to
the Base Rate.
"BORROWER" means Canadian Ultramar Company, a Nova Scotia unlimited liability
company and its successor and permitted assigns.
"BORROWING AMOUNT" means, in the case of:
(a) a Prime Rate Loan or a Base Rate Loan (in each case except by
way of Overdraft), a minimum Drawdown of Cdn. $5,000,000 (Cdn.
$ or U.S. $, as applicable);
(b) a LIBOR Loan, a minimum Drawdown of U.S.$5,000,000; and
(c) a Bankers' Acceptance, a minimum Drawdown of Cdn. $5,000,000
plus any whole multiple of Cdn. $100,000.
"CDN. DOLLARS", "CDN. $" AND "$ CDN." means lawful currency of Canada.
"CAPITAL LEASE" means any lease which in accordance with GAAP is required to be
capitalized on a consolidated balance sheet of the Borrower, UDSC and their
respective Consolidated Subsidiaries, and for purposes of the Documents, the
amount of these obligations shall be the amount so capitalized.
<PAGE> 11
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"CDOR" means the average yield to maturity for bankers' acceptances which is
quoted on Reuter's Canadian Deposit Offered Rate screen, at approximately 10:00
am (New York time) on the applicable date on which an Advance shall take place,
for bankers' acceptances having a term to maturity of 1 month.
"CHANGE OF CONTROL" shall be deemed to have occurred at such time as any Person
or any Persons acting together which would constitute a "group" (a "Group") for
purposes of Section 13(d) of the United States Securities Exchange Act of 1934,
as amended, becomes the beneficial owner of 35% or more of the total voting
power of all classes of voting stock of UDSC or the Borrower, as the case may
be, or such Person or Group succeeds in having sufficient of its nominees
elected to the board of directors of UDSC or the Borrower, as the case may be,
such that such nominees, when added to any existing director remaining on such
board of directors after such election who is an Affiliate of such Group, will
constitute a majority of such board of directors; provided that a "Change of
Control" shall not include a Permitted Transaction.
"CIBC" means Canadian Imperial Bank of Commerce, a Canadian chartered bank and
its successors and permitted assigns.
"CLOSING DATE" means December 19, 1996 or such other date as the Parties may
agree upon in writing.
"CODE" means the United States Internal Revenue Code of 1986, as amended from
time to time, and any successor statute.
"COMMITMENT" means the obligation of a Lender to make available to the Borrower
hereunder an aggregate principal amount in Canadian Dollars, or the Exchange
Equivalent thereof, at any one time outstanding of up to but not exceeding the
amount set out opposite its name in Schedule "A" to the extent not cancelled,
reduced or terminated pursuant to this Agreement.
"CONSOLIDATED CASH INTEREST EXPENSE" means, in respect of the Borrower or UDSC,
as applicable, Consolidated Interest Expense excluding, however, interest
expense not payable in cash (including amortization of discount).
"CONSOLIDATED EBITDA" means in respect of the Borrower or UDSC, as applicable,
for any period, Consolidated Net Income for such period plus, to the extent
deducted in such period in the determination of Consolidated Net Income:
(a) provisions for taxes based on income;
<PAGE> 12
- 6 -
(b) Consolidated Interest Expense;
(c) depreciation; and
(d) amortization.
"CONSOLIDATED INTEREST EXPENSE" means in respect of the Borrower or UDSC, as
applicable, and its Consolidated Subsidiaries, for any period, total interest
expense (including that portion attributable to Capital Leases in accordance
with GAAP and capitalized interest that is payable in cash) net of interest
income with respect to all outstanding Indebtedness, including without
limitation, all commissions, discounts (including Discount Notes) and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financings.
"CONSOLIDATED NET INCOME" means, in respect of the Borrower or UDSC, as
applicable, and its Consolidated Subsidiaries, for any period, the net income
(or loss) for such period; provided that there shall be excluded:
(a) any after-tax gains or losses attributable to asset sales
(other than sales in the ordinary course of business) or
returned surplus assets of any Plan; and
(b) to the extent not included in paragraph (a) above, any net
extraordinary gains or net extraordinary losses.
"CONSOLIDATED NET TANGIBLE ASSETS" means at any date and in respect of the
Borrower or UDSC the total consolidated assets of the Borrower or UDSC and its
Consolidated Subsidiaries, less all goodwill, trade names, trademarks,
patents, unamortized debt discount and expense and other like intangible items.
"CONSOLIDATED NET WORTH" means at any date and in respect of the Borrower or
UDSC, as applicable, and its Consolidated Subsidiaries, its consolidated
shareholders' equity determined as of such date.
"CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary or other entity the
accounts of which would be consolidated under GAAP with those of the Borrower
or UDSC, as applicable, in its consolidated financial statements if such
statements were prepared as of such date.
"CONTEST" means, with respect to any Tax, Lien, or claim, a contest pursued in
good faith and by appropriate proceedings diligently conducted or pursued by
other reasonable methods, so long as the failure to pay or discharge any such
Tax, Lien or claim during the pendency of such contest
<PAGE> 13
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would not otherwise have a Material Adverse Effect on the Person subject to any
such Tax, Lien or claim.
"CONTINGENT OBLIGATION" means, with respect to any Person, any obligation of
such Person guaranteeing or intended to guarantee any Indebtedness ("primary
obligations") of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, any obligation
of such Person, whether or not contingent;
(a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor from the
primary obligee;
(b) to advance or supply funds for the payment of any such primary
obligation or to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor;
(c) to purchase property, securities or services primarily for the
purpose of assuring the primary obligee of the ability of the
primary obligor to make payment of such primary obligation; or
(d) otherwise to assure or hold harmless the primary obligee
against loss in respect of such primary obligation;
provided, however, that the term Contingent Obligation does not include
endorsements of instruments for deposit or collection in the ordinary course of
business.
"CREDIT" means the credit established by Section 2.1.
"CREDIT RATINGS" means the ratings given to UDSC's senior unsecured debt
obligations as published from time to time by S&P and Moody's.
"DEFAULT" means an event which, with the giving of notice and/or lapse of time
would constitute an Event of Default.
"DEFAULT RATE" means the rate of interest applicable to the underlying
obligation to which the "Default Rate" is said to apply plus 1% per annum.
"DESIGNATED BRANCH" means initially the main branch of CIBC as shown on the
signature pages hereto, or such other branch as the Agent may from time to time
designate with the consent of the Borrower.
<PAGE> 14
- 8 -
"DISCOUNT NOTES" has the meaning set forth in Section 5.9.
"DOCUMENTARY LETTERS OF CREDIT" means a documentary letter of credit issued by
the Agent at the request and for the account of the Borrower in such amount and
of such term as may be agreed to by the Borrower and the Agent.
"DOCUMENTS" means this Agreement, the Guarantee and all other agreements
delivered or to be delivered to the Lenders pursuant hereto or thereto and,
when used in relation to any Person, the term "Documents" shall mean and refer
to those Documents executed and delivered by such Person, including as any of
the Documents may be amended, modified, supplemented, restated or replaced,
from time to time.
"DRAWDOWN" means the availment by the Borrower of an Accommodation as permitted
by Article 2 and includes a Rollover/Conversion Drawdown.
"DRAWDOWN NOTICE" means a notice in the form of Schedule "B" delivered pursuant
to Section 2.4.
"ENVIRONMENTAL APPROVALS" means any Governmental Approvals required under
applicable Environmental Laws.
"ENVIRONMENTAL CLAIM" means any written notice, claim, demand or similar
communication by any Person alleging potential liability (including, without
limitation, potential liability for investigatory costs, clean-up costs,
governmental response costs, natural resources damages, property damages,
personal injuries, fines or penalties) arising out of, based on or resulting
from (a) the presence, or release into the environment, of any Materials of
Environmental Concern at any location, whether or not owned by such Person or
(b) circumstances forming the basis of any violation or alleged violation, of
any Environmental Law or Environmental Approval.
"ENVIRONMENTAL LAWS" means all Laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata).
"ERISA" means the United States Employee Retirement Income Security Act of
1974, as amended from time to time. Section references to ERISA are to ERISA,
as in effect at the date of this Agreement and any subsequent provisions of
ERISA amendatory thereof, supplemental thereto or substituted therefor.
<PAGE> 15
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"ERISA CONTROLLED GROUP" means the group consisting of UDSC and all members of
a controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control with UDSC that, together with such Person,
are treated as a single employer under regulations of the PBGC.
"ERISA PERSON" has the meaning set forth in Section 3(9) of the ERISA for the
term "person".
"ERISA PLAN" means (a) any Plan that (i) is not a Multiemployer Plan and (ii)
has Unfunded Benefit Liabilities and (b) any Plan that is a Multiemployer Plan.
"EVENT OF BANKRUPTCY" means with respect to any Person, the occurrence of any
of the following events:
(a) the commencement by such Person of a voluntary case concerning
itself under the Bankruptcy Code (U.S.A.), or the Bankruptcy
and Insolvency Act (Canada) or other similar Law dealing with
or affecting the rights of creditors generally;
(b) an involuntary action or proceeding is commenced against such
Person to render such Person a bankrupt or to seize or bring
under the control of a custodian, receiver, trustee, or other
like Person, substantially all of such Person's property and
the action or proceeding is not controverted within 30 days,
or is not dismissed within 60 days, after commencement
thereof;
(c) a custodian, receiver, trustee or other like Person is
appointed for, or takes charge of, all or substantially all of
the property of such Person;
(d) such Person commences any other proceedings under any
reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar Law
of any jurisdiction whether now or hereafter in effect
relating to such Person or there is commenced against such
Person any such proceeding which remains undismissed for a
period of 60 days;
(e) the entrance of any order for relief or other order approving
any such case or proceeding involving such Person;
(f) such Person is adjudicated insolvent or bankrupt;
<PAGE> 16
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(g) such Person suffers any appointment of any custodian,
receiver, trustee or other like Person for it or any
substantial part of its property to continue undischarged or
unstayed for a period of 60 days;
(h) such Person makes a general assignment for the benefit of
creditors;
(i) such Person shall fail to pay, or shall state that it is
unable to pay, or shall be unable to pay, its debts generally
as they become due;
(j) such Person shall by any act or failure to act consent to,
approve of or acquiesce in any of the foregoing for a period
of 60 days; or
(k) any action as the case may be, is taken by such Person for the
purpose of effecting any of the foregoing.
"EVENT OF DEFAULT" has the meaning given in Article 13.
"EXCESS AMOUNT" means the excess, if any, as at the date of determination, of:
(a) the aggregate of the outstanding Advances under the Credit in
Cdn. Dollars and the Exchange Equivalent in Cdn. Dollars at
such date of the outstanding Advances under the Credit in U.S.
Dollars; over
(b) the then aggregate amount of the Commitments of all Lenders,
provided that if the amount of such difference calculated by the Agent as
aforesaid is less than Cdn. $10,000, or the Exchange Equivalent in U.S.
Dollars, the difference for purposes of Section 8.4 only, shall be deemed to be
nil.
"EXCHANGE EQUIVALENT" in respect of one currency (the "original currency"),
being Cdn. Dollars or U.S. Dollars, as the case may be, means, at the date of
determination, the amount of currency expressed in the other currency, based on
the Bank of Canada's Noon Rate on such date, with the specified amount of the
original currency on such date.
"EXISTING CREDIT AGREEMENT" means the Second Amended and Restated Credit
Agreement dated as of December 30, 1993, among Canadian Ultramar Limited
(predecessor to the Borrower), UDSC, (formerly known as Ultramar Corporation),
Ultramar Ltee. (formerly known as Ultramar Canada Inc.), CIBC, as agent, and
the parties named therein as lenders, as amended, supplemented and restated to
the date hereof.
<PAGE> 17
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"FEDERAL FUNDS RATE" means the rate set forth in the Federal Reserve Bank of
New York weekly statistical release designated as H.15(519), opposite the
caption "Federal Funds (Effective)" or, if such rate is not so published for a
Banking Day, the average of the quotations at approximately 10:00 am (New York
time) on such day based on such transactions received by the Agent from three
federal funds brokers of recognized standing selected by the Agent in its sole
discretion.
"FINANCIAL STANDBY LETTER OF CREDIT" means a standby letter of credit in form
and substance satisfactory to the Lenders issued by the Agent for the account
of the Borrower in support of an obligation arising other than in respect of
the purchase of goods or other trade.
"GAAP" means in respect of the Borrower, generally accepted accounting
principles in Canada and, in respect of UDSC, generally accepted accounting
principles in the United States of America, in effect from time to time,
applied on a basis consistent (except for changes with respect to which UDSC's
or the Borrower's, as the case may be, independent public accountants concur)
with its most recent audited consolidated financial statements delivered to the
Lender.
"GOVERNMENTAL APPROVAL" means any authorization, consent, approval, license,
lease, ruling, permit, certification, exemption or filing for registration by
or with any Governmental Authority.
"GOVERNMENTAL AUTHORITY" means any nation, state, sovereign, or government, any
federal, regional, state, provincial, local or other political subdivision
thereof, and any entity exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government.
"GUARANTEE" means the Guarantee and Postponement of Claim in the form of
Schedule "C" to be executed by UDSC and delivered to the Lenders on the Closing
Date.
"HOLDING" means Canadian Ultramar Holding Corp., a Delaware corporation, and
its successors and permitted assigns.
"HOSTILE ACQUISITIONS" means an offer to acquire, which is required to be
reported to an applicable securities regulatory authority, shares of a
corporation where the board of directors of that corporation has not approved
such offer nor recommended to the shareholders of the corporation that they
sell their shares pursuant to the proposed offer.
"INDEBTEDNESS" means in relation to any Person and without duplication, (a) all
obligations of such Person for borrowed money or for the deferred purchase
price of property or services (other than current trade payables within credit
terms normally prevailing in the industry and accrued liabilities incurred in
the ordinary course of business of such Person), (b) all obligations of such
<PAGE> 18
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Person in respect of principal evidenced by a note, bond, debenture or similar
instrument, (c) the obligations of such Person which are capitalized under
Capital Leases, (d) all non-contingent obligations (and, for purposes of
Section 13.4 and Liens affecting such Person, all Contingent Obligations) of
such Person to reimburse any financial institution or other Person in respect
of amounts paid under a letter of credit or similar instrument, (e) all
indebtedness of any other Person secured by any Lien on any Property owned by
such Person, whether or not such indebtedness has been assumed by such Person,
(f) all obligations of such Person in respect of surety bonds, appeal bonds or
other similar instruments, and (g) all Contingent Obligations of such Person.
"INTEREST PAYMENT DATE" means the last day of an Interest Period and also, in
the case of an Interest Period which is longer than 90 days, each date within
such Interest Period which follows at 90 day intervals after the first day of
such Interest Period.
"INTEREST PERIOD" means:
(a) with respect to each Prime Rate Loan and each Base Rate Loan,
the period commencing on the applicable Drawdown Date and
terminating on the date ultimately selected hereunder by the
Borrower for the conversion of such Advance into another type
of Accommodation or the repayment of such Advance;
(b) with respect to each bankers' acceptance, the period selected
hereunder by the Borrower and being of 1, 2, 3, 4 or 6 months'
duration, or such other duration as is agreed to by the
Borrower and the Lenders, commencing on the Drawdown Date of
such Advance; and
(c) with respect to each Libor Loan, the period selected hereunder
by the Borrower and being of 1, 2, 3, or 6 months' duration,
or such other duration as is agreed to by the Borrower and the
Lenders, commencing on the Drawdown Date of such Advance.
"INTEREST RATE PROTECTION AGREEMENTS" means any interest rate exchange, collar,
cap or similar agreements providing interest rate protection entered into by
the Borrower, UDSC or any of their respective Subsidiaries.
"JOINT PROXY STATEMENT" means the Joint Proxy Statement of UDSC Corporation and
Diamond Shamrock, Inc., dated October 29, 1996, issued in connection with the
Merger.
<PAGE> 19
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"LAW" means, with respect to any Governmental Authority, any constitutional
provision, law, statute, rule, regulation, ordinance, treaty, order, decree,
judgment, decision, certificate, holding, injunction, Governmental Approval or
requirement of such Governmental Authority along with the interpretation and
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof. Unless the context clearly indicates
otherwise, the term "Law" includes each of the foregoing (and each provision
thereof) as in effect at the time in question, including any amendments,
supplements, replacements, or other modifications thereto or thereof, and
whether or not in effect at the date of this Agreement.
"LENDERS" means the Parties named as Lenders in the signature pages of this
Agreement, as such pages are amended from time to time or the Parties who
become Lenders pursuant to Section 15.6 and "Lender" means any of them.
"LETTER OF CREDIT" means a letter of credit issued by the Agent at the request
and for the account of the Borrower in such amount and of such term as may be
agreed by the Borrower and the Agent.
"LIBOR" means, in relation to a LIBOR Loan, the rate of interest per annum,
rounded upwards to the nearest 1/16 of 1%, as determined by the Agent on the
second Banking Day prior to the commencement of the Interest Period during
which such LIBOR Loan is to be outstanding, at which deposits in U.S. Dollars
in amounts comparable to the amount of such LIBOR Loan, for value on the first
day of such Interest Period and for a term equal to the requested Interest
Period, are offered to the Agent in accordance with its normal practice in the
London inter-bank market at or about 10:00 a.m. (New York time) on such second
day.
"LIBOR LOAN" means a Loan on which interest is calculated by reference to the
LIBOR.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind, or any other type of preferential
arrangement that has substantially the same practical effect as a security
interest, in respect of such asset. For the purposes of the Documents, the
Obligors or any of their Subsidiaries will 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 an Advance made by a Lender to the Borrower under this Agreement.
"MAJORITY LENDERS" means Lenders holding, in aggregate, at least 66-2/3% of the
aggregate outstanding Commitments.
<PAGE> 20
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"MATERIAL ADVERSE EFFECT" means a material adverse effect upon:
(a) the business, results of operations, financial condition or
prospects of UDSC and its Consolidated Subsidiaries taken as a
whole,
(b) the ability of the Borrower or UDSC to perform under any
Document; or
(c) the ability of any of the Lenders to enforce any of the
Obligations or any of their rights and remedies against the
Obligors under the Documents.
"MATERIAL FINANCIAL OBLIGATION" means a principal or face amount of
Indebtedness and/or payment or collateralization obligations in respect of
Interest Rate Protection Agreements of the Borrower and/or one or more of its
Subsidiaries, arising in one or more related or unrelated transactions,
exceeding in the aggregate U.S. $25,000,000 or the Exchange Equivalent thereof
in Cdn. Dollars.
"MATERIALS OF ENVIRONMENTAL CONCERN" means all materials, substances and wastes
regulated as hazardous under Environmental Laws.
"MERGER" means the merger of Diamond Shamrock, Inc. with and into Ultramar
Corporation pursuant to the Merger Agreement.
"MERGER AGREEMENT" means the Agreement and Plan of Merger dated as of September
22, 1996 between Ultramar Corporation and Diamond Shamrock, Inc.
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means a Plan which is a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"NON-FINANCIAL STANDBY LETTER OF CREDIT" means a standby letter of credit
issued by the Agent in connection with the purchase of goods or other trade,
but payable upon the presentation of a certificate by the beneficiary of such
letter of credit that payment has not been received in accordance with the
underlying purchase contract, at the request and for the account of the
Borrower.
"NON-SYNDICATED LCS" means letters of credit issued by CIBC from time to time
at the request of the Borrower upon terms and conditions acceptable to CIBC and
the Borrower where the face amount thereof does not individually exceed Cdn. or
U.S. $3,000,000, as the case may be.
<PAGE> 21
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"NOON RATE" means in relation to the conversion of one currency into another
currency, the rate of exchange for such conversion as quoted by the Bank of
Canada (or, if not so quoted, the spot rate of exchange quoted for wholesale
transactions made by the Agent at Toronto, Ontario at approximately noon (New
York time).
"OBLIGATIONS" means all obligations, liabilities and indebtedness of every
nature of the Borrower from time to time owing to the Agent or any Lender under
the Documents including, without limitation, (a) all principal, interest, and
fees, (b) any amount the Agent or any Lender expends on behalf of the Obligors
where the Obligors under the Documents fails to make any such payment when
required under the terms of the Documents, (c) all amounts required to be paid
under any indemnification or similar provision and (d) all obligations in
respect of any Letter of Credit.
"OBLIGOR" means the Borrower, UDSC or Holdings and "OBLIGORS" means any of
them.
"OVERDRAFT" means any Prime Rate Loan or Base Rate Loan made by CIBC to meet a
drawing by way of overdraft upon an account of the Borrower with CIBC; provided
that, the aggregate availability to the Borrower of drawings by way of
Overdrafts made available under the Credit by CIBC by way of Prime Rate Loans
and/or Base Rate Loans shall not exceed the principal amount of Cdn.
$30,000,000 or the Exchange Equivalent thereof in U.S. Dollars.
"PARTICIPANT" has the meaning set forth in Section 15.6(b).
"PARTIES" means each of the Obligors, the Agent and the Lenders and their
respective successors and permitted assigns, and "Party" means anyone of the
Parties.
"PERMITTED TRANSACTION" has the meaning set forth in Section 12.1(a).
"PERSON" means an individual, a partnership, a corporation, a limited liability
company, an unlimited liability company, a trust, an unincorporated
organization, a government or any department or agency thereof or any other
entity whatsoever and the heirs, executors, administrators or other legal
representatives of an individual.
"PBGC" means the United States Pension Benefit Guaranty Corporation.
"PLAN" means any employee benefit plan covered by Title IV of ERISA, the
funding requirements of which: (a) were the responsibility of UDSC or a member
of the ERISA Controlled Group at any time within the five years immediately
preceding the Closing Date, (b) are currently the responsibility of UDSC or a
member of the ERISA Controlled Group, or (c) hereafter become the
<PAGE> 22
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responsibility of UDSC or a member of the ERISA Controlled Group, including any
such plans as may have been, or may hereafter be, terminated for whatever
reason; provided, however, that solely for purposes of Sections 10.10 and 11.5
hereof,(i) the term "ERISA Controlled Group" in (a) and (b) will not include a
Person that was a member of the ERISA Controlled Group solely as a result of
the acquisition of a member of such ERISA Controlled Group by Lasmo plc and
(ii) the Ultramar U.S. Employees Retirement Plan with respect to any period on
or after January 1, 1993 should not be considered a Plan under clause (a).
"PRICING SCHEDULE" means Schedule "D".
"PRIME RATE LOAN" means a Loan on which interest is calculated by reference to
the Prime Rate.
"PRIME RATE" means the rate of interest per annum which is the greater of (a)
the rate established and reported by the Agent from time to time as its
reference rate of interest for determination of interest rates which the Agent
charges in Canada for Canadian dollar loans made by it in Canada, as adjusted
from time to time and without notice to the Borrower upon change by the Agent,
and (b) the rate which is equivalent to CDOR plus 75 basis points.
"PRO RATA SHARE" means, subject to Section 2.9(c), the proportion of any amount
to which a Lender is entitled, or for which a Lender is responsible, and the
Pro Rata Share of a Lender of any amount shall be determined as follows:
(a) the Pro Rata Share of a Lender of any Advance or payment of
principal, interest or fees under the Credit shall be
calculated by multiplying the amount of such Advance or
payment by the Commitment of such Lender and dividing the
result by the aggregate amount of the Commitments of the
Lenders in respect of the Credit subject to adjustment
proportionately for any amounts by which Accommodation
outstanding at the date of determination is not then in the
proportionate share of the Commitments so that following such
Advance or payment the aggregate Accommodation reflects a
proportionate amount of the Commitments; and
(b) the Pro Rata Share of a Lender of any payment received or
recovered after the occurrence of an Event of Default shall be
calculated by multiplying the amount received or recovered by
the amount owing to such Lender under or in respect of the
Credit, including unpaid principal, interest and fees by the
aggregate amount owing to the Lenders under or in respect of
the Credit including unpaid principal, interest and fees,
<PAGE> 23
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provided that, the "Pro Rata Share" of the Lenders shall be
adjusted to the extent required, to reflect the fact that CIBC
is the only Lender providing Accommodations by way of
Overdrafts, Letters of Credit and Non- Syndicated LCs.
"PUHCA" means the United States Public Utility Holding Company Act of 1935, as
amended.
"REPAYMENT DATE" means the fifth anniversary date from the Closing Date.
"REPORTABLE EVENT" has the meaning set forth in Section 4043(c) of ERISA
(other than a Reportable Event as to which the provision of 30 days' notice to
the PBGC is waived under applicable regulations or with respect to which the
PBGC has by public notice announced that it will not impose penalties for
failure to comply), or is the occurrence of any of the events described in
Section 4063(a) or 4068(a) of ERISA.
"RESTRICTED BANK" means any Lender, any lenders under the U.S. Revolver and any
other financial institution whose unsecured long-term debt is rated BBB+ or
better by S&P and Baa1 or better by Moody's.
"ROLLOVER/CONVERSION DRAWDOWN" has the meaning given in Section 2.5.
"SEC" means the United States Securities and Exchange Commission.
"S&P" means Standard & Poor's Ratings Service.
"SIGNIFICANT SUBSIDIARY" means, on the date hereof, (a) each of the
Subsidiaries set forth in Schedule "E", and (b) any Subsidiary of UDSC which is
or may hereafter become or which would be classified as a "significant
subsidiary" of UDSC under Regulation S-X of the SEC as in effect on the date
hereof.
"SUBSIDIARY" means, with respect to any Person, (a) any corporation 50% or more
of whose stock of any class or classes having by the terms thereof ordinary
voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation have or might have voting power by reason of the happening of
any contingency) is at the time owned by such Person directly or indirectly
through Subsidiaries and (b) any partnership, limited liability company,
association, joint venture or other entity in which such Person, directly or
indirectly through Subsidiaries, is either a general partner or has a 50% or
greater equity interest at the time.
<PAGE> 24
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"TAX" or "TAXES" means all taxes of any kind or nature whatsoever including
income taxes, levies, imposts, stamp taxes, royalties, duties, charges to tax,
value added taxes, commodity taxes, goods and services taxes, and all fees,
deductions, compulsory loans, withholdings and restrictions or conditions
resulting in a charge imposed, levied, collected, withheld or assessed as of
the date hereof or at any time in the future by any governmental or quasi-
governmental authority of or within any jurisdiction whatsoever having power to
tax, together with penalties, fines, additions to tax and interest thereon on
any instalments in respect thereof, provided that for the purposes of this
Agreement, "TAXES" shall not include (a) in the case of each Lender and the
Agent, taxes imposed on its income, capital and franchise or similar taxes
imposed on it, by a jurisdiction under the Laws of which such Lender or the
Agent (as the case may be) is organized or in which its principal executive
office is located or, in the case of each Lender, in which its applicable
lending office is located in Canada, and (b) in the case of each Lender, any
Canadian withholding tax imposed on such payment at a rate up to (but not
exceeding) the rate at which Canadian withholding tax would have been imposed
on such a payment to such Lender under the Laws and treaties in effect when
such Lender first became a Party.
"TERMINATION EVENT" means (a) a Reportable Event, or (b) the initiation of any
action by UDSC, any member of UDSC's ERISA Controlled Group or any ERISA Plan
fiduciary to terminate an ERISA Plan (other than pursuant to Section 4041(b) of
ERISA) or the treatment of an amendment to an ERISA Plan as a termination under
ERISA, or (c) the institution of proceedings by the PBGC under Section 4042 of
ERISA to terminate an ERISA Plan or to appoint a trustee to administer any
ERISA Plan.
"THIS AGREEMENT", "herein", "hereof", "hereto" and similar expressions mean and
refer to this agreement, the schedule hereto and include any instrument
amending or supplementing the same, and the expressions "Article", "Section"
and "Schedule" followed by a number or letter and no reference to another
agreement mean and refer to the specified Article, Section or Schedule of this
Agreement.
"UDSC" means Ultramar Diamond Shamrock Corporation, a Delaware corporation
resulting from the Merger, and its successors and permitted assigns.
"UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the amount
(if any) by which (a) the actuarial present value of accumulated benefits under
such Plan exceeds (b) 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 (on the basis of the assumptions used in the most recent actuarial
valuation report for such Plans).
<PAGE> 25
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"UNUTILIZED PORTION" means at the date of determination, the aggregate
Commitment of the Lenders at such date minus the Utilized Portion at such date.
"U.S. DOLLARS", "U.S.$" and "$ U.S." means lawful currency of the United States
of America.
"U.S. REVOLVER" means the revolving credit facility of U.S. $500,000,000 made
available to UDSC pursuant to the Credit Agreement dated as of December 19,
1996, among UDSC, the Banks Party thereto, Morgan Guaranty Trust Company of New
York, as agent, J.P. Morgan Securities Inc., as arranger, Barclays Bank PLC, as
documentation agent, and The Chase Manhattan Bank, as syndication agent.
"UTILIZED PORTION" means at the date of determination, the aggregate of (a) all
Advances outstanding under the Credit in Cdn. Dollars at such date and (b) the
Exchange Equivalent in Cdn. Dollars of the amount of all Advances outstanding
under the Credit in U.S. Dollars at such date.
1.2 ACCOUNTING TERMS. All accounting terms not otherwise defined
herein have the meanings assigned to them in accordance with GAAP which apply
to the Borrower or UDSC, as the context so requires. Where the character or
amount of any asset or liability or item of revenue or expense is required to
be determined, or any consolidation or other accounting computation is required
to be made for the purpose of any Document, such determination or calculation
shall, to the extent applicable and except as otherwise specified herein or
therein or as otherwise agreed in writing by the Parties, be made in accordance
with GAAP applicable to the Borrower or UDSC as the context so requires, which
are in effect on the Closing Date, provided that, if the Borrower notifies the
Agent that an Obligor wishes to amend any covenant with respect to such Obligor
in Article 11 or Article 12 or the definition of any term used herein as it
relates to such Obligor to eliminate the effect of any change in GAAP on the
operation of such covenant in respect of such Obligor (or if the Agent notifies
the Borrower that the Majority Lenders wish to amend Article 11 or Article 12
or any such definition in respect of an Obligor for such purpose) then such
Obligor's compliance with such covenant shall be determined on the basis of
GAAP in effect immediately before the relevant change in GAAP became effective,
until either such notice is withdrawn or such covenant or definition is amended
in a manner satisfactory to the Borrower and the Majority Lenders.
1.3 GENERAL. The division of this Agreement into Sections and the
insertion of headings are for convenience of reference only and shall not
affect the interpretation of this Agreement. Words importing the singular
number include the plural and vice versa. Any defined term used in the
singular preceded by "any" shall be taken to indicate any number of the members
<PAGE> 26
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of the relevant class. Any reference in this Agreement to a Party to this
Agreement shall include the successors and permitted assigns of such Party.
1.4 SCHEDULES. Schedules "A" to "I" annexed hereto are
incorporated by reference and deemed to be part hereof.
1.5 CERTIFICATES AND OPINIONS, ETC. Whenever the delivery of a
certificate or opinion is a condition precedent to the taking of any action by
the Lenders under any Document, the truth and accuracy of the facts stated in
such certificate or opinion shall in each case be conditions precedent to the
right of the Obligors to have such action taken, and each statement of fact
contained therein shall be deemed to be a representation and warranty of the
Borrower for the purpose of this Agreement. Whenever any certificate is to be
delivered by an Authorized Officer of an Obligor, such certificate shall be
signed on behalf of such Obligor by a senior officer of such Obligor. Any
opinion of counsel may be based, insofar as it relates to factual matters or
information with respect to which is in possession of the Obligors upon an
officers' certificate, unless the counsel giving such opinion knows, or in the
exercise of reasonable care should know, that the officers' certificate with
respect to the matters upon which his opinion may be based as aforesaid is
erroneous. Insofar as any opinion of counsel covers matters relating to the
laws of jurisdictions other than those in which such counsel is qualified to
practice, such counsel may rely upon opinions of counsel located in such other
jurisdictions as to such matters. In rendering any opinion, counsel may
qualify such opinion with respect to the enforceability of any agreement or
obligation referred to therein by stating that enforcement may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting the rights
of creditors generally and general equitable principles.
1.6 EVIDENCE OF INDEBTEDNESS. Any statement as to any amount due
to the Agent or a Lender under any Document which is certified as being correct
by the Agent or by such Lender shall, unless otherwise provided herein, be
prima facie evidence that such amount is in fact due and payable in any
proceedings relating to such Document or otherwise. The Agent shall open and
maintain separate books of account or electronically stored records for the
Credit evidencing all Drawdowns, Loans and all other Obligations owing by the
Borrower to the Agent and the Lenders. The Agent shall enter in the foregoing
accounts details of all amounts from time to time owing, paid or repaid by the
Obligors under the Documents. The information entered in the foregoing
accounts shall constitute prima facie evidence that such amount is in fact due
and payable in any proceedings relating thereto.
<PAGE> 27
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ARTICLE 2
THE CREDIT AND DRAWDOWNS
2.1 ESTABLISHMENT OF CREDIT AND REPLACEMENT OF EXISTING CREDIT
AGREEMENT. The Lenders hereby establish in favour of the Borrower, on the
terms and conditions hereof, a revolving credit in the maximum principal amount
of Cdn. $200,000,000 or the Exchange Equivalent thereof in U.S. Dollars. The
Commitment of each Lender hereunder is several and not joint. Effective the
Closing Date, the Existing Credit Agreement shall terminate and shall be
replaced in all respects by this Agreement, except for any accrued and
outstanding obligations of the Obligors to CIBC under the Existing Credit
Agreement as of the Closing Date and which shall, effective the Closing Date,
be deemed to be accrued outstanding to CIBC as the same types of Accommodations
under and subject to the terms and conditions of this Agreement.
2.2 DRAWDOWN OPTIONS. Each Drawdown under the Credit may take the
form of one or more Accommodations.
2.3 AVAILMENT OF THE CREDIT. Subject to the terms and conditions
hereof, the Borrower may avail itself of the Credit at any time, commencing on
the Closing Date and from time to time thereafter up to the Repayment Date, by
way of Drawdowns provided that:
(a) each Advance of an Accommodation shall constitute a separate
Drawdown;
(b) the proceeds of each Drawdown shall be used for general
corporate purposes of the Borrower but not for Hostile
Acquisitions without first complying with the provisions of
Section 2.9;
(c) after giving effect to a request for a Drawdown, the Utilized
Portion of the Credit cannot exceed the aggregate Commitment
of all Lenders;
(d) each Drawdown (other than a Prime Rate Loan or U.S. Base Rate
Loan by way of Overdraft) shall be in a Borrowing Amount;
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(e) the aggregate outstanding principal amount of all Prime Rate
Loans and Base Rate Loans by way of Overdraft and the face
amount of all outstanding Non-Syndicated LCs shall not in the
aggregate exceed at any time Cdn. $30,000,000 or the Exchange
Equivalent thereof in U.S. Dollars, and Prime Rate Loans and
Base Rate Loans by way of Overdraft shall be used only to fund
cash flow shortfalls on a daily basis provided the Borrower
will utilize other Accommodations to liquidate Overdrafts
promptly following the dates on which the total amount of all
unliquidated Advances by way of Overdrafts exceeds the maximum
amount available for Overdraft; and
(f) the aggregate face amount of outstanding Letters of Credit at
any time shall not exceed Cdn. $170,000,000 or the Exchange
Equivalent thereof in U.S. Dollars.
2.4 DRAWDOWN NOTICE.
(a) The Borrower shall deliver a duly completed Drawdown Notice to
the Agent, by writing, telecopy or by telephone (to be subsequently confirmed
in writing) no later than 10:30 a.m. (New York time) on or before:
(i) the third Banking Day prior to the day on which the
Borrower requests a LIBOR Loan to be advanced;
(ii) the second Banking Day prior to the day on which the
Borrower requests a Letter of Credit or
Non-Syndicated LC to be issued;
(iii) one Banking Day prior to the day on which the
Borrower requests a Base Rate Loan (other than by way
of Overdraft) and one Banking Day prior to the day on
which the Borrower requests a Prime Rate Loan (other
than by way of Overdraft) to be advanced;
(iv) one Banking Day prior to the day on which the
Borrower requests the issuance of a Bankers'
Acceptance; or
(v) the Banking Day on which the Borrower requests a
Prime Rate Loan or Base Rate Loan by way of Overdraft
in excess of Cdn. $10,000,000 or the Exchange
Equivalent thereof in U.S. Dollars to be advanced.
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Except as otherwise provided in paragraph (v), no Drawdown Notice shall be
required for Accommodations by way of Overdraft. The Agent shall promptly
notify each Lender of the receipt by the Agent of a Drawdown Notice and the
Agent shall notify each Lender of its Pro Rata Share of the requested Drawdown.
Each Drawdown (other than a Prime Rate Loan or Base Rate Loan by way of
Overdraft, a Bankers' Acceptance or a Letter of Credit) will be made by deposit
of the funds advanced by each Lender into an account with the Agent designated
by the Borrower and the Agent for same day value on the requested Drawdown
date. Each bill of exchange which is to become a Bankers' Acceptance shall be
presented and stamped in accordance with Article 5. Letters of Credit shall be
issued in accordance with Article 6.
(b) A Drawdown Notice shall be irrevocable and the Borrower shall
be obligated to borrow the stated amount on the stated date in accordance with
the Drawdown Notice.
2.5 ROLLOVER/CONVERSION DRAWDOWNS. The Borrower may at any time
deliver a Drawdown Notice to the Agent requesting one or more Drawdowns (the
"Rollover/Conversion Drawdown") the proceeds of which will be used to convert
or rollover one or more outstanding Drawdowns, provided that:
(a) the notice identifies the outstanding Advances to be retired
(the "Outstanding Advances");
(b) the Rollover/Conversion Drawdown would otherwise be a
permitted Drawdown hereunder and the Borrower complies with
each provision hereof relative to the obtaining of a Drawdown
in the form requested including, without limitation, those
relative to notice;
(c) the aggregate principal amount of the Rollover/Conversion
Drawdown then requested is not greater than the aggregate
principal amount of the Outstanding Advances;
(d) each Rollover/Conversion Drawdown is made contemporaneously
with the retirement of the Outstanding Advances relating to
the amounts to be rolled over or converted; and
(e) conversions of a Loan into an Accommodation of a different
currency shall require an actual repayment of such Loan in the
applicable currency and a new Advance of the Accommodation
into which such Loan is converted.
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If the Borrower fails to give a proper Drawdown Notice to the Agent prior to
the maturity of a LIBOR Loan or Bankers' Acceptance, or prior to a draw being
made on a Letter of Credit, subject to compliance with the other relevant
provisions of this Section 2.5 with respect to (a) a maturing LIBOR Loan, the
Borrower shall be deemed to have given notice of a Rollover/Conversion Drawdown
by way of Base Rate Loan in the amount of the maturing LIBOR Loan, (b) a
maturing bankers' acceptance, the Borrower shall be deemed to have given notice
of a Rollover/Conversion Drawdown by way of Prime Rate Loan in the face amount
of the maturing bankers' acceptance, and (c) a draw made on a Letter of Credit,
the Borrower shall be deemed to have given notice of a Rollover/Conversion
Drawdown by way of Prime Rate Loan with respect to Cdn.$ Obligations and by way
of Base Rate Loans with respect to U.S.$ Obligations in the amount of the draw
under the Letter of Credit.
2.6 FACILITY FEE. The Borrower shall pay to the Agent, for the
account of the Lenders, a facility fee at the Applicable Credit Spread
(determined daily in accordance with the Pricing Schedule). Such facility fee
shall accrue from and including the Closing Date to but excluding the date on
which the Commitments terminate in their entirety, based on the daily aggregate
amount of the Commitments (whether used or unused). Such facility fee shall be
allocated among the Lenders based on their Pro Rata Shares, provided that any
facility fee accruing after the Commitments terminate in their entirety shall
be allocated among the Lenders ratably in proportion to the unpaid principal
amounts of their respective Loans. The facility fee shall be paid by the
Borrower to the Agent for the benefit of the Lenders quarterly, in arrears, on
the last Banking Day of each such quarter.
2.7 PRO-RATA AVAILMENT AND PAYMENT.
(a) Except as otherwise specifically provided herein, all Advances
shall be made to the Borrower from the Lenders based on each Lender's Pro Rata
Share at the applicable time, subject to such rounding up or down among the
Lenders as is necessary to accommodate the amount provided for in the Drawdown
Notice. The relative positions of the Lenders (including outstanding Advances
by way of Overdraft) shall be readjusted by the Agent in accordance with the
Commitments at the earliest possible opportunity as Advances are made or
payments received by the Borrower, both before and after an Event of Default.
No Lender shall be responsible for any default by any other Lender in its
obligation to make its Pro Rata Share of requested Drawdowns available nor
shall the Pro Rata Share or the Commitment of any Lender be increased as a
result of the default by any other Lender in its obligation to make Drawdowns
available.
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(b) If any Lender fails to make available its Pro Rata Share of
any Drawdown, any other Lender upon notice to the Borrower, the Agent and the
other Lenders, may, but is not obligated to, advance to the Borrower the amount
(or if more than one Lender so elects, such amount as the electing Lenders
shall agree upon) of such failing Lender's portion of such Drawdown. The
Lenders, the Agent and the Borrower shall thereupon enter into such
documentation as may be appropriate to evidence the adjustment of the
Commitments necessitated by the Advance made by any such Lender. If the
complete amount of such failing Lender's portion of the Drawdowns is not
advanced to the Borrower by the Lenders hereunder, the Borrower may, at its
option, obtain such deficiency from another financial institution acceptable to
the Agent, acting reasonably, in circumstances where such deficiency is to be
funded under this Agreement.
2.8 MAXIMUM RATE OF RETURN. Notwithstanding any provision to the
contrary contained in this Agreement, in no event shall the aggregate
"interest" (as defined in Section 347 of the Criminal Code (Canada) as the same
may be amended, replaced or re-enacted from time to time) payable under this
Agreement exceed the effective annual rate of interest on the "credit advanced"
(as defined in that section) under this Agreement lawfully permitted under that
section and, if any payment, collection or demand pursuant to this Agreement in
respect of "interest" (as defined in that section) is determined to be contrary
to the provisions of that section, such payment, collection or demand shall be
deemed to have been made by mutual mistake of the Borrower and the Lenders and
the amount of such payment or collection shall be refunded to the Borrower; and
for the purposes of this Agreement, the effective annual rate of interest shall
be determined in accordance with generally accepted actuarial practices and
principles over the term of the Credit on the basis of annual compounding of
the lawfully permitted rate of interest, and in the event of dispute, a
certificate of a Fellow of the Canadian Institute of Actuaries appointed by the
Agent shall be prima facie for the purposes of such determination.
2.9 HOSTILE ACQUISITION. If the Borrower wishes to utilize the
Credit or any part thereof to facilitate, either directly, or indirectly
through a Subsidiary, a Hostile Acquisition, then:
(a) at least 10 Banking Days prior to the delivery to the Agent of
a Drawdown Notice to be given in connection with a Hostile
Acquisition, an Authorized Officer of the Borrower shall
notify the Agent, who shall promptly notify a senior officer
of each Lender, of the particulars of the Hostile Acquisition
in sufficient detail to enable each Lender to determine
whether it shall participate in a Drawdown to be utilized for
such Hostile Acquisition;
<PAGE> 32
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(b) within 5 Banking Days of being so notified by the Agent, each
Lender shall in turn notify the Agent as to whether it shall
participate in a Drawdown to be utilized for such Hostile
Acquisition (such determination to be made by each Lender in
the exercise of its sole discretion having regard to such
considerations as it deems appropriate), provided that, if a
Lender does not so notify the Agent within such 5 Banking
Days, such Lender shall be deemed to have elected to
participate in a Drawdown to be utilized for such Hostile
Acquisition and the Agent shall then promptly notify the
Borrower of each Lender's determination;
(c) if a Lender elects not to participate in a Drawdown for a
Hostile Acquisition (a "Non-Participating Lender"), the
Drawdown shall be reduced by the Non-Participating Lender's
Pro Rata Share thereof. As a result, the allocation among the
Lenders of interest and other fees payable by the Borrower
hereunder, shall reflect such reduction such that the "Pro
Rata Share" of the Lenders shall be adjusted to reflect the
amount of principal then funded by each Lender based on the
aggregate amount of principal then outstanding after taking
into account the amount of the requested Drawdown not funded
by the Non- Participating Lenders; except that,
notwithstanding the adjustment of the Lender's Pro Rata Share
pursuant to this Section 2.9, there shall be no adjustment to
the Commitment of each Lender; and
(d) subject to this Section 2.9, subsequent Drawdowns under the
Credit shall be funded first by the Non- Participating
Lenders, until the "Pro Rata Share" of outstanding Advances
under the Credit equal the "Pro Rata Share" of the Lenders
existing on the Closing Date.
ARTICLE 3
REDUCTION OF THE CREDIT
3.1 REVOLVING CREDIT. Advances may be prepaid and reborrowed from
time to time in accordance with the provisions hereof.
3.2 MANDATORY REPAYMENT. The Borrower shall repay all Obligations
on or before the Repayment Date. No Drawdown shall have a term to maturity
which extends beyond the Repayment Date.
<PAGE> 33
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3.3 OPTIONAL PREPAYMENTS. The Borrower shall be entitled to
prepay all or any part of a Loan provided that:
(a) subject to paragraph (c) below, any partial prepayment is in a
Borrowing Amount;
(b) in the case of a LIBOR Loan, the prepayment is made provided
the Borrower pays all breaking costs of the Lenders incurred
in connection with such prepayment, or, in the case of a
bankers' acceptance, on its maturity date;
(c) in the case of a prepayment in excess of Cdn. $10,000,000 of a
Prime Rate Loan or U.S. $10,000,000 of a Base Rate Loan, in
each case by way of Overdraft, the Borrower shall have
provided notice of such prepayment to CIBC no later than 10:30
a.m. (New York time) on the day on which the prepayment will
be made;
(d) in the case of a prepayment of Cdn. $10,000,000 or less of a
Prime Rate Loan or U.S. $10,000,000 or less of a Base Rate
Loan, in each case by way of Overdraft, no notice to CIBC of
such prepayment is required; and
(e) in the case of a prepayment of a Prime Rate Loan or a Base
Rate Loan, the Borrower shall have provided notice of such
prepayment to the Agent no later than 10:30 a.m. (New York
time) on the second Banking Day prior to the day on which the
prepayment will be made.
Any notice of prepayment given by the Borrower pursuant to this Section 3.3
shall be irrevocable and the Borrower shall be bound to prepay such Loan in
accordance with such notice.
3.4 CANCELLATION OF CREDIT. The Borrower may, upon three Banking
Days prior written notice to the Agent, permanently cancel the Unutilized
Portion of the Credit in whole or from time to time in part, provided that any
partial cancellation must be in a minimum amount of Cdn. $5,000,000.
<PAGE> 34
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ARTICLE 4
LOANS
4.1 COMPUTATION OF INTEREST. The Borrower shall pay to the Agent
for the benefit of the Lenders interest on each Loan, which interest shall be
calculated on a daily basis by the Agent, for the period:
(a) in the case of a Prime Rate Loan or a Base Rate Loan,
commencing on and including the day of Drawdown and ending on,
but excluding, the day on which it is repaid; or
(b) in the case of a LIBOR Loan, commencing on and including the
first day of the Interest Period relative to such LIBOR Loan
and ending on, but excluding, the last day of such Interest
Period, unless repaid earlier in accordance with Section
3.3(b) on the date it is so repaid,
at the rate of interest per annum equal to, in the case of:
(c) a Prime Rate Loan, the Prime Rate on the basis of a year of
365 days;
(d) a Base Rate Loan, the Base Rate on the basis of a year of 365
days; and
(e) a LIBOR Loan, the LIBOR plus the Applicable Credit Spread, on
the basis of a year of 360 days.
For the purposes of the Documents, whenever interest is calculated on the basis
of a year of 360 or 365 days, each rate of interest determined pursuant to such
calculation expressed as an annual rate for the purposes of the Interest Act
(Canada) is equivalent to such rate as so determined multiplied by the actual
number of days in the calendar year in which the same is to be ascertained and
divided by 360 or 365, as appropriate. The Parties further agree that the
principle of deemed reinvestment of interest shall not apply to any interest
calculation under this Agreement and the rates of interest stipulated in this
Agreement are intended to be nominal rates and not effective rates or yields.
4.2 ACCRUAL AND PAYMENT OF INTEREST. Interest on each Loan shall
accrue from day to day and shall be payable, subject to Article 8:
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(a) in the case of a Prime Rate Loan, Base Rate Loan or any other
amount payable hereunder other than in respect of a LIBOR
Loan, monthly in arrears in accordance with the usual practice
of the Agent from time to time as notified by the Agent to the
Borrower and as changed by the Agent upon notice to the
Borrower; or
(b) in the case of a LIBOR Loan, on each Interest Payment Date; and
interest shall be payable in the currency of the Loan or other amount payable
pursuant to this Agreement to which it applies.
4.3 DEFAULT INTEREST. If the Borrower fails to pay any Obligation
on its due date and the Borrower has not obtained a Rollover/Conversion
Drawdown due to the Borrower's failure to satisfy the conditions set forth in
Section 9.4, irrespective of any notice by the Agent or any of the Lenders to
the Borrower in respect of such failure, the Borrower shall pay interest on
such Obligation, which interest shall be calculated on a daily basis by the
Agent for the period commencing on and including the date of such failure and
ending on but excluding the date of actual payment (both before and after
demand, default and judgment) at a rate of interest per annum equal to the
Default Rate, such interest to be compounded on the last Banking Day of each
month during the period of arrears.
4.4 LIBOR LOANS. Subject to Section 2.4 and 4.5, in the
applicable Drawdown Notice the Borrower shall stipulate the LIBOR Interest
Period for a LIBOR Loan (a "LIBOR Interest Period"), and the Agent shall then
inform the Borrower of the prevailing LIBOR for the requested LIBOR Interest
Period.
4.5 SELECTION OF INTEREST PERIODS. The right of the Borrower to
choose the duration of each Interest Period shall be limited as follows:
(a) Interest Periods shall not extend beyond the Repayment Date;
(b) there shall not be outstanding at any one time more than five
separate Accommodations, excluding Accommodations by way of
Overdraft, Letters of Credit or Non-Syndicated LCs;
(c) the first Interest Period for a LIBOR Loan shall commence on
the day such Loan is advanced by the Lenders and each
subsequent Interest Period relative thereto
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shall commence forthwith upon the expiry of the immediately
preceding Interest Period relative thereto;
(d) if any Interest Period would end on a day which is not a
Banking Day, such Interest Period shall be extended to the
next succeeding Banking Day unless such next succeeding
Banking Day falls in the following month in which event such
Interest Period shall end on the immediately preceding Banking
Day; and
(e) if any Interest Period is extended or shortened by the
application of paragraph (d), the following Interest Period
shall (without prejudice to the application of paragraph (d)
above) end on the day on which it would have ended if the
immediately preceding Interest Period had not been so extended
or shortened.
4.6 DETERMINATION OF CREDIT RATING. To determine the applicable
Credit Rating for purposes of applying the Applicable Credit Spread, the
following shall apply:
(a) if the applicable Credit Ratings assigned by S&P and Moody's
are in the same rating category, then the Applicable Credit
Spread shall be the percentages set forth opposite such rating
category in the Pricing Schedule;
(b) if the applicable Credit Ratings assigned by S&P and Moody's
differ by one rating category, then the Applicable Credit
Spread shall be the percentages set forth opposite the higher
rating category in the Pricing Schedule;
(c) if the applicable Credit Ratings assigned by S&P and Moody's
differ by more than one rating category, then the Applicable
Credit Spread shall be the average of the percentages set
forth opposite each rating category in the Price Schedule;
(d) if only one of S&P and Moody's provides a Credit Rating, then
the Applicable Credit Spread shall be the percentages set
forth opposite the rating category for such Credit Rating in
the Pricing Schedule; or
(e) if no Credit Rating is provided by S&P or Moody's, then the
Applicable Credit Spread shall be the percentages set forth
opposite the lowest rating category in the Pricing Schedule.
<PAGE> 37
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4.7 EFFECTIVE DATE FOR CHANGES IN CREDIT RATINGS. Changes in the
Credit Ratings shall be effective and adjusted for on the date on which the
Credit Ratings are publicly announced by the S&P and/or Moody's, with payments
on account of the adjustment to be made on the next Interest Payment Date in
respect of Advances, other than Bankers' Acceptances, on the next Drawdown with
respect to Bankers' Acceptances, and on the next date for payment of fees the
amount of which is determined by an Applicable Credit Spread.
4.8 CREDIT RATINGS NO LONGER PROVIDED. If S&P or Moody's no
longer provide Credit Ratings, a substitute rating agency or rating agencies,
which then provides a Credit Rating, may be substituted by agreement of the
Borrower and the Lenders.
4.9 AGENT'S STATEMENT. The Agent's statement as to each rate of
interest or fee payable hereunder shall, in the absence of manifest error, be
prima facie evidence of such rate or fee.
ARTICLE 5
BANKERS' ACCEPTANCES
5.1 CREATION OF BANKERS' ACCEPTANCES. Upon receipt of a Drawdown
Notice and subject to the provisions of this Agreement, the Lenders shall
accept, on a Pro Rata Share basis, (but shall be under no obligation to
purchase or discount) from time to time such Cdn. Dollar bills of exchange as
the Borrower shall request provided that:
(a) Bankers' Acceptances shall be issued on a Banking Day;
(b) each Bankers' Acceptance shall have a term from 1 month to 6
months (excluding days of grace), as selected by the Borrower
in the relevant Drawdown Notice, or such other term as is
agreed upon by the Borrower and the Lenders provided that each
Bankers' Acceptance shall mature on a Banking Day; and
(c) each Bankers' Acceptance shall be in a form acceptable to the
Lenders.
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5.2 STAMPING FEES. Upon tendering any Bankers' Acceptance for
acceptance by a Lender pursuant hereto, the Borrower shall pay to such Lender,
a stamping fee equal to the Applicable Credit Spread based on the face amount
of such Bankers' Acceptance for the duration of its stated term calculated on
the basis of the actual number of days in the stated term, commencing on, and
including, the date such Lender accepted the Bankers' Acceptance and ending on,
but excluding, its maturity date.
5.3 PRE-SIGNED BANKERS' ACCEPTANCES. The Borrower shall deliver
to the Lenders sufficient pre-signed Bankers' Acceptances, in form acceptable
to the Lenders, to enable the Lenders to meet requests by the Borrower for
Drawdowns by way of Bankers' Acceptances from time to time. The Lenders shall
not be responsible or liable for their failure to accept a Bankers' Acceptance
as required hereunder if the cause of such failure is, in whole or in part, due
to the failure of the Borrower to provide duly executed and endorsed drafts to
the Lenders on a timely basis nor shall the Lenders be liable for any damage,
loss or other claim arising by reason of any loss or improper use of any such
instrument except the negligence or wilful misconduct of the Lenders or their
employees. Each of the Lenders shall maintain a record with respect to
Bankers' Acceptances (a) received by it from the Borrower in blank hereunder,
(b) voided by it for any reason, (c) accepted by it hereunder, and (d)
cancelled at their respective maturities. The Lenders further agree to retain
such records in the manner and for the statutory periods provided in the
various provincial or federal statutes and regulations which apply to the
Lenders. Such pre-signed Bankers' Acceptances shall be blank as to date of
issue, date of maturity and amount. With respect to the safekeeping of
pre-signed Bankers' Acceptances delivered to the Lenders by the Borrower, the
Lenders shall be obligated to exercise only the same degree of care as if such
Bankers' Acceptances were the property of the Lenders and the Lenders were
keeping them at the place at which they are held. The Lenders may complete and
accept pre-signed Bankers' Acceptances from time to time in accordance with the
instructions of the Borrower, provided that the Lenders shall not incur any
liability whatsoever in respect of instructions carried out by it in the belief
that such instructions were properly given by the Borrower.
5.4 EXECUTION OF BANKERS' ACCEPTANCES. All Bankers' Acceptances
hereunder shall be signed by an Authorized Officer of the Borrower.
Notwithstanding that any Person whose signature appears on any Bankers'
Acceptance as one of such officers may no longer be an authorized signatory for
the Borrower at the date of issuance of a Bankers' Acceptance, such signature
shall nevertheless be valid and sufficient for all purposes as if such
authority had remained in force at the time of such issuance and any such
Bankers' Acceptance so signed shall be binding on the Borrower.
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5.5 SALE OF BANKERS' ACCEPTANCES. The Lenders may at any time and
from time to time hold, sell, rediscount or otherwise dispose of any or all
Bankers' Acceptances purchased by them.
5.6 DISCHARGE OF BANKERS' ACCEPTANCES. The Borrower agrees that
on each date on which a Bankers' Acceptance matures (in this Section 5.6, a
"maturity date"), unless it is entitled to a Loan under Section 2.1 or it has
requested and is entitled to receive a Drawdown in the amount of the maturing
Bankers' Acceptance it will provide the Agent for the benefit of the Lenders
before 10:00 a.m. (New York time) with immediately available funds (in this
Section, the "discharge funds") to discharge in full the liabilities of the
Lenders in respect of such Bankers' Acceptance. The Borrower shall not claim
any days of grace for the payment at maturity of any Bankers' Acceptance. If
the Borrower does not in fact provide the Agent with the discharge funds and is
not entitled to a Loan or a Drawdown in the amount of the maturing Bankers'
Acceptance, the Lenders may (but shall not be obliged to) make a loan to the
Borrower, which loan the Borrower hereby requests the Lenders to make and
which, if made, shall be made on a demand basis and shall bear interest at the
Prime Rate plus the Applicable Credit Spread applicable to Prime Rate Loans.
To the extent not inconsistent with the demand nature of this loan, the terms
and conditions of this Agreement pertinent to a Prime Rate Loan outstanding
under the Credit shall apply to such demand loan. This provision applies
whether or not a Lender is the holder of the maturing Bankers' Acceptance.
5.7 BANKERS' ACCEPTANCES OUTSTANDING UPON DEFAULT. If any
Bankers' Acceptance is outstanding upon the occurrence of an Event of Default,
the Borrower shall forthwith upon demand by the Agent pay to the Agent for the
benefit of the Lenders an amount equal to the principal amount of all such
Bankers' Acceptances, such amount to be held by the Agent for application
against the Obligations of the Borrower in respect of such Bankers' Acceptances
or in respect of any other amount payable under the Documents.
5.8 OBLIGATIONS UNCONDITIONAL. The obligations of the Borrower
with respect to Bankers' Acceptances under this Article 5 shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances, including, without limitation,
the following circumstances:
(a) any lack of validity or enforceability of any bill of exchange
accepted by the Lenders as a Bankers' Acceptance; or
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(b) the existence of any claim, set off, defence or other right
which the Borrower may have at any time against the holder of
a Bankers' Acceptance, or any other Person, whether in
connection with this Agreement or otherwise.
5.9 DISCOUNT NOTES. A Lender that is not chartered under the Bank
Act (Canada) shall, instead of stamping Bankers' Acceptances, purchase from the
Borrower a non-interest bearing note (a "Discount Note") issued by the Borrower
in the amount of and in the same term as the draft which such Lender would
otherwise be required to stamp hereunder, at a discount rate equal to the
effective discount rate applicable to bankers' acceptances in Canadian dollars
and having a similar term to maturity, as granted by the Agent as the rates
that appears on the Reuters' Canadian Deposit Offered Rate screen as of
approximately 10:00 a.m. (New York time) on such date applicable to the
maturity date of such Discount Notes or if no rate is available at such date on
the immediately proceeding date that such rate is available and in the event
that such rate is not generally available, at a discount rate equal to the rate
of interest determined by the Agent after consultation with investment dealers
as it deems appropriate and as confirmed by such Lender as being a rate which
would correspond to the rate referenced above which would have appeared on the
Reuters' screen if then available.
ARTICLE 6
LETTERS OF CREDIT
6.1 DOCUMENTATION. Any request for a Drawdown by way of Letter of
Credit shall be accompanied by the Agent's usual documentation relating to the
issuance and administration of letters of credit, duly executed by the
Borrower. All Letters of Credit shall be governed by the Uniform Customs and
Practice for Documentary Credits, 1993 Revision, International Chamber of
Commerce publication number 500 or by subsequent Congresses of the
International Chamber of Commerce, if such policy applies in the applicable
jurisdiction of issue.
6.2 ISSUANCE OF LETTERS OF CREDIT. Upon receipt of a Drawdown
Notice given in accordance with Section 2.4(a) and subject to the provisions of
this Agreement and the Agent's usual documentation, the Agent shall issue from
time to time such Letters of Credit as the Borrower shall request. Each of the
Lenders shall bear its Pro Rata Share of the risk and liability of the Agent of
any draw made on a Letter of Credit issued by the Agent under this Credit and
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will make a loan to the Borrower for such purpose pursuant to Section 6.5 or
6.6 if the Borrower does not comply with its Obligations to the Agent
thereunder.
6.3 FEES.
(a) The Borrower shall pay to the Agent for the account of the
Lenders, based on each Lender's Pro Rata Share, a letter of
credit fee accruing daily on the aggregate amount then
available for drawing under all Letters of Credit at a rate
per annum determined in accordance with the Pricing Schedule.
(b) The Borrower shall pay to the Agent a letter of credit
fronting fee in advance upon issuance by the Agent of the
applicable Letter of Credit equal to:
(i) 5 basis points for Non-Financial Standby Letters of
Credit and Documentary Letters of Credit; and
(ii) 7 basis points for Financial Standby Letters of
Credit.
(c) Fees accrued under this Section 6.3 shall be payable in
advance upon issuance by the Agent of the applicable Letter of
Credit.
6.4 PAYMENTS. The Borrower irrevocably authorizes an Agent to
make any payments and to comply with any demands which may be claimed from or
made upon the Agent in connection with any Letter of Credit and which are in
conformity with the terms of the Letter of Credit without further authority
from the Borrower. Except for the Agent's obligation to ensure that any claims
or demands upon the Letter of Credit are made in accordance with the relevant
terms of the Letter of Credit, it shall not be incumbent upon the Agent to
inquire or to act on any notice received in connection therewith whether or not
such payments or demands claimed from or made upon the Agent in connection with
any Letter of Credit are properly made or to inquire or to take notice whether
or not any dispute exists between the beneficiary and the Borrower. Any
payment which the Agent shall make in good faith and in accordance with any
Letter of Credit shall be binding upon the Borrower and shall be accepted by
the Borrower as conclusive evidence that the Agent was obligated to make such
payment.
6.5 DISCHARGE OF OBLIGATIONS. Unless the Borrower is entitled to
a Drawdown under Section 2.1 or it has requested and is entitled to receive a
Drawdown in an amount equal to the
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amount paid or to be paid by the Agent or its agent or any party on its behalf
on any Letter of Credit presented for payment, the Borrower shall forthwith
reimburse such amount to the Agent in immediately available funds in the same
currency. If the Borrower does not reimburse the Agent as herein provided and
is not entitled to obtain a Loan under Section 2.1 or a Drawdown in the
required amount, whether or not an Event of Default has occurred, the Lenders
shall forthwith make a loan to the Borrower, the proceeds of such loan to be
directed and paid to the Agent in reimbursement for such amounts paid by the
Agent in respect of a Letter of Credit presented for payment, which loan the
Borrower hereby requests the Lenders to make and which, if made, shall be made
on a demand basis and shall bear interest at a rate per annum equal to the
Prime Rate plus 1/4% per annum with respect to Cdn.$ Obligations and equal to
the Base Rate plus 1/4% per annum with respect to U.S.$ Obligations. Except as
provided in this Section 6.5, the terms and conditions of this Agreement
pertinent to a Prime Rate Loan outstanding under the Credit shall apply to such
demand loan.
6.6 LETTERS OF CREDIT OUTSTANDING UPON DEFAULT. If any Letter of
Credit is outstanding upon the occurrence of an Event of Default, the Borrower
shall forthwith upon demand by the Agent pay to the Agent an amount (the
"deposit amount") equal to the undrawn principal amount of such Letter of
Credit, such deposit amount to be held by the Agent for application against the
Indebtedness owing by the Borrower to the Agent in respect of any draw on such
Letter of Credit. If the Agent is not called upon to make full payment on such
Letter of Credit prior to the expiry date thereof, the deposit amount, or such
part thereof as has not been paid out, shall be applied first to any other
Obligations. Any amount remaining shall be returned to the Borrower promptly
following the expiry of the Letter of Credit.
6.7 NON-SYNDICATED LCS. This Agreement shall apply in all
respects to Non-Syndicated LCs issued hereunder, except that no Lender, other
than CIBC, shall be liable in any way or have any obligation whatsoever to the
Obligors or to CIBC in connection therewith and no letter of credit fee under
Section 6.3(a) shall be payable in respect thereof.
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ARTICLE 7
CHANGE IN CIRCUMSTANCES AND INDEMNITIES
7.1 INCREASED COSTS. If at any time any of the Lenders determine
in good faith (which determination shall be conclusive) and notify the Borrower
that any change in any present or adoption of any future law, regulation,
order, treaty, official directive or guideline (relating to capital adequacy or
otherwise, but not relating to general income tax liability of such Lender, and
whether or not having the force of law), or any change therein or in the
interpretation or application thereof by any authority charged with the
administration thereof, including the Superintendent of Financial Institutions
for Canada, or by any court or any compliance by the Lenders with any request,
directive or guidelines of any applicable monetary, fiscal or other
governmental agency or authority, including the Superintendent of Financial
Institutions for Canada, (whether or not having the force of law), has the
effect in respect of any Drawdown or Commitment of:
(a) increasing the cost to such Lender of making, maintaining or
funding such Drawdown or Commitment; or
(b) reducing the amount of principal, interest, fees or other
amounts received or receivable by such Lender hereunder or its
effective return hereunder; or
(c) causing such Lender to make any payment, or to forego any
interest or other return on or calculated by reference to, any
sum received or receivable by it hereunder;
then in any such case, upon demand being made from time to time to the Borrower
by the Agent, the Borrower shall within 15 days pay to the Agent for the
benefit of such Lender such amount as shall compensate such Lender for such
additional cost, reduction, payment, foregone interest or other return. This
Section 7.1 shall only operate with respect to changes in, or changes made or
effective after the Closing Date.
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7.2 LACK OF LIBOR.
(a) If at any time prior to the commencement of an Interest Period
with respect to a LIBOR Loan, the Lenders shall have determined (which
determination shall be conclusive) that:
(i) by reason of circumstances affecting the London
inter-bank market, adequate and fair means do not
exist for ascertaining the rate of interest
applicable to a Drawdown intended to be outstanding
during such Interest Period; or
(ii) deposits in U.S. Dollars for the duration of such
Interest Period are not available to the Lenders in
the London inter-bank market in sufficient amounts in
the ordinary course of business having regard to
their aggregate funding requirements to all their
customers;
then, from and after the date of such determination, the Borrower shall not
have the right to obtain or maintain a LIBOR Loan and such requested Drawdown
shall automatically be funded by way of a Base Rate Loan unless the Borrower
requests, subject to the notice provisions herein contained, any other form of
Accommodation available hereunder in substitution therefore.
(b) The Agent shall promptly notify the Borrower if the
circumstances referred to in Section 7.2(a) no longer exist. Upon receipt of
such notice, the Borrower shall have the right to receive a LIBOR Loan in
accordance with the provisions hereof.
7.3 UNLAWFUL, ETC. Notwithstanding anything herein contained, if
at any time while any Drawdown is outstanding, the Lenders determine in good
faith (which determination shall be conclusive) and the Agent notifies the
Borrower that, by reason of any Law, or any change therein or in the
interpretation or application thereof by any court or by any governmental or
other authority charged with the administration thereof (including the
Superintendent of Financial Institutions for Canada), it is unlawful,
impracticable or contrary to the direction of such court or any such authority
for the Lenders to make, maintain or fund any Drawdown or to give effect to any
of their related obligations as contemplated hereby, the Lenders, by such
notice, may declare that the Lenders' obligations under this Agreement shall be
terminated and the Borrower, if such Drawdown is a Loan, shall repay forthwith
or at the end of such period as the Lenders shall in their discretion have
agreed, the whole of such Loan together with all unpaid interest accrued
thereon to the date of repayment and all other unpaid amounts payable to the
Lenders hereunder in respect of such Loan. If the Drawdown is a Bankers'
Acceptance, the Borrower
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shall provide the Agent for the benefit of the Lenders, on the maturity date of
such Bankers' Acceptance or such earlier date requested by the Lenders, with
the amount required by the Lenders to discharge its obligations with respect to
such Bankers' Acceptance. If such Drawdown is a Letter of Credit, the Borrower
shall provide the Agent for the benefit of the Lenders with an amount equal to
the undrawn principal amount thereof, forthwith upon request by the Agent,
which amount shall be applied by the Lenders as provided in Section 6.6. All
such payments made by the Borrower hereunder shall be made without penalty. If
any such law, regulation, treaty, official directive or guideline, or such
change therein, shall only affect a portion of the Lenders' obligations under
this Agreement which portion is, in the opinion of the Lenders, severable from
the remainder of this Agreement so that the remainder of this Agreement may
continue in full force and effect without otherwise affecting any of the
obligations of the Lenders under this Agreement or any other Document, the
Lenders shall only declare their obligations under that portion so terminated
and the Borrower shall be entitled to other Accommodations pursuant to the
terms hereof in an amount equal to the amount of the Accommodation which the
Lenders shall have declared is not longer available under such severable
portion of this Agreement.
7.4 LOSSES. The Borrower shall, from time to time, fully
indemnify and hold each of the Lenders harmless from and against any and all
costs, losses, expenses, damages or liabilities (including loss of profits)
which such Lender may sustain or incur as a result of, without duplication:
(a) the failure of the Borrower to pay any sum on its due date;
(b) any prepayment under this Agreement or otherwise in connection
with this Agreement other than a prepayment pursuant to
Section 3.3 or Section 7.3; or
(c) any Event of Default.
Without prejudice to the generality of the foregoing, the foregoing indemnity
shall extend to any interest, fees or other sums whatsoever paid or payable by
any or all of the Lenders on account of any funds borrowed by any or all of the
Lenders in order to carry any unpaid amount and to any loss (excluding loss of
profit for the period after such payment, failure to borrow or other event)
premium, penalty or expense which may be incurred by any or all of the Lenders
in liquidating or employing deposits from third Parties acquired to make,
maintain or fund a Drawdown or any part thereof or any amount due or to become
due under this Agreement.
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7.5 CURRENCY INDEMNITY. If, for the purposes of obtaining
judgment in any court in any jurisdiction with respect to the Documents, it
becomes necessary to convert into the currency of such jurisdiction (the
"Judgment Currency") any amount due under any of the Documents in any currency
other than the Judgment Currency (the "Currency Due"), then conversion shall be
made at the rate of exchange prevailing on the Banking Day before the day on
which judgment is given. For this purpose "rate of exchange" means the rate at
which the Agent is able, on the relevant date, to purchase the Currency Due
with the Judgement Currency in accordance with its normal practice at its Main
Branch in Toronto, Ontario. In the event that there is a change in the rate of
exchange prevailing between the Banking Day before the day on which the
judgment is given and the date of payment of the amount due, the Borrower will,
on the date of payment, pay such additional amounts, if any, as may be
necessary to ensure that the amount paid on such date is the amount in the
Judgment Currency which when converted at the rate of exchange prevailing on
the date of payment is the amount then due under the Documents in the Currency
Due. If the amount of the Currency Due which the Agent is so able to purchase
is less than the amount of the Currency Due originally due to it, the Borrower
shall indemnify and save the Lenders harmless from and against loss or damage
arising as a result of such deficiency. This indemnity shall constitute an
obligation separate and independent from the other obligations contained in the
Documents, shall give rise to a separate and independent cause of action, shall
apply irrespective of any indulgence granted by the Lenders from time to time
and shall continue in full force and effect notwithstanding any judgment or
order for a liquidated sum in respect of an amount due under the Documents or
under any judgment or order.
7.6 SURVIVAL. The obligations of the Obligors under Sections 7.4
and 7.5 shall survive the payment of all Obligations and the cancellation or
termination of the Credit.
ARTICLE 8
PAYMENTS
8.1 PLACE AND MANNER OF PAYMENTS. Unless expressly stated herein
to the contrary, all payments to be made by the Obligors under the Documents
shall be made to the Agent for the benefit of the Lenders in the same currency
in which the pertinent indebtedness is outstanding, provided that if any
payment does not relate specifically to any Drawdown, such payment shall be in
Cdn. Dollars unless expressly stated otherwise in the relevant Document. All
payments to be made by the Borrower shall be made in immediately available
funds and received by the Agent for same day value on the due date at the
Designated Branch. Payments received after such time
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shall be deemed to have been received on the next Banking Day. Whenever any
payment hereunder is due on a day which is not a Banking Day, the due date
thereof shall be extended to the next succeeding Banking Day unless such
Banking Day falls in the next calendar month in which event the due date shall
be the immediately preceding Banking Day. During any extension of the due date
for payment of any principal of any Drawdown hereunder interest shall be
payable on such principal at the rate or rates payable on such due date in
respect of such Drawdown.
8.2 PAYMENT BY THE AGENT. Forthwith upon receipt by the Agent of
any payment paid to the Agent for the benefit of the Lenders, the Agent shall
pay each Lender its Pro Rata Share thereof. Any payment made by the Agent to a
Lender pursuant to this Agreement shall be made to the accounts specified by
such Lender to the Agent from time to time.
8.3 NET PAYMENTS, ETC. All payments by the Obligors under the
Documents, whether in respect of principal, interest, fees or any other item,
shall be made in full without any deduction or withholding (whether in respect
of set off, counterclaim, duties, Taxes, charges or otherwise whatsoever)
unless the Obligor is required by Law to do so, in which event the Obligor, as
applicable, shall:
(a) ensure that the deduction or withholding does not exceed the
minimum amount legally required;
(b) forthwith pay to the Agent such additional amount so that the
net amount received by the Agent shall equal the full amount
which would have been received by it had no such deduction or
withholding been made;
(c) pay to the relevant Governmental Authority within the period
for payment permitted by applicable Law the full amount of the
deduction or withholding (including, but without prejudice to
the generality of the foregoing), the full amount of any
deduction or withholding from any additional amount paid
pursuant to paragraph (b); and
(d) furnish to the Agent, within the period for payment permitted
by applicable Law, an official receipt of the relevant
Governmental Authority involved for all amounts deducted or
withheld as aforesaid,
and all amounts payable to the Lenders if not paid as and when due shall bear
interest at the Prime Rate with respect to Cdn. $ Obligations and the Base Rate
with respect to U.S. $ Obligations
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until paid to the Agent on behalf of the Lenders in full. Should the Lenders
by reason of the operating of this Section 8.3 receive a monetary benefit in
excess of what the Lenders would have otherwise been entitled to receive from
the Obligors under the Documents, then such benefit shall promptly be paid to
the Obligor in question.
8.4 EXCHANGE RATE FLUCTUATIONS. If, as of the date of any
determination by the Agent and as a result of foreign exchange rate
fluctuations, there shall at any time be an Excess Amount outstanding under the
Credit, the Borrower shall pay the Excess Amount to the Agent as a principal
repayment for the benefit of all of the Lenders (i) on the earlier of the next
date on which a Drawdown by way of conversion or rollover takes place and the
last Banking Day of the quarter in which the Excess Amount was incurred, or
(ii) forthwith, if the Excess Amount at any time exceeds 5% of the then
aggregate amount of the Commitments (whether used or unused) of all Lenders
under the Credit.
8.5 APPLICATION OF PAYMENTS. If an Event of Default shall occur
and be continuing, all payments made by the Borrower hereunder shall be applied
in the following order:
(a) to amounts due hereunder as facility fees;
(b) to amounts due hereunder as costs and expenses;
(c) to amounts due hereunder as interest to which the Default Rate
applies;
(d) to amounts due hereunder as stamping fees, fronting fees or
interest except interest to which paragraph (c) applies; and
(e) to amounts due hereunder as principal.
ARTICLE 9
CONDITIONS PRECEDENT
9.1 CLOSING. The closing of the transaction contemplated herein
shall take place on the Closing Date at such place and time as agreed by the
Parties.
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9.2 CONDITIONS PRECEDENT TO CLOSING. The obligation of the
Lenders with respect to the Credit is subject to the fulfilment of the
following conditions precedent on or prior to the Closing Date, it being
understood that the said conditions are included for the exclusive benefit of
the Lenders and may be waived in writing in whole or in part by the Lenders at
any time:
(a) Credit Agreement. The Borrower shall have duly authorized,
executed and delivered this Agreement.
(b) Guarantee. UDSC shall have duly authorized, executed and
delivered the Guarantee.
(c) Representations and Warranties. The representations and
warranties contained in Article 10 (except as affected by
transactions contemplated by this Agreement) shall be true and
correct on and as of the Closing Date with the same effect as
though made on and as of such date and the Obligors shall have
delivered to the Lenders a certificate to such effect, dated
such date and signed on its behalf by an Authorized Officer.
(d) Corporate Proceedings. All proceedings to be taken in
connection with the transactions contemplated by the Documents
shall be satisfactory in form and substance to the Lenders
acting reasonably, and the Lenders shall have received
certified copies of all documents which they may reasonably
request in connection with such transactions and of the
records of all corporate proceedings in connection therewith.
(e) No Change in Applicable Law. The Lenders shall be satisfied,
acting reasonably, that there shall have not occurred on or
before the Closing Date any change in any applicable Law or
regulation thereunder or interpretation thereof by any
authority charged with the administration thereof, or by any
court which in the opinion of counsel for the Lenders would
make it unlawful or impossible for the Lenders to advance or
make any Drawdown.
(f) Opinions. The Lenders shall have received opinions from
counsel (including in-house counsel where appropriate) for the
Obligors, dated the Closing Date and in form and substance
satisfactory to the Lenders, acting reasonably, as to such
matters as the Lenders shall reasonably require.
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9.3 CONDITION PRECEDENT TO EACH DRAWDOWN. The obligation of the
Lenders to make each Drawdown is subject to fulfilment of the following
conditions precedent on or prior to the date of such Drawdown, it being
understood that the said conditions are included for the exclusive benefit of
the Lenders and may be waived in writing in whole or in part by the Lenders at
any time:
(a) Representations and Warranties. The representations and
warranties contained in Article 10 (except as affected by the
transactions contemplated by this Agreement) shall be true and
correct on and as of such date both before and after giving
effect to the proposed Drawdown with the same effect as though
made on and as of such date, except for representations and
warranties which by their nature only apply to a specific time
or date.
(b) Default. No Default or Event of Default has occurred or would
occur as a result of the making of the Drawdown.
(c) Notice. The Lenders shall have received a Drawdown Notice
within the time specified in Section 2.4(a).
(d) Other Documentation. The Borrower shall have entered into and
delivered to the Lenders customary documentation of the
Lenders concerning the administration of this Agreement and
the Drawdowns.
9.4 CONDITIONS PRECEDENT TO CERTAIN DRAWDOWNS. The obligation of
CIBC to permit the Borrower to obtain a Drawdown by way of Overdraft or the
Obligation of the Agent to issue a Letter of Credit is subject to the Borrower
executing and delivering to the Agent the customary documentation required by
the Agent from time to time for extending such Accommodations.
<PAGE> 51
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ARTICLE 10
REPRESENTATIONS AND WARRANTIES
To induce the Lenders to establish the Credit, each Obligor,
jointly and severally, but only to the extent such representation or warranty
is made in respect of such Obligor as indicated below, makes the following
representations and warranties to the Lenders.
10.1 EXISTENCE AND BUSINESS; POWER AND AUTHORIZATION; ENFORCEABLE
OBLIGATIONS.
(a) The Borrower is an unlimited liability company duly organized
in accordance with the Laws of the Province of Nova Scotia and
UDSC is a corporation duly organized in accordance with the
Laws of the State of Delaware. Each of the Obligors (a) has
the power and authority to own their property and assets and
to transact the business in which each is engaged or presently
proposes to engage and (b) is authorized to do business and is
in good standing in each jurisdiction in which each is
required to be authorized to do business, except where the
failure to be so authorized or in good standing could not
reasonably be expected to have a Material Adverse Effect. No
Governmental Approval (other than those already obtained) is
necessary in connection with the formation and continued
existence of the Obligors except where the failure to obtain
such Governmental Approval could not reasonably be expected to
have a Material Adverse Effect.
(b) Each of the Obligors has the power and authority to execute,
deliver, and perform its obligations under the Documents to
which it is a party. The Borrower has the power and authority
to borrow hereunder.
(c) Each of the Obligors has taken all necessary action to
authorize the execution, delivery and performance of the
Documents to which it is a party. No consent or authorization
of, filing with or other act by or in respect of any
Governmental Authority or other Person is required in
connection with the execution, delivery and performance by any
Obligors of the Documents to which it is a party or the
validity and enforceability of the Documents.
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(d) The Documents have been duly executed and delivered by each of
the Obligors and constitute a legal, valid and binding
obligations of each such Obligor enforceable in accordance
with their terms except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency or similar Laws
affecting the enforcement of rights of creditors generally and
except to the extent that enforcement of rights and remedies
set forth therein may be limited by equitable principles
(regardless of whether enforcement is considered in a court of
law or a proceeding in equity).
10.2 NO VIOLATION. Neither the execution, delivery and performance
by any Obligor of the Documents to which it is a party, nor compliance by it
with the terms and provisions thereof nor the consummation of the transactions
contemplated thereby, (a) will contravene in any material respect any
applicable Law, (b) will conflict with or result in any breach of any of the
terms and conditions of, or result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the property or assets of
the Obligors pursuant to the terms of any material agreement or instrument to
which such Obligor is a party or by which it or any of its property or assets
is bound, or (c) will violate any provision of the certificate of incorporation
or by-laws or other organizational documents of such Obligor.
10.3 LITIGATION. There are no actions, suits, investigations or
proceedings by or before any Governmental Authority or arbitrator pending or,
to the best knowledge of the Obligors, threatened which could reasonably be
expected to have a Material Adverse Effect.
10.4 FINANCIAL INFORMATION.
(a) The consolidated balance sheet of Ultramar Corporation and its
Consolidated Subsidiaries as of December 31, 1995 and the
related consolidated statements of income and cash flows for
the fiscal year then ended, reported on by Ernst & Young LLP
and set forth in the Joint Proxy Statement, fairly present, in
conformity with GAAP the consolidated financial position of
Ultramar Corporation and its Consolidated Subsidiaries as of
such date and their consolidated results of operations and
cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of Ultramar
Corporation and its Consolidated Subsidiaries as of June 30,
1996 and the related unaudited consolidated statements of
income and cash flows for the six months then ended, set forth
in the Joint Proxy Statement, fairly present, in conformity
with GAAP,
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the consolidated financial position of Ultramar Corporation
and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such six
month period (subject to year-end adjustments).
(c) The consolidated balance sheet of Diamond Shamrock, Inc. and
its Consolidated Subsidiaries as of December 31, 1995 and the
related consolidated statements of income and cash flows for
the fiscal year then ended, reported on by Price Waterhouse
LLP and set forth in the Joint Proxy Statement, fairly
present, in conformity with GAAP, the consolidated financial
position of Diamond Shamrock, Inc. and its Consolidated
Subsidiaries as of such date and their consolidated results of
operations and cash flows for such fiscal year.
(d) The unaudited consolidated balance sheet of Diamond Shamrock,
Inc. and its Consolidated Subsidiaries as of June 30, 1996 and
the related unaudited consolidated statements of income and
cash flows for the six months then ended, set forth in the
Joint Proxy Statement, fairly present, in conformity with
GAAP, the consolidated financial position of Diamond Shamrock,
Inc. and its Consolidated Subsidiaries as of such date and
their consolidated results of operations and cash flows for
such six month period (subject to year-end adjustments).
(e) The unaudited pro forma condensed consolidated balance sheet
of UDSC and its Consolidated Subsidiaries as of June 30, 1996
and the related unaudited pro forma condensed consolidated
statements of income for the years ended December 31, 1993,
1994, and 1995 and the six-month periods ended June 30, 1995
and 1996, set forth in the Joint Proxy Statement, are complete
and correct in all material respects and, subject to the
footnotes thereto, have been prepared on the basis described
therein and otherwise in conformity with GAAP applied on a
basis consistent with the financial statements referred to in
paragraphs (a) and (c) of this Section 10.4 and show the
consolidated financial position and results of operations of
the Borrower and its Consolidated Subsidiaries as if the
Merger had occurred, in the case of the condensed consolidated
statements of income, as of January 1, 1993 and in the case of
the condensed consolidated balance sheets, as of the
respective balance sheet dates (subject in the case of the
interim financial statements to year-end adjustments).
(f) The unaudited consolidated balance sheet of the Borrower and
its Consolidated Subsidiaries as of June 30, 1996 and the
related unaudited consolidated statements of income and cash
flow for the six months then ended, fairly present, in
conformity with GAAP, the consolidated financial position of
the Borrower and its
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Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such six month period (subject to year-end
adjustments).
10.5 MATERIAL ADVERSE CHANGE. Since December 31, 1995, there has
occurred no event, act or condition which has had, or could reasonably be
expected to have, a Material Adverse Effect except for certain changes to
conform accounting practices of Ultramar Corporation and Diamond Shamrock, Inc.
as described in the Joint Proxy Statement.
10.6 USE OF PROCEEDS. All proceeds of each Loan will be used by the
Borrower only in accordance with the provisions of Section 2.3(b).
10.7 GOVERNMENTAL APPROVALS. All Governmental Approvals which
under applicable Law are required to have been obtained prior to the date this
representation is made or deemed made in connection with the due execution,
delivery and performance by each Obligor of the Documents to which it is a
party have been obtained.
10.8 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.
UDSC is not (a) an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended, or (b) a "holding company" or a company controlled by a "holding
company" within the meaning of PUHCA.
10.9 NO DEFAULTS. No Default or Event of Default has occurred and
is continuing.
10.10 TAXES. Each of the Obligors and each of its Subsidiaries have
filed all tax returns, as applicable, and all other material returns and
filings required under Canadian and U.S. Law which to their knowledge are
required to be filed by them and have paid all Taxes due pursuant to such
returns or pursuant to any assessment received by them, except as are being
contested in good faith or which could not reasonably be expected to have a
Material Adverse Effect.
10.11 FOREIGN TAXES. The Obligors and each of their Subsidiaries
have filed or caused to be filed all income tax returns in all relevant foreign
jurisdictions and all other material foreign
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returns and filings which are to their knowledge required to be filed by them
and have paid all Taxes due pursuant to such returns or pursuant to any
assessment received by the Obligors or any of their Subsidiaries, except as are
being contested in good faith or which could not reasonably be expected to have
a Material Adverse Effect.
10.12 ERISA. As of the Closing Date, UDSC is responsible for
funding no Plans other than those listed on the Schedule "F". No accumulated
funding deficiency (as defined in Section 412 of the Code or Section 302 of
ERISA) or Reportable Event has occurred with respect to any Plan which could
reasonably be expected to have a Material Adverse Effect. There are no
Unfunded Liabilities under any Plan which when added to the aggregate amount of
Unfunded Liabilities with respect to all other Plans at such time could
reasonably be expected to have a Material Adverse Effect. The Borrower and
each member of the ERISA Controlled Group have not failed to comply with the
requirements of Section 515 of ERISA with respect to any Multiemployer Plan and
are not in "default" (as defined in Section 4219(c)(5) of ERISA) with respect
to payments to a Multiemployer Plan to an extent which could reasonably be
expected to have a Material Adverse Effect. The aggregate potential total
withdrawal liability payments of the Borrower and the members of the ERISA
Controlled Group as determined in accordance with Title IV of ERISA as if the
Borrower and the members of the ERISA Controlled Group had completely withdrawn
from all Multiemployer Plans is not equal to or greater than an amount which
could reasonably be expected to have a Material Adverse Effect. To the
knowledge of the Borrower and each member of the ERISA Controlled Group, no
Multiemployer Plan is or is likely to be in reorganization (as defined in
Section 4241 or ERISA or Section 418 of the Code) or is insolvent (as defined
in Section 4245 of ERISA). No liability to the PBGC (other than required
premium payments), the Internal Revenue Service, any Plan or any trust
established under Title IV of ERISA has been, or is expected by the Borrower or
any member of the ERISA Controlled Group to be, incurred by the Borrower or any
member of the ERISA Controlled Group which could reasonably be expected to have
a Material Adverse Effect. Except to the extent otherwise disclosed on
Schedule "F", the Borrower has no contingent liability with respect to any
post-retirement benefit under any "welfare plan" (as defined in Section 3(1) of
ERISA), other than liability for continuation coverage under Part 6 of Title I
of ERISA. No Lien under Section 412(n) of the Code or 302(f) of ERISA or
requirement to provide security under Section 401(a)(29) of the Code or Section
307 of ERISA has been or is reasonably expected by the Borrower or any member
of the ERISA Controlled Group to be imposed on the assets of the Borrower or
any member of the ERISA Controlled Group. With respect to any employee benefit
plan covered under Title IV of ERISA that is excluded from the definition of
Plan by the proviso at the end of such definition, no liability, penalty, Lien
or security interest has been incurred or is expected to be incurred which
could reasonably be expected to have a Material Adverse Effect,
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and to the Borrower's knowledge no other event or condition has occurred or
exists which could reasonably be expected to have a Material Adverse Effect.
10.13 OWNERSHIP OF PROPERTY; LIENS. Each Obligor and each of its
Consolidated Subsidiaries has good and marketable title to all of its property
except for any defects which could not reasonably be expected to have a
Material Adverse Effect, subject to no Lien of any kind except Liens permitted
pursuant to Section 12.3 hereof.
10.14 ACCURACY AND COMPLETENESS OF INFORMATION. All historical
information heretofore or contemporaneously furnished by the Obligors in
writing to the Agent or any Lender for purposes of or in connection with the
Credit is, to the knowledge of the Obligor true and accurate in all material
respects on the date as of which such information is dated and not incomplete
by omitting to state any material fact necessary to make such information
(taken as a whole) not misleading at such time.
10.15 ENVIRONMENTAL MATTERS.
(a) Except in each case as could not reasonably be expected to
have a Material Adverse Effect (i) each of the Obligors and
their Significant Subsidiaries is in compliance with all
applicable Environmental Laws, (ii) each of the Obligors and
their Significant Subsidiaries has all Environmental Approvals
required to operate its business as presently conducted and is
in compliance with the terms and conditions thereof, (iii)
each of the Obligors and their Significant Subsidiaries has
not received any communication (written or oral) from a
Governmental Authority that alleges that it is not in
compliance with all Environmental Laws and Environmental
Approvals and (iv) to the Obligors' knowledge there are no
circumstances that may prevent or interfere with such
compliance in the future.
(b) There is no Environmental Claim pending or, to the Obligor's
knowledge, threatened against the Obligors and their
Significant Subsidiaries which could reasonably be expected to
have a Material Adverse Effect.
(c) Without in any way limiting the generality of the foregoing,
except in each case as could not reasonably be expected to
have a Material Adverse Effect (i) there are no on-site or
off-site locations in which the Obligors and their Significant
Subsidiaries has stored, disposed or arranged for the disposal
of Materials of
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Environmental Concern in violation of any Environmental Law, (ii) there are no
underground storage tanks located on property owned or leased by the Obligors
and their Significant Subsidiaries in violation of any Environmental Law, (iii)
there is no asbestos contained in or forming part of any building, building
component, structure or office space owned or leased by the Obligors and their
Significant Subsidiaries and (iv) no polychlorinated - biphenyls (PCB's) are
used or stored at any property or leased by the Obligors and their Significant
Subsidiaries in violation of any Environmental Law.
10.16 SIGNIFICANT SUBSIDIARIES. Each of the Obligors' Significant
Subsidiaries is a corporation, partnership, limited liability company,
association or other entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and has all powers
and all material government licenses, authorizations, consents and approvals
required to carry on its business as now conducted except for such powers,
licenses, authorizations, consents or approvals the absence of which could not
reasonably be expected to have a Material Adverse Effect.
10.17 HOLDING. Holding is a wholly-owned Subsidiary of UDSC.
ARTICLE 11
AFFIRMATIVE COVENANTS
Each Obligor, but only to the extent a covenant is made by
such Obligor, as indicated below, covenants and agrees that, so long as any
Lender has any Commitment hereunder or any Obligation remains unpaid or any
Bankers' Acceptance or Letter of Credit remains outstanding, unless otherwise
agreed by the Majority Lenders:
11.1 INFORMATION COVENANTS. UDSC shall furnish to the Agent and
each Lender:
(a) within 60 days after the close of each fiscal quarter (other
than the fourth fiscal quarter) in each fiscal year of UDSC,
its unaudited consolidated balance sheet as at the end of such
quarterly period and the related consolidated statements of
income and cash flows for such quarterly period and for the
elapsed portion of the
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fiscal year ended with the last day of such quarterly period,
and in each case setting forth comparative figures for the
related periods in the prior fiscal year;
(b) within 120 days after the close of each fiscal year of UDSC,
its audited consolidated balance sheet as at the end of such
fiscal year and the related consolidated statements of income
and cash flows for such fiscal year, setting forth in each
case in comparative form the figures for the previous fiscal
year, all reported on in a manner acceptable, in the case of
UDSC to the SEC and independent public accountants of
nationally recognized standing;
(c) within 60 days after the close of each fiscal quarter, other
than the fourth fiscal quarter, in each fiscal year of the
Borrower, its unaudited consolidated balance sheet as at the
end of such quarterly period and the related consolidated
statements of income and cash flows for such quarterly period
and for the elapsed portion of the fiscal year ended with the
last day of such quarterly period, and in each case setting
forth comparative figures for the related periods in prior
fiscal years; and
(d) within 120 days after the close of each fiscal year of the
Borrower, its unaudited consolidated balance sheet as at the
end of such fiscal year and the related consolidated
statements of income and cash flows for such fiscal year,
setting forth in each case in comparative form the figures for
the previous fiscal year.
11.2 OFFICER'S CERTIFICATE. At the time of the delivery of the
financial statements referred to in Section 11.1, a certificate of an
Authorized Officer of UDSC as applicable, which certifies (a) that such
financial statements fairly present the financial condition and the results of
operations of UDSC as applicable, on the dates and for the period indicated,
except as disclosed in the notes thereto, in accordance with GAAP, subject, in
the case of interim financial statements, to normally recurring year-end
adjustments, (b) the detailed calculations made pursuant to Sections 12.5 and
12.6 as of the last day of such period and (c) that such Authorized Officer has
reviewed the terms of the Documents and has made, or caused to be made under
his or her supervision, a review in reasonable detail of the business and
financial condition of the Borrower during the accounting period covered by
such financial statements, and that as a result of such review such Authorized
Officer has concluded that no Default or Event of Default has occurred and is
continuing as of the date of such certificate or, if any Default or Event of
Default has occurred and is continuing, specifying the nature and extent
thereof, and the action the Borrower proposes to take in respect thereof.
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11.3 NOTICE OF DEFAULT, LITIGATION OR OTHER EVENT. Promptly, and
in any event within three Banking Days after any of the Obligors obtains
knowledge thereof, notice of (a) the occurrence of any Event of Default, and
(b) any litigation or governmental proceeding pending or threatened against the
Obligors or any Significant Subsidiary which could reasonably be expected to
have a Material Adverse Effect.
11.4 ERISA.
(a) Except as could not reasonably be expected to have a Material
Adverse Effect, as soon as possible and in any event within
twenty days after UDSC or any member of the ERISA Controlled
Group knows, or has reason to know, that:
(i) any Termination Event with respect to a Plan has
occurred or will occur, or
(ii) any condition exists with respect to a Plan which
presents a material risk of termination of the Plan
(if such Plan has Unfunded Liabilities) or imposition
of an excise tax or other material liability on the
Borrower or any member of the ERISA Controlled Group,
or
(iii) UDSC or any member of the ERISA Controlled Group has
applied for a waiver of the minimum funding standard
under Section 412 of the Code or Section 302 of ERISA
or an accumulated funding deficiency has been
incurred, or
(iv) UDSC or any member of the ERISA Controlled Group has
engaged in a "prohibited transaction," as defined in
Section 4975 of the Code or as described in Section
406 of ERISA, that is not exempt under Section 4975
of the Code and Section 408 of ERISA, or
(v) there exists any Unfunded Liabilities under any Plan
giving rise to a Lien under ERISA or the Code, or
(vi) any condition exists with respect to a Multiemployer
Plan which presents a material risk of a partial or
complete withdrawal (as described in Section 4203 or
4205 of ERISA) by the Borrower or any member of the
ERISA Controlled Group from a Multiemployer Plan, or
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(vii) the Borrower or any member of the ERISA Controlled
Group is in "default" (as defined in Section
4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan, or
(viii) a Multiemployer Plan is in "reorganization" (as
defined in Section 418 of the Code or Section 4241 of
ERISA) or is "insolvent" (as defined in Section 4245
of ERISA), or
(ix) the Borrower and/or any member of the ERISA
Controlled Group have incurred any potential
withdrawal liability (as determined in accordance
with Title IV of ERISA), or
(x) there is an action brought against the Borrower or
any member of the ERISA Controlled Group under
Section 502 of ERISA with respect to its failure to
comply with Section 515 of ERISA,
a certificate of an Authorized Officer of UDSC setting forth
the details of each of the events described in paragraphs (i)
through (x) above, as applicable, and the action which UDSC or
the applicable member of the ERISA Controlled Group proposes
to take with respect thereto, together with a copy of any
notice or filing from the PBGC or which may be required by the
PBGC or other agency of the United States government with
respect to each of the events described in paragraphs (i)
through (x) above, as applicable.
(b) As soon as possible and in any event within ten days after the
receipt by UDSC or any member of the ERISA Controlled Group of
a demand letter from the PBGC notifying the Borrower or such
member of the ERISA Controlled Group of its final decision
finding liability which, if remaining unpaid, could reasonably
be expected to have a Material Adverse Effect and the date by
which such material liability must be paid, a copy of such
letter, together with a certificate an Authorized Officer of
UDSC setting forth the action which UDSC or such member of the
ERISA Controlled Group proposes to take with respect thereto.
(c) With respect to any employee benefit plan covered by Title IV
of ERISA that is excluded from the definition of Plan by the
proviso at the end of such definition, as soon as possible and
in any event within ten days after the receipt by UDSC or any
member of the ERISA Controlled Group of any notice, whether or
not in writing, that any material liability, penalty or Lien
has been or could reasonably be expected to be asserted
against it with respect to such plan, a certificate of an
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Authorized Officer of UDSC setting forth the relevant details
and the action which the Borrower or the applicable member of
the ERISA Controlled Group proposes to take with respect
thereto, together with a copy of such notice, if any.
11.5 ENVIRONMENTAL MATTERS. Promptly and in any event within ten
Banking Days after the existence of any of the following conditions, a
certificate of an Authorized Officer of any of the Obligors specifying in
detail the nature of such condition, and the nature of such Obligor's proposed
response thereto, in each case if the occurrence of such event could reasonably
be expected to have a Material Adverse Effect: (a) the receipt by either of
the Obligors of any communication (written or oral), whether from a
Governmental Authority or other Person that alleges that the Obligors or any
Significant Subsidiary is not in compliance with applicable Environmental Laws
or Environmental Approvals, (b) any Authorized Officer of an Obligor shall
obtain actual knowledge that there exists any Environmental Claim pending or
threatened against the Obligors or any Significant Subsidiary or (c) any
release, emission, discharge or disposal of Materials of Environmental Concern
that could reasonably be expected to form the basis of any Environmental Claim
against the Obligors or any Significant Subsidiary. The Borrower and UDSC will
also maintain and make available for inspection by the Agent and the Lenders
and their agents and employees accurate and complete records of all
investigations, studies, sampling and testing conducted, and any and all
remedial actions taken, by such Obligor or, to their knowledge and to the
extent obtained by the Obligors, by any Governmental Authority or other Person
in respect of Materials of Environmental Concern on or affecting the properties
of the Obligors and their Significant Subsidiaries.
11.6 OTHER INFORMATION. From time to time, such other information
or documents (financial or otherwise) as the Agent or any Lender may reasonably
request.
11.7 BOOKS, RECORDS AND INSPECTIONS. The Obligors will keep proper
books of record and account in which full, true and correct entries in
conformity with GAAP and all requirements of Law shall be made of all dealings
and transactions in relation to its business and activities. The Obligors will
permit officers and designated representatives of the Agent or any Lender to
visit and inspect any of the properties of the Obligors and to examine the
books of record and account of the Obligors, and discuss the affairs, finances
and accounts of the Obligors with, and be advised as to the same by, its and
their officers and independent accountant, all upon reasonable notice and at
such reasonable times and intervals as the Agent or such Lender may desire.
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11.8 PAYMENT OF TAXES. Each of the Obligors shall, and shall
cause its Subsidiaries to, pay and discharge all material Taxes, assessments
and governmental charges or levies imposed on it or on its income or profits or
on any of its property prior to the date on which penalties attach hereto,
except that neither the Obligors nor any such Subsidiary will be required
hereby to pay any such Tax, assessment, charge or levy the payment of which is
the subject of a Contest.
11.9 COMPLIANCE WITH LAW.
(a) Each of the Obligors will own, operate and maintain its
business in compliance with all Laws, except such
noncompliance as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(b) Each of the Obligors will keep each of its property and assets
free of any Lien imposed pursuant to Environmental Laws which
could reasonably be expected to have a Material Adverse Effect
and is not the subject of a Contest, and will pay or cause to
be paid when due any and all costs necessary to accomplish the
foregoing, including, without limitation, the cost of
identifying the nature and extent of the presence of any such
Materials of Environmental Concern on any real property owned
or leased by an Obligor as applicable, and the cost of
delineation, removal, treatment and disposal of any such
Materials of Environmental Concern.
11.10 EXISTENCE, ETC. Each of the Obligors shall preserve and
maintain its corporate or other legal existence, and all material rights and
material franchises, and cause each of its Subsidiaries to preserve and
maintain its material rights and material franchises except as permitted under
Section 12.1, provided that neither the Obligors nor any of such Subsidiaries
shall be required to maintain any such rights or franchises, the maintenance of
which is determined by it in good faith not to be in its best interest in the
conduct of business.
11.11 INSURANCE. Each of the Obligors shall maintain or cause to be
maintained with financially sound and reputable insurers, insurance with
respect to its properties and business, and the properties and business of its
Subsidiaries, against loss or damages of the kinds customarily insured against
by reputable companies in the same or similar businesses, such insurance to be
of such types and in such amounts (with such deductible amounts or other forms
of self-insurance) as is customary for such companies under similar
circumstances.
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11.12 MAINTENANCE OF PROPERTY. Each of the Obligors shall keep, and
cause each of its Subsidiaries to keep, all property necessary to their
respective businesses in good working order and condition (ordinary wear and
tear excepted); provided that neither the Obligors nor any such Subsidiaries
shall be required to maintain any property, the maintenance of which is
determined by it in good faith not to be in its best interest in the conduct of
business.
11.13 OWNERSHIP OF SIGNIFICANT SUBSIDIARIES. Each of the Obligors
shall own, directly or indirectly, 100% of the outstanding voting securities of
each of its Significant Subsidiaries.
11.14 PAYMENT OF OBLIGATIONS. The Borrower shall pay the
Obligations when due and in the manner provided herein.
ARTICLE 12
NEGATIVE COVENANTS
Each Obligor, to the extent a covenant is made by such
Obligor, as indicated below, covenants and agrees that, so long as any Lender
has any Commitment hereunder or any Obligation remains unpaid or any Bankers'
Acceptance of Letter of Credit remains outstanding, unless otherwise agreed by
the Majority Lenders.
12.1 RESTRICTION ON FUNDAMENTAL CHANGES.
(a) No Obligor shall enter into any merger or consolidation,
liquidate, wind-up or dissolve (or suffer any liquidation or
dissolution), discontinue substantially all of its business or
convey, lease, sell, transfer or otherwise dispose of, in one
transaction or series of transactions, all or substantially
all of its business or property or, in any event, and without
restriction, with respect to the Borrower or UDSC, 50% or more
of its Consolidated Net Tangible Assets, provided that an
Obligor may effect such a merger or such consolidation so long
as after giving effect to such transaction (a "Permitted
Transaction") (i) no Default or Event of Default shall exist,
and (ii) the surviving entity or purchaser expressly assumes,
by an agreement executed and delivered to the Lenders, in form
reasonably
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satisfactory to the Agent, each of the obligations of the
Borrower or UDSC, as applicable, under the Documents.
(b) No transaction permitted by this Section 12.1 shall result in
a discharge or novation of the Obligors under the Documents.
The Agent may require as a condition to any transaction
permitted by this Section 12.1 evidence (including legal
opinions) satisfactory to the Lenders, acting reasonably,
establishing satisfaction of the conditions set forth in this
Section 12.1.
12.2 TRANSACTIONS WITH AFFILIATES. Neither of the Obligors nor any
of its Subsidiaries shall enter into any transaction or series of related
transactions, whether or not in the ordinary course of business, with any
Affiliate (other than in any such Affiliate's capacity as a director or
executive officer of an Obligor) on terms that are less favourable to the
Borrower or UDSC, as applicable than those terms that might be obtained in a
comparable arms-length transaction at the time from a Person who is not an
Affiliate, in each case excluding transactions among the Obligors and their
Subsidiaries.
12.3 LIENS. Neither of the Obligors nor any of their respective
Subsidiaries will create, incur, assume or suffer to exist, directly or
indirectly, any Lien on any of its property now owned or hereinafter acquired,
other than the following:
(a) Liens existing on the date hereof securing Indebtedness
outstanding on the date hereof, and which are not otherwise
permitted under paragraphs (b) through (k) below, in an
aggregate principal amount not exceeding U.S. $10,000,000 or
the Exchange Equivalent thereof in $ Cdn. Dollars;
(b) Liens for Taxes not yet due or which are subject to a Contest;
(c) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen, and other similar Liens
and any other Liens imposed by Law (other than any Lien
imposed by ERISA or pursuant to any Environmental Law) created
in the ordinary course of business for amounts not yet due or
which are subject to a Contest;
(d) Liens (other than any Lien imposed by ERISA or pursuant to any
Environmental Law) incurred or made in the ordinary course of
business in connection with workers' compensation,
unemployment insurance and other types of social
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security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds, and other
similar obligations (exclusive of obligations for the payment
of borrowed money);
(e) Easements, rights-of-way, zoning, and similar restrictions and
other similar charges or encumbrances that do not materially
interfere with the conduct of the business of the Borrower,
UDSC or any of their respective Subsidiaries and which do not
detract materially from the value of the property to which
they attach or impair materially the use thereof by the
Borrower, UDSC or any of their respective Subsidiaries or have
a Material Adverse Effect;
(f) purchase money Liens not to exceed 100% of the applicable
purchase price; provided that such Lien shall attach within
180 days of the acquisition of the related asset and in no
event shall such Lien attach to current assets of the
Borrower, UDSC or any of their respective Significant
Subsidiaries;
(g) any Lien existing on any asset prior to the acquisition
thereof by the Borrower, UDSC or any of their respective
Subsidiaries and not created in contemplation of such
acquisition; provided that in no event shall such Lien attach
to current assets of the Borrower, UDSC or any of their
respective Significant Subsidiaries;
(h) Liens securing Environmental Claims (which, for the purposes
of this paragraph (h), shall be limited to (i) undetermined or
inchoate Liens arising pursuant to applicable Environmental
Laws, (ii) arising in the ordinary course of business of the
Obligor, and (iii) in respect of which no steps or proceedings
have been taken to enforce such Lien);
(i) Liens imposed by ERISA which could not reasonably be expected
to have a Material Adverse Effect;
(j) Liens on time deposit, demand, custodial or other banking
accounts of the Borrower, UDSC or any of their respective
Subsidiaries, if such accounts exist for the purpose of
funding or securing insurance obligations of any Subsidiary
engaged in the business of providing commercial insurance or
reinsurance and which are incurred in accordance with prudent
business practices and industry standards;
(k) extensions, renewals and replacements of Liens referred to in
paragraphs (a) through (j); provided that any such extension,
renewal or replacement Lien shall
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be limited to the property or assets covered by the Lien
extended, renewed or replaced and that the obligations secured
by any such extension, renewal or replacement Lien shall be in
an amount not greater than the amount of the obligations
secured by the Lien extended, renewed or replaced; and
(l) Liens other than those described in paragraphs (a) through (k)
above; provided that the aggregate outstanding principal
amount of Indebtedness secured by such Liens shall at no time
exceed 10% of Consolidated Net Worth of the Borrower or UDSC,
as applicable.
12.4 ENVIRONMENTAL MATTERS. Except in each case where such
activity could not reasonably be expected to have a Material Adverse Effect,
neither of the Obligors shall permit (a) any underground storage tanks to be
located on any property owned or leased by an Obligor and its Significant
Subsidiaries in violation of any Environmental Law, (b) any asbestos to be
contained in or form part of any building, building component, structure or
office space owned or leased by an Obligor and (c) any polychlorinated
biphenyls (PCB's) to be used or stored at any property owned or leased by an
Obligor or its Significant Subsidiaries as applicable.
12.5 LEVERAGE RATIO. Adjusted Consolidated Debt shall at no time,
in respect of the Borrower, exceed 75% of the sum of Adjusted Consolidated Debt
and Consolidated Net Worth. Adjusted Consolidated Debt shall at no time, in
respect of UDSC exceed 60% of the sum of Adjusted Consolidated Debt and
Consolidated Net Worth.
12.6 INTEREST COVERAGE RATIO. The ratio (the "Interest Coverage
Ratio") of Consolidated EBITDA to Consolidated Cash Interest Expense shall not,
in respect of the Borrower and UDSC for any period of four consecutive Fiscal
Quarters, be less than 2.5:1.0.
12.7 HOLDING. UDSC shall not transfer any of its shares it now
holds in Holding to any other Person except to a Subsidiary wholly-owned,
directly or indirectly, by UDSC and shall not permit any Person to hold,
directly or indirectly, any shares in the capital of Holding other than one of
its direct or indirect wholly-owned, Subsidiaries; provided that Holding may
liquidate or merge into UDSC or enter into any other transaction which will
result in UDSC holding directly all of the outstanding shares of the Borrower.
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ARTICLE 13
EVENTS OF DEFAULT; REMEDIES
13.1 EVENTS OF DEFAULT. Each of the following events, acts,
occurrences or conditions shall constitute an Event of Default under this
Agreement, regardless of whether such event, act, occurrence or condition is
voluntary or involuntary or results from the operation of Law or pursuant to or
as a result of compliance by any Person with any judgment, decree, order, rule
or regulation of any Governmental Authority.
(a) FAILURE TO MAKE PAYMENTS. The Borrower shall (i) default in the
payment when due of any principal on the Loans, or (ii) default in the
payment when due of any interest, fees or other Obligation under the
Documents for a period of five Banking Days after such amounts are due
and payable.
(b) BREACH OF REPRESENTATION OR WARRANTY. Any representation or warranty
made by or on behalf of an Obligor in any Document or in any
certificate or statement delivered pursuant thereto shall prove to be
false or misleading in any material respect on the date as of which
made or deemed made.
(c) BREACH OF COVENANTS. (i) The Obligors shall fail to perform or
observe any covenant or obligation arising under Sections 12.1, 12.5
and 12.6, or (ii) the Obligors shall fail to perform or observe any
other covenant or obligation arising under the Documents and, in the
case of this paragraph (ii), such failure shall continue for a period
of 30 days.
(d) DEFAULT UNDER OTHER AGREEMENTS. Either of the Obligors or any of
their Significant Subsidiaries shall default in the payment when due
(whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise) of any amount owing in respect of principal or
interest (subject, in the case of interest, to any applicable grace
period) in respect of any Material Financial Obligation; or either of
the Obligors or any of their Significant Subsidiaries shall default in
the performance or observance of any other obligation or condition
with respect to any such Material Financial Obligation or any other
event shall occur or condition exist, if, as a result, such Material
Financial Obligation has become or can then be declared to be due and
payable prior to its stated maturity other than as a result of a
regularly scheduled payment.
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(e) BANKRUPTCY, ETC. Any Event of Bankruptcy shall occur with respect to
the Obligors or any Significant Subsidiary.
(f) DISSOLUTION. Any order, judgment, or decree shall be entered against
either of the Obligors or any of their Significant Subsidiaries
decreeing its involuntary dissolution or split up and such order shall
remain undischarged and unstayed for a period in excess of 30 days; or
any of the Obligors shall otherwise dissolve or cease to exist except
as permitted by Section 12.1.
(g) ERISA. (i) Any Termination Event shall occur, or (ii) any Plan shall
incur an "accumulated funding deficiency" (as defined in Section 412
of the Code or Section 302 of ERISA), whether or not waived or (iii)
UDSC or a member of the ERISA Controlled Group shall have engaged in a
transaction which is prohibited under Section 4975 of the Code or
Section 406 of ERISA which could result in the imposition of liability
on UDSC or any member of the ERISA Controlled Group, or (iv) UDSC or
any member of the ERISA Controlled Group shall fail to pay when due an
amount which it shall have become liable to pay to the PBGC, any Plan
or a trust established under Title IV of ERISA, or (v) a condition
shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that an ERISA Plan must be terminated or have a
trustee appointed to administer any ERISA Plan, or (vi) UDSC or a
member of the ERISA Controlled Group suffers a partial or complete
withdrawal from a Multiemployer plan or is in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan, or (vii) a proceeding shall be instituted against
UDSC or any member of the ERISA Controlled Group to enforce Section
515 of ERISA, or (viii) any other event or condition shall occur or
exist with respect to any Plan which could subject UDSC or any member
of the ERISA Controlled Group to any tax, penalty or other liability,
and in each case in (i) through (viii) of this Section 13.1, such
event or condition, together with all other such events or conditions,
if any, could reasonably be expected to result in a lien, security
interest, liability or penalty which in the aggregate could reasonably
be expected to have a Material Adverse Effect.
(h) JUDGMENTS. Any judgment or decree shall be entered by a court or
courts of competent jurisdiction against either of the Obligors or any
of their Significant Subsidiaries and such judgment or decree (i)
shall be in an aggregate amount greater than or equal to U.S.
$25,000,000 or the Exchange Equivalent thereof in Cdn. Dollars and
(ii) has not been discharged, bonded, or vacated within thirty days
from entry.
(i) CHANGE OF CONTROL. A Change of Control shall occur.
<PAGE> 69
- 63 -
13.2 RIGHTS AND REMEDIES.
(a) Upon the occurrence of any Event of Default described in
Sections 13.1 (a) to (i), the Commitments shall automatically and immediately
terminate and the unpaid principal amount of any and all accrued interest on
the Loans and any and all accrued fees and other Obligations shall
automatically become immediately due and payable, with all additional interest
from time to time accrued thereon and without presentation, demand, or protest
or other requirements of any kind (including, without limitation, diligence,
presentment, notice of intent to demand or accelerate and notice of
acceleration), all of which are hereby expressly waived by the Obligors and the
obligation of each Lender to make any Loan hereunder shall thereupon terminate.
(b) Upon the occurrence and during the continuance of any Event of
Default, other than an Event of Default described in Section 13.1(e), the Agent
shall at the request of the Majority Lenders, by notice to the Borrower (i)
declare that the Commitments are terminated, whereupon the Commitments and the
obligation of each Lender to make any Loan hereunder shall immediately
terminate, and (ii) declare the unpaid principal amount of and any and all
accrued and unpaid interest and other Obligations to be, and the same shall
thereupon be, immediately due and payable with all additional interest from
time to time accrued thereon and without presentation, demand, or protest or
other requirements of any kind (including, without limitation, diligence,
presentment, notice of intent to demand or accelerate and notice of
acceleration), all of which are hereby expressly waived by the Obligors.
ARTICLE 14
THE AGENT
14.1 APPOINTMENT AND AUTHORIZATION. Each Lender 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 other Documents as are
delegated to the Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto.
14.2 AGENT AND AFFILIATES. The Agent shall have the same rights
and powers under this Agreement as any other Lender and may exercise or refrain
from exercising the same as though it were not the Agent, and the Agent and its
affiliates may accept deposits from, lend money to,
<PAGE> 70
- 64 -
and generally engage in any kind of business with the Obligors or any
Subsidiary or affiliate of the Obligors as if it were not the Agent.
14.3 ACTION BY AGENT. 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 or Event of Default, except as expressly provided in Article 13.
14.4 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.
14.5 LIABILITY OF AGENT. Neither the Agent nor any of its
affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or not taken by it in connection herewith
(a) with the consent or at the request of the Majority Lenders (or such
different number of Lenders as any provision hereof expressly requires for such
consent or request), (b) in the absence of its own gross negligence or willful
misconduct. Neither the Agent nor any of its affiliates nor any of their
respective directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into or verify, (c) any statement, warranty
or representation made in connection with this Agreement or any borrowing
hereunder, (d) the performance or observance of any of the covenants or
agreements of the Borrower, (e) the satisfaction of any condition specified in
Article 9, except receipt of items required to be delivered to the Agent; or
(f) the validity, effectiveness or genuineness of this Agreement, the other
Documents 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,
facsimile or similar writing) believed by it to be genuine or to be signed by
the proper Party or Parties. Without limiting the generality of the
foregoing, the use of the term "AGENT" in this Agreement with reference to the
Agent is not intended to connote any fiduciary or other implied (or express)
obligations arising under agency doctrine of any applicable Law. Instead, such
term is used merely as a matter of market custom and is intended to create or
reflect only an administrative relationship between independent contracting
Parties.
<PAGE> 71
- 65 -
14.6 INDEMNIFICATION. Each Lender shall, ratably in accordance
with its Commitment, indemnify the Agent, its affiliates and their respective
directors, officers, agents and employees (to the extent not reimbursed by the
Borrower) against any cost, expense (including counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from such
indemnitees' gross negligence or willful misconduct) that such indemnitees may
suffer or incur in connection with this Agreement or any action taken or
omitted by such indemnitees hereunder.
14.7 CREDIT DECISION. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender, 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 Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking any action under this Agreement.
14.8 SUCCESSOR AGENT. The Agent may resign at any time by giving
notice thereof to the Lenders and the Borrower. Upon any such resignation, the
Majority Lenders shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Majority Lenders, and shall
have accepted such appointment, within 30 days after the retiring Agent gives
notice of resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent, which shall be a commercial bank organized,
chartered or licensed under the Laws of Canada and having a combined capital
and surplus of at least Cdn. $100,000,000. 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 resigns as Agent hereunder,
the provisions of this Article shall inure to its benefit as to actions taken
or omitted to be taken by it while it was Agent.
14.9 AGENT'S FEE. The Borrower shall pay to the Agent for its own
account fees in the amounts and at the times previously agreed upon by the
Borrower and the Agent.
<PAGE> 72
- 66 -
ARTICLE 15
MISCELLANEOUS
15.1 NOTICES. All notices, requests and other communications to
any Party under the Documents shall be in writing (including bank wire, telex,
facsimile or similar writing) and shall be given to such Party: (a) in the
case of the Obligors, the Lenders or the Agent, at its address or facsimile
number set forth on the signature pages hereof, (b) in the case of any Party,
at such other address, facsimile number or telex number as such Party may
hereafter specify for the purpose by notice to the Parties under the Documents.
Each such notice, request or other communication shall be effective (c) if
given by facsimile, when transmitted to the facsimile number referred to in
this Section and confirmation of receipt is received, (d) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (e) if given by any other means,
when delivered at the address referred to in this Section 15.1; provided that
notices to the Agent and CIBC under Sections 2.4 and 2.5 shall not be effective
until received.
15.2 NO WAIVERS. No failure or delay by the Agent or any Lender in
exercising any right, power or privilege hereunder or under any other Document
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by Law.
15.3 EXPENSES; INDEMNIFICATION.
(a) The Borrower shall pay (i) all reasonable out-of-pocket
expenses of the Agent, including reasonable fees and
disbursements of special counsel for the Agent, in connection
with the preparation and administration 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 reasonable out-of-pocket expenses incurred
by the Agent and each Lender, including the reasonable fees
and disbursements of counsel, in connection with such Event of
Default and collection, bankruptcy, insolvency and other
enforcement proceedings resulting therefrom.
<PAGE> 73
- 67 -
(b) The Borrower agrees to indemnify the Agent and each Lender,
their respective affiliates and the respective directors,
officers, agents and employees of the foregoing (each an
"Indemnitee") and hold each Indemnitee harmless from and
against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the
reasonable fees and disbursements of counsel, which may be
incurred by such Indemnitee in connection with any
investigative, administrative or judicial proceeding (whether
or not such Indemnitee shall be designated a party thereto)
brought or threatened relating to or arising out of this
Agreement or any actual or proposed use of proceeds of Loans
hereunder; provided that no Indemnitee shall have the right to
be indemnified hereunder for such Indemnitee's own gross
negligence or willful misconduct as determined by a court of
competent jurisdiction.
(c) The indemnifications provided in respect of the reasonable
fees and disbursements of counsel in this Section 15.3 shall
be limited to one legal firm acting on behalf of the Lenders
for each jurisdiction in which the services of counsel are
utilized by the Lenders.
15.4 SHARING OF SET-OFFS. Each Lender agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount of principal and interest then due
hereunder with respect to any other Document held by it which is greater than
the proportion received by any other Lender in respect of the aggregate amount
of principal and interest then due hereunder with respect to any other Document
held by such other Lender, the Lender receiving such proportionately greater
payment shall purchase such participations of such payments, and such other
adjustments shall be made, as may be required so that all such payments of
principal and interest with respect to the Indebtedness shall be shared by the
Lenders pro rata; provided that nothing in this Section shall impair the right
of any Lender to exercise any right of set-off or counterclaim it may have and
to apply the amount subject to such exercise to the payment of indebtedness of
the Borrower other than its indebtedness hereunder. The Borrower agrees, to
the fullest extent it may effectively do so under applicable Law, that any
holder of a participation in the Indebtedness of the Borrower under this
Agreement, whether or not acquired pursuant to the foregoing arrangements, may
exercise rights of set-off or counterclaim and other rights with respect to
such participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
15.5 AMENDMENTS AND WAIVERS. Any provision of this Agreement or
any of the other Documents may be amended or waived if, but only if, such
amendment or waiver is in writing
<PAGE> 74
- 68 -
and is signed by the Borrower and the Majority Lenders ; provided that no such
amendment or waiver shall, unless signed by all the Lenders, (a) increase or
decrease the Commitment of any Lender (except for a ratable decrease in the
Commitments of all Lenders) or subject any Lender to any additional obligation,
(b) reduce the principal of or rate of interest on any Loan or the amount to be
reimbursed in respect of any Letter of Credit or Bankers' Acceptance or any
interest thereon or any fees hereunder, (c) postpone the date fixed for any
payment of principal of or interest on any Loan or for reimbursement in respect
of any Letter of Credit or Bankers' Acceptance or interest thereon or any fees
hereunder or for the termination of any Commitment or (d) change the percentage
of the Commitments or of the aggregate unpaid principal amount of the
Borrower's Obligations or the number of Lenders, which shall be required for
the Lenders or any of them to take any action under this Section or any other
provision of this Agreement.
15.6 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, other than pursuant to a
Permitted Transaction any of its rights under this Agreement
without the prior written consent of all Lenders.
(b) Any Lender 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 and Letter of Credit
Liabilities. If a Lender grants any such participating
interest to a Participant, whether or not upon notice to the
Borrower and the Agent, such Lender 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 Lender in connection with such Lender's
rights and obligations under this Agreement. Any agreement
pursuant to which any Lender may grant such a participating
interest shall provide that such Lender shall retain the sole
right and responsibility to enforce the Borrower's obligations
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 Lender shall not agree to any modification,
amendment or waiver of this Agreement described in Sections
2.1, 2.2, 2.4, 2.5, 2.6, 6.3, 12.5, 12.6, the definitions of
Repayment Date and the Pricing Schedule without the consent of
the Participant. The Borrower agrees that each Participant
shall, to the extent provided in its participation agreement,
be entitled to the benefits of Article 7, Sections 15.3, 15.4
and 15.9 with respect to its participating interest. An
<PAGE> 75
- 69 -
assignment or other transfer which is not permitted by
paragraphs (c) and (d) below shall be given effect for
purposes of this Agreement only to the extent a participating
interest is granted in accordance with this paragraph (b).
(c) Any Lender may at any time assign to one or more financial
institutions (each an "Assignee") all, or a proportionate part
(equivalent to an initial Commitment of not less than Cdn.
$10,000,000) of all, of its rights and obligations under this
Agreement and the other Documents, and such Assignee shall
assume such rights and obligations, pursuant to an Assignment
and Assumption Agreement in substantially the form of Schedule
"G" signed by such Assignee and such transferor Lender, with
(and subject to) the subscribed consent of the Borrower, which
shall not be unreasonably withheld, and the Agent; provided
that if an Assignee is an Affiliate of such transferor Lender
or was a Lender immediately before such assignment, no such
consent of the Borrower or the Agent shall be required. When
such instrument has been signed and delivered by the Parties
thereto and such Assignee has paid to such transferor Lender
the purchase price agreed between such transferor Lender and
such Assignee, such Assignee shall be a Lender party to this
Agreement and shall have all the rights and obligations of a
Lender with a Commitment as set forth in such instrument of
assumption, and the transferor Lender shall be released from
its obligations hereunder to a corresponding extent, and no
further consent or action by any Party shall be required. In
connection with any such assignment, the transferor Lender
shall pay to the Agent an administrative fee for processing
such assignment in the amount of Cdn. $2,500. If the Assignee
is not incorporated or chartered under the Laws of Canada or a
province thereof, it shall deliver to the Borrower and the
Agent certification as to exemption from deduction or
withholding of any Taxes in form satisfactory to the Agent and
the Borrower.
(d) Any Lender may at any time assign all or any portion of its
rights under this Agreement to an Affiliate of such Lender.
No such assignment shall release the assigning Lender from its
obligations hereunder.
(e) No Assignee, Participant or other transferee of any Lender's
rights shall be entitled to receive any greater payment under
Sections 7.1, 7.3 or 8.3 than such Lender 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 Sections 7.1, 7.3 or
8.3 requiring such Lender to designate a different Applicable
Lending Office under certain circumstances or at a time when
the circumstances giving rise to such greater payment did not
exist.
<PAGE> 76
- 70 -
15.7 GOVERNING LAW; SUBMISSION TO JURISDICTION. The Documents
shall be governed by and construed in accordance with the Laws in force in the
Province of Ontario. The Obligors hereby submit to the nonexclusive
jurisdiction of the courts having jurisdiction in the Province of Ontario for
the purposes of all legal proceedings arising out of or relating to the
Documents or the transactions contemplated thereby, other than in the case of
the Guarantee where the Laws applicable in the State of Delaware, U.S.A. shall
apply. The Obligors irrevocably waive, to the fullest extent permitted by Law,
any objection which they may now or hereafter have to the laying of the venue
of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
15.8 COUNTERPARTS; INTEGRATION; EFFECTIVENESS. The Documents may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the Parties and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof. This
Agreement shall become effective when the Agent has received from each of the
Parties hereto a counterpart hereof signed by such Party or facsimile or other
written confirmation satisfactory to the Agent confirming that such Party has
signed a counterpart hereof.
<PAGE> 77
- 71 -
15.9 WAIVER OF JURY TRIAL. Each of the Obligors, the Agent and the
Lenders hereby irrevocably waives any and all right to trial by jury in any
legal proceeding arising out of or relating to the Documents or the
transactions contemplated thereby.
IN WITNESS WHEREOF, the Parties have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
CANADIAN ULTRAMAR COMPANY
By: /s/ EDWARD Z. KWIATKOWSKI
--------------------------------
Name: Edward Z. Kwiatkowski
Title: Treasurer
Address:
Facsimile:
ULTRAMAR DIAMOND SHAMROCK CORPORATION
By: /s/ STEPHEN A. BLANK
--------------------------------
Name: Stephen A. Blank
Title: Treasurer
Address: 9830 Collonade Boulevard
San Antonio, Texas 78230
Facsimile: (210) 641-8484
<PAGE> 78
- 72 -
LENDERS SIGNATURES
CANADIAN IMPERIAL BANK OF COMMERCE,
AS AGENT
By: /s/ TIM THOMAS
---------------------------------
Name: Tim Thomas
Title: Director
Address: Commerce Court West, 7th Flr.,
Toronto, Ontario M5L 1A2
Facsimile: (416) 980-2804
By: /s/ RICK LOMAS
---------------------------------
Name: Rick Lomas
Title: Managing Director
Address: Commerce Court West, 7th Flr.,
Toronto, Ontario M5L 1A2
Facsimile: (416) 980-2804
<PAGE> 79
- 73 -
CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ JAMES CHEPYHA
--------------------------------
Name: James Chepyha
Title: Director, Global Energy
Address: 10th Flr., 855 - 2nd Street,
S.W. Calgary, Alberta, T2P 2P2
Facsimile: (403) 221-5779
By: /s/ DAVID SWAIN
--------------------------------
Name: David Swain
Title: Vice President & Managing
Director
Address: 10th Flr., 855 - 2nd Street,
S.W. Calgary, Alberta, T2P 2P2
Facsimile: (403) 221-5779
BANK OF TOKYO - MITSUBISHI (CANADA)
By: /s/ AMOS SIMPSON
--------------------------------
Name: Amos Simpson
Title: Vice President & General Manager
Address: 600 rue de la Gauchetiere
Ouest, Suite 2780, Montreal,
Quebec H3B 4L8
Facsimile: (514) 875-9392
<PAGE> 80
- 74 -
FUJI BANK CANADA
By: /s/ JOHN BAILEY
--------------------------------
Name: John Bailey
Title: Senior Vice President
Address: 500 Rene-Levesque Blvd. West,
Suite 705, Montreal, Quebec
H2Z 1Z7
Facsimile: (514) 383-9995
THE BANK OF NOVA SCOTIA
By: /s/ MICHAEL G. LOCKE
---------------------------------
Name: Michael G. Locke
Title: Vice President
Address: 44 King Street West,
Toronto, Ontario M5H 1H1
Facsimile: (416) 866-2009
By: /s/ DAVID M. TORREY
--------------------------------
Name: David M. Torrey
Title: Relationship Manager
Address: 44 King Street West,
Toronto, Ontario M5H 1H1
Facsimile: (416) 866-2009
<PAGE> 81
- 75 -
ABN AMRO BANK CANADA
By:
--------------------------------
Name:
Title:
Address: #1500, 600 de Maisonneuve Ouest
Montreal, Quebec H3A 3J2
Facsimile: (514) 284-2357
CAISSE CENTRALE DESJARDINS
By:
--------------------------------
Name:
Title:
Address: 1 Complexe Desjardins,
Suite 2822
Montreal, Quebec H5B 1B3
Facsimile: (514) 284-2357
CREDIT LYONNAIS CANADA
By:
--------------------------------
Name:
Title:
Address: 2000 Mansfield, 16th Floor
Montreal, Quebec H3A 3A6
Facsimile: (514) 288-9683
<PAGE> 82
- 76 -
INDUSTRIAL BANK OF JAPAN (CANADA)
By:
--------------------------------
Name:
Title:
Address: 100 Yonge Street, Suite 1102
Toronto, Ontario M5C 2W1
Facsimile: (416) 367-3452
ROYAL BANK OF CANADA
By:
--------------------------------
Name:
Title:
Address: Royal Bank Plaza, South Tower,
14th Floor, Toronto, Ontario
M5J 2J5
Facsimile: (416) 974-7376
<PAGE> 83
SCHEDULE "A" TO THE CREDIT AGREEMENT
DATED DECEMBER 19, 1996
COMMITMENTS
<TABLE>
<CAPTION>
LENDERS COMMITMENT (CDN. $)
<S> <C>
Canadian Imperial Bank of Commerce $45,000,000
Royal Bank of Canada $25,000,000
Credit Lyonnais Canada $25,000,000
ABN AMRO Bank Canada $20,000,000
The Bank of Nova Scotia $20,000,000
The Industrial Bank of Japan (Canada) $20,000,000
Caisse Centrale Desjardins $15,000,000
Fuji Bank Canada $15,000,000
Bank of Tokyo - Mitsubishi (Canada) $15,000,000
------------
TOTAL COMMITMENT $200,000,000
</TABLE>
<PAGE> 84
SCHEDULE "B" TO THE CREDIT AGREEMENT
DATED DECEMBER 19, 1996
DRAWDOWN NOTICE
To: Canadian Imperial Bank of Commerce (the "Agent")
Attention: [o]
[INSERT DATE]
Re: Credit Agreement dated December 19, 1996 made between, among others,
the undersigned (the "Borrower"), the Agent and the Lenders (as
defined therein) (as amended or restated from time to time, the
"Credit Agreement")
Drawing Number:
We refer to the facility constituted by the Credit Agreement and we hereby:
(1) Give you notice that on [o], 19[o], we wish to obtain the following
[ROLLOVER/CONVERSION/DRAWDOWN]:
[SPECIFY THE ACTION REQUIRED]
(a) a Prime Rate Loan in the amount of Cdn$[o];
(b) a LIBOR Loan in the amount of US$[o] and having an initial Interest
Period (subject to the Credit Agreement) of [o] days/months;
(c) a Base Rate Loan in the amount of US$[o];
(d) Bankers' Acceptances in the aggregate face amount of Cdn$[o] and
having a term (subject to the Credit Agreement) of [o] days/months,
maturing on [DATE]; and
(e) a Letter of Credit in the principal amount of Cdn$[o] or U.S.$ [o]
and on the terms and conditions specified in the application for
letter of credit submitted with this Drawdown Notice.
<PAGE> 85
- 2 -
[IF A ROLLOVER/CONVERSION DRAWDOWN]
The requested [ROLLOVER/CONVERSION/DRAWDOWN] replaces the following outstanding
Loans:
[SPECIFY AS APPLICABLE]
(a) a Prime Rate Loan in the amount of Cdn$[o];
(b) a LIBOR Loan in the amount of US$[o] maturing on [DATE];
(c) a Base Rate Loan in the amount of US$[o];
(d) Acceptances in the aggregate face amount of Cdn$[o] maturing
on [DATE]; and
(e) Letter of Credit No. o in the principal amount of Cdn$[o] or
U.S. $[o], the original of which is attached for [CANCELLATION
REDUCTION IN THE AMOUNT OF CDN$o].
(2) Confirm that we have read the provisions of the Credit Agreement which
are relevant to the furnishing of this Drawdown Notice. After due and careful
investigation with respect thereto, we certify to the best of our knowledge
that each of the representations and warranties of the Obligors contained in
Article 10 of the Credit Agreement (except as affected by the transactions
contemplated by the Credit Agreement) remain accurate as if given on the date
hereof, except for those representations and warranties which were made as of a
specified date which were accurate when made.
All terms defined in the Credit Agreement and used herein shall have the
meanings given in the Credit Agreement.
CANADIAN ULTRAMAR COMPANY
By:
-----------------------------------
Title:
--------------------------------
<PAGE> 86
SCHEDULE "C" TO THE CREDIT AGREEMENT
DATED DECEMBER 19, 1996
DRAFT: DECEMBER 16, 1996
GUARANTEE AND POSTPONEMENT
OF
ULTRAMAR DIAMOND SHAMROCK CORPORATION
PREAMBLE:
1. Canadian Ultramar Company (the "Borrower") has entered into a credit
agreement dated December 19, 1996 with, among others, Canadian Imperial Bank of
Commerce (the "Agent") on its own behalf and on behalf of the Lenders as
defined therein, (such credit agreement as amended or restated from time to
time herein called the "Credit Agreement") pursuant to which the Lenders have
established the Credit in favour of the Borrower on the terms and conditions
contained in the Credit Agreement.
2. It is a condition precedent to the Credit Agreement that the
undersigned (the "Guarantor") guarantee in favour of the Agent and the Lenders
the Obligations.
3. Capitalized terms used herein and not defined herein shall have the
meaning given such terms in the Credit Agreement.
NOW THEREFORE for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Guarantor agrees as follows:
1. The Guarantor acknowledges that it will receive direct benefits by
virtue of the Borrower obtaining the Credit and has offered this guarantee as
an inducement for the Lenders to provide the Credit.
2. The Guarantor hereby unconditionally guarantees payment to the Agent
on behalf of the Lenders, forthwith after demand therefor by the Agent, of the
Obligations which the Borrower has incurred or may incur to the Agent and the
Lenders or any of them, under the Documents and all reasonable legal fees which
may be incurred by the Agent and the Lenders in the enforcement of the
Documents. Demand may be made hereunder only after the occurrence of an Event
of Default.
3. The Lenders through the Agent may grant extensions of time or other
indulgences, take and give up securities, accept compositions, grant releases
and discharges and otherwise deal with the Borrower and other parties to the
Credit Agreement as they may see fit, and may apply all
<PAGE> 87
- 2 -
money received from the Borrower or others, or from securities, upon such part
of the Obligations as they may think best, without prejudice to or in any way
limiting or lessening the liability of the Guarantor under this guarantee
except in all cases to the extent all or part of the Obligations have been
paid.
4. None of the Agent or the Lenders is bound to exhaust its recourse
against the Borrower or other Persons or the security it may hereafter hold
before being entitled to payment from the Guarantor under this guarantee; and
the benefit of any Law affecting the liability of the Guarantor hereunder or
enforcement thereof is hereby waived to the greatest extent permitted by
applicable Law.
5. Any loss of any security received by the Agent or any of the Lenders
from the Borrower or any other Person whether occasioned through the fault of
the Agent or any of the Lenders or otherwise, shall not discharge, limit or
lessen the liability of the Guarantor under this guarantee, unless such loss is
directly attributable to the gross negligence or fraudulent or willful
misconduct of the Agent or any of the Lenders.
6. This guarantee shall be a continuing guarantee and shall cover all
present and future Obligations, and shall be binding as a continuing obligation
of the Guarantor.
7. Any change or changes in the name, business or ownership of the
Borrower shall not affect, limit or lessen the liability of the Guarantor
hereunder and this guarantee shall extend to the Person acquiring or from time
to time carrying on the business of the Borrower.
8. All Advances and Loans, including renewals and credits borrowed or
obtained from the Lenders pursuant to the Documents, shall be deemed to form
part of the Obligations hereby guaranteed notwithstanding any incapacity,
disability or lack or limitation of status or of power of the Borrower or of
the directors, partners or agents thereof or that the Borrower may not be a
legal entity, or any irregularity, defect or informality in obtaining the
Credit. Any amount which may not be recoverable from the Guarantor on the
basis of a guarantee shall be recoverable from the Guarantor as principal
debtor in respect thereof and shall be paid to the Agent after demand therefor
as herein provided.
9. The Guarantor shall assume the responsibility for being and keeping
itself informed of the financial condition of the Borrower and of all other
circumstances bearing upon the risk of non-payment of the liability under this
guarantee which diligent inquiry would reveal, and agrees that absent a request
for such information by the Guarantor, neither the Agent nor any of the Lenders
shall have any duty to advise the Guarantor of information known to the Agent
or any of the Lenders regarding such condition or circumstances.
<PAGE> 88
- 3 -
10. Should the Agent or any of the Lenders receive from the Guarantor a
payment in full or on account of the Guarantor's liability hereunder, the
Guarantor shall not be entitled to claim a repayment against the Borrower until
all Obligations have been paid in full; and in the case of an Event of
Bankruptcy (whether voluntary or compulsory), the Agent and each Lender shall
have the right to receive all dividends or distributions of the payments in
respect thereof until such claim has been irrevocably and unconditionally paid
in full and the Guarantor shall continue liable, for any balance of the
Obligations which may be owing to the Agent and any of the Lenders. If the
Agent or any of the Lenders values and/or retains any security, such valuation
and/or retention shall not, as between the Agent or such Lender, as the case
may be, and the Guarantor, be considered as a purchase of such security, or as
payment or satisfaction or reduction of the Obligations, or any part thereof
unless such security is sold by the Agent or such Lender and the proceeds
therefrom are applied by the Agent or such Lender as a payment on account of
the Guarantor's liability hereunder.
11. The Guarantor shall make payment to the Agent of the amount of the
liability of the Guarantor under this guarantee forthwith after demand therefor
is made in writing by the Agent in accordance with the Credit Agreement. The
liability of the Guarantor hereunder (other than any liability which already
bears interest at the Default Rate in accordance with the terms of the Credit
Agreement) shall bear interest at the Default Rate, from and including the
twentieth Banking Day following the date of receipt by the Guarantor of such
demand.
12. The Guarantor shall pay all reasonable legal fees and all other costs
and expenses which may be incurred by the Agent or any of the Lenders in the
enforcement of this guarantee.
13. Nothing herein contained or in any security hereafter acquired by the
Agent or any of the Lenders nor any act or omission of the Agent or any of the
Lenders with respect to any such security shall in any way prejudice or affect
the rights, remedies or powers of the Agent or any of the Lenders with respect
to any other security at any time held by the Agent or any of the Lenders.
14. The Agent and each of the Lenders, at its election, may exercise any
right or remedy it might have against the Borrower or any security held by the
Agent or any of the Lenders, including without limitation the right to
foreclose upon any such security by judicial or non-judicial sale, without
affecting or impairing in any way the liability of the Guarantor hereunder,
except to the extent the Obligations have been irrevocably reduced as a result
thereof. The Guarantor waives any defence arising out of the absence,
impairment or loss of any right of reimbursement or subrogation or other right
or remedy of the Guarantor against the Borrower or any such security, whether
resulting from such election by the Agent or any of the Lenders otherwise. The
Guarantor further waives any defence arising by reason of the cessation from
any
<PAGE> 89
- 4 -
cause whatsoever of the liability of the Borrower as a result of an Event of
Bankruptcy, or otherwise.
15. Until all Obligations have been paid in full, the Guarantor shall have
no right to subrogation and waives any right to enforce any remedy or recourse
which the Agent or any of the Lenders now have or may hereafter have against
the Borrower or any other Person and waives any benefit of any right to
participate in the security, if any, hereafter held by the Agent and or any of
the Lenders. The Guarantor waives all presentments, demands for performance,
notices of non- performance, protests, notices of protest, notices of
dishonour, and notices of acceptance of this guarantee and of the existence,
creation or incurring of new or additional Obligations.
16. Upon the occurrence and during the continuation of an Event of
Default, all debts and liabilities, present and future, of the Borrower to the
Guarantor will automatically, without act or formality, be assigned to the
Agent, on behalf of the Lenders, and postponed to the Obligations, present and
future, and all moneys received by the Guarantor in respect thereof after
demand is made hereunder shall be received in trust for and shall be forthwith
paid over to the Agent, on behalf of the Lenders, without in any way limiting
or lessening the liability of the Guarantor under this guarantee except in all
cases to the extent all or part of the Obligations have been paid.
17. This guarantee is in addition to and without prejudice to any security
of any kind (including without limitation guarantees and postponement
agreements whether or not in the same form as this guarantee) hereafter held by
the Agent or any of the Lenders in connection with the Credit.
18. There are no representations, collateral agreements or conditions with
respect to this guarantee or affecting the Guarantor's liability hereunder
other than as contained herein or in the Credit Agreement.
19. Any payment on account of an amount owing hereunder in a specified
currency made to or for the account of the Agent or any of the Lenders in a
currency other than the specified currency pursuant to a judgment or order of a
court or tribunal of any jurisdiction shall constitute a discharge of the
Guarantor's obligation under this guarantee only to the extent of the amount of
the specified currency which the Agent is able, on the date of receipt of such
payment, to purchase in Toronto, Ontario with the amount so received by it. If
the amount of the specified currency which the Agent is so able to purchase is
less that the amount of the specified currency originally due, the Guarantor
shall indemnify and save the Agent and each of the Lenders harmless from and
against any loss arising as a result of such deficiency. This indemnity shall
constitute an obligation separate and independent from the other obligations
contained in this guarantee, shall give rise to a separate and independent
cause of action, shall apply irrespective of any indulgence
<PAGE> 90
- 5 -
granted by the Agent or any of the Lenders from time to time and shall continue
in full force and effect notwithstanding any judgment or order for a liquidated
sum in respect of an amount due hereunder or under any judgment or order.
20. All amounts payable by the Guarantor hereunder shall be made in the
same currency of the Obligation, as applicable, without setoff or counterclaim
and without deduction for or on account of any present or future Taxes, unless
the Guarantor is required by Law to deduct or withhold in which case the
Guarantor shall pay to the Agent such additional amount as is necessary to
ensure that the Agent and each of the Lenders receives the full amount it would
have received if no deduction or withholding had been made.
21. This guarantee shall be construed in accordance with the Laws in force
in the State of Delaware, U.S.A. and the Guarantor agrees that any legal suit,
action or proceeding arising out of or relating to this guarantee may be
instituted in the courts of such jurisdiction and the Guarantor hereby accepts
and irrevocably submits to the non- exclusive jurisdiction of such courts and
acknowledges their competence and agrees to be bound by any judgment thereof,
provided that nothing herein shall limit the right of the Agent or any of the
Lenders to bring proceedings against the Guarantor elsewhere.
22. This guarantee shall extend and enure to the benefit of the
successors and assigns of the Agent and each of the Lenders, and shall be
binding upon the Guarantor and its successors and assigns.
23. Any account settled or stated in writing by or between one or more of
the Lenders or the Agent and one or more of the Obligors shall be prima facie
evidence that the balance or amount thereof appearing due is so due.
24. The Guarantor shall not contest or otherwise challenge the legality,
validity or enforceability of any term or condition, or other provision
contained in the Documents.
GIVEN at , as of December 19, 1996.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
By:
-----------------------------------
Name:
Title:
<PAGE> 91
SCHEDULE "D" TO THE CREDIT AGREEMENT
DATED DECEMBER 19, 1996
PRICING SCHEDULE
<TABLE>
<CAPTION>
========================================================================================================================
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL V1
========================================================================================================================
Basis for Pricing If UDSC's Credit UDSC's Credit UDSC's Credit UDSC's Credit UDSC's Credit If
Rating is rated A Rating is rated Rating is rated Rating is rated rating is rated Levels
or higher by S&P at least A by at least BBB+ by at least BBB by at least BBB-by I-V do
or A2 or higher S&P or A3 by S&P or Baa1 by S&P or Baa2 by S&P or Baa3 by not
by Moody's Moody's. Moody's. Moody's. Moody's. apply.
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Facility Fee 7.0 8.0 9.0 11.0 15.0 18.75
- ------------------------------------------------------------------------------------------------------------------------
UNUSED COST 7.0 8.0 9.0 11.0 15.0 18.75
- ------------------------------------------------------------------------------------------------------------------------
LIBOR + 15.5 17.0 18.5 21.5 30.0 43.75
- ------------------------------------------------------------------------------------------------------------------------
BAs/LCs 15.5 17.0 18.5 21.5 30.0 43.75
- ------------------------------------------------------------------------------------------------------------------------
Base/Prime Rate + 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
USED COST 22.5 25.0 27.5 32.5 45.0 62.50
========================================================================================================================
</TABLE>
<PAGE> 92
SCHEDULE "E" TO THE CREDIT AGREEMENT
DATED DECEMBER 19, 1996
SIGNIFICANT SUBSIDIARIES
Canadian Ultramar Company
Diamond Shamrock Refining and Marketing Company
D-S Venture Company, L.L.C.
Diamond Shamrock Refining Company, L.P.
Ultramar Credit Corporation
Ultramar Inc.
Ultramar Ltee.
<PAGE> 93
SCHEDULE "F" TO THE CREDIT AGREEMENT
DATED DECEMBER 19, 1996
PLANS
Diamond Shamrock Corporation Career Average Retirement Income Plan
Diamond Shamrock Corporation Retirement Income Plan
Diamond Shamrock Corporation Employees' Retirement Plan
Ultramar Corporation U.S. Employees' Retirement Plan
Multiemployer Plans:
New England Teamsters & Trucking Industry Pension Fund
Automotive Industries Welfare Fund
Western Conference of Teamsters Pension Trust Fund - Northern California Area
Western Conference of Teamsters Pension Trust Fund - Southern Area
<PAGE> 94
SCHEDULE "G" TO THE CREDIT AGREEMENT
DATED DECEMBER 19, 1996
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among (NAME OF ASSIGNOR)
(the "Assignor"), (NAME OF ASSIGNEE) (the "Assignee"), CANADIAN ULTRAMAR
COMPANY, ULTRAMAR DIAMOND SHAMROCK CORPORATION and CANADIAN IMPERIAL BANK OF
COMMERCE.
PREAMBLE:
1. This Assignment and Assumption Agreement (the "Agreement") relates to
the Credit Agreement dated as of December 19, 1996 among the Obligors, the
Assignor and the other Lenders party thereto, as Lenders, and the Agent as
amended from time to time, (the "Credit Agreement").
2. As provided under the Credit Agreement, the Assignor has a Commitment
to make Loans to the Borrower and to support Letters of Credit issued by CIBC
in an aggregate principal amount at any time outstanding not to exceed Cdn.
$____________.
3. Loans made to the Borrower by the Assignor under the Credit Agreement
in the aggregate principal amount of Cdn. $__________, or the Exchange
Equivalent in U.S. Dollars, are outstanding at the date.
4. Letters of Credit with a total amount available for drawing thereunder
of $__________ are outstanding at the date hereof.
5. The Assignor proposes to assign to the Assignee all of the rights of
the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "Assigned
Amount"), together with a corresponding portion of its outstanding Loans and it
contingent exposure with respect to Letters of Credit and the Assignee proposes
to accept an assignment of such rights and assume the corresponding obligations
from the Assignor on such terms.
AGREEMENT:
In consideration of the foregoing and the mutual agreements contained
herein, the parties hereto agree as follows:
<PAGE> 95
- 2 -
SECTION 1. Definitions. All capitalized terms in this
agreement, including the preamble, not otherwise defined herein, have the
respective meanings set forth in the Credit Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells
to the Assignee all of the rights of the Assignor under the Credit Agreement to
the extent of the Assigned Amount, and the Assignee hereby accepts such
assignment from the Assignor and assumes all of the obligations of the Assignor
under the Credit Agreement to the extent of the Assigned Amount, including the
purchase from the Assignor of the corresponding portion of the principal amount
of each of the Loans made by, and the contingent exposure with respect to
Letters of Credit of, the Assignor outstanding at the date hereof. Upon the
execution and delivery hereof by the Assignor, the Assignee, and the other
parties hereto and the payment of the amounts specified in Section 3 required
to be paid on the date hereof (a) the Assignee shall, as of the date hereof,
succeed to the rights and be obligated to perform the obligations of a Lender
under the Credit Agreement with a Commitment in an amount equal to the Assigned
Amount, and (b) the Commitment of the Assignor shall, as of the date hereof, be
reduced by a like amount and the Assignor released from its obligations under
the Credit Agreement to the extent such obligations have been assumed by the
Assignee. The assignment provided for herein shall be without recourse to the
Assignor.
SECTION 3. Payments. As consideration for the assignment and
sale contemplated in Section 2, the Assignee shall pay to the Assignor on the
date hereof in Cdn. Dollars the amount heretofore agreed between them.(1) It is
understood that interest, the facility fees and other fees accrued before the
date hereof are for the account of the Assignor and such interest and fees
accruing on and after the date hereof are for the account of the Assignee.
Each of the Assignor and the Assignee agrees that if it receives any amount
under the Documents which is for the account of the other, it shall receive the
same for the account of the other to the extent of the other's interest therein
and promptly pay the same to the other.
SECTION 4. Non-Reliance on Assignor. The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of the
Obligors or the validity and enforceability of the Obligors' obligations under
the Documents. The Assignee acknowledges that it has, independently and
without reliance on the Assignor, and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to
enter into this
____________________
(1) Amount should combine principal together with accrued interest
and breakage compensation, if any, to be paid by the Assignee,
net of any portion of any upfront fee to be paid by the
Assignor to the Assignee. It may be preferable in an
appropriate case to specify these amounts generically or by
formula rather than as a fixed sum and to split them between
Cdn. Dollar and U.S. Dollar amounts.
<PAGE> 96
- 3 -
agreement and will continue to be responsible for making its own independent
appraisal of the business, affairs and financial condition of the Obligors.
SECTION 5. Governing Law. This agreement shall be governed
by and construed in accordance with the Laws applicable in the Province of
Ontario.
SECTION 6. Counterparts. This agreement may be signed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be executed and delivered by their duly authorized officers as of
the date first above written.
CANADIAN ULTRAMAR COMPANY
By: c/s
---------------------------------
Title:
ULTRAMAR DIAMOND SHAMROCK CORPORATION
By: c/s
----------------------------------
Title:
<PAGE> 97
- 4 -
CANADIAN IMPERIAL BANK OF COMMERCE,
AS AGENT FOR THE LENDERS
By:
-----------------------------------
Title:
<PAGE> 98
SCHEDULE "H" TO THE CREDIT AGREEMENT
DATED DECEMBER 19, 1996
OPINION OF COUNSEL FOR UDSC
[NOTE TO DRAFT: APPLICABLE JURISDICTION TO BE CONSIDERED.]
December 19, 1996.
To the Lenders and the Agent
Referred to Below
c/o Canadian Imperial Bank of Commerce
10th Floor, Global Energy
855 - 2nd Street SW
Calgary, Alberta
T2P 2P2
- - and to -
Blake, Cassels & Graydon
3500 Bankers Hall East
855 - 2nd Street SW
Calgary, Alberta
Dear Sirs:
RE: ULTRAMAR DIAMOND SHAMROCK CORPORATION
I am General Counsel of Ultramar Diamond Shamrock Corporation
("UDSC") and I am familiar with the Credit Agreement dated as of December 19,
1996 (the "Credit Agreement") among the Obligors, the Lenders party thereto,
and Canadian Imperial Bank of Commerce, as Agent. Terms defined in the Credit
Agreement are used herein as therein defined. This opinion is being rendered
to you at the request of UDSC.
I have examined originals or copies, certified or otherwise
identified to my satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as I have deemed necessary or advisable
for purposes of this opinion.
To my knowledge, there is no action, suit, proceeding, inquiry
or investigation pending or threatened against or affecting UDSC or any of its
property in any court or before any
<PAGE> 99
- 2 -
Governmental Authority that seeks to restrain, enjoin, prevent the consummation
of or otherwise challenge any of the Documents or any transaction thereby
contemplated.
Upon the basis of the foregoing, I am of the opinion that:
1. UDSC is a corporation duly incorporated, validly existing and
in good standing under the laws of Delaware and has all corporate powers and
all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
2. The execution, delivery and performance by UDSC of its
covenants and obligations under the Credit Agreement and its Guarantee are
within UDSC's corporate powers, have been duly authorized by all necessary
corporate action, require no action by or in respect of, or filing or
recordation with or consent, license or approval from any Governmental
Authority in connection with the authorization, execution, delivery or
performance thereof or to perfect, preserve or protect the rights or remedies
of the Lenders or the Agent thereunder, and do not contravene, or constitute a
default under, any provision of applicable Law or of UDSC's certificate of
incorporation or by-laws or, to the best of my knowledge, of any agreement,
judgment, injunction, order, decree or other instrument binding upon UDSC or
any of its Subsidiaries or result in the creation or imposition of any Lien on
any property of UDSC or any of its Subsidiaries.
3. The Credit Agreement and its Guarantee constitute valid and
binding obligations of UDSC, in each case enforceable in accordance with its
terms except as the same may be limited by bankruptcy, insolvency or similar
Laws affecting creditors' rights generally and by general principles of equity.
4. There is no action, suit or proceeding pending against, or to
the best of my knowledge threatened against or affecting, UDSC or any of its
Significant Subsidiaries before any court or arbitrator or any Governmental
Authority in which there is a reasonable possibility of an adverse decision
which could materially adversely affect the business, consolidated financial
position or consolidated results of operations of UDSC and its Consolidated
Subsidiaries, considered as a whole, or which in any manner draws into question
the validity of the Credit Agreement or its Guarantee.
5. Each of UDSC's corporate Significant Subsidiaries is a
corporation validly existing and in good standing under the laws of its
jurisdiction of incorporation.
6. Based solely upon the share register maintained by the
Borrower, USDC and Holdings are the registered owners of all of the issued and
outstanding shares of the Borrower
<PAGE> 100
- 3 -
and, after due enquiry, I am not aware of any right of any other Person to
acquire any shares in the capital of the Borrower.
Very truly yours,
<PAGE> 101
SCHEDULE "I" TO THE CREDIT AGREEMENT
DATED DECEMBER 19, 1996
OPINION OF CANADIAN COUNSEL TO THE BORROWER
December 19, 1996
To the Lenders and the Agent
Referred to Below
c/o Canadian Imperial Bank of Commerce
10th Floor, Global Energy
855 - 2nd Street SW
Calgary, Alberta
T2P 2P2
- and to -
Blake, Cassels & Graydon
3500 Bankers Hall East
855 - 2nd Street SW
Calgary, Alberta
Dear Sirs:
RE: CANADIAN ULTRAMAR COMPANY
This opinion is furnished to you in connection with the Credit
Agreement dated December 19, 1996 among the Obligors, the Lenders party
thereto, and Canadian Imperial Bank of Commerce, as Agent (the "Credit
Agreement").
We have acted as counsel to the Borrower in connection with the Credit
Agreement.
Capitalized terms used herein which are defined in the Credit
Agreement have the same meaning as therein defined.
For purposes of our opinion, we have examined originally executed
counterpart copies of the Documents and have also examined the originals, or
copies certified to our satisfaction, of such other documents as we have
considered necessary or appropriate for our opinion.
<PAGE> 102
- 2 -
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity to original documents of all documents submitted to us as notarial,
certified, conformed, photostatic or telecopied copies thereof and the
authenticity of the originals of such documents.
As to the authorization and execution of the Credit Agreement, we have
relied solely on certified copies of the resolution of Directors of the
Borrower and a Certificate of Incumbency of the Borrower, which are delivered
to you with our opinion.
As to the legal status of the borrower, we have relied solely on a
[CERTIFICATE OF STATUS] issued by the [REGISTRAR] under the Companies Act (Nova
Scotia), also delivered herewith.
As to the corporate capacity of the Borrower to enter into the Credit
Agreement, we have reviewed certified copies of its constating documents, also
delivered herewith.
We have conducted in the Province of Nova Scotia, certain searches of
public registries and attach our report on the results thereof.
We do not express any opinion on matters governed by any Law other
than the internal Laws of the Province of Nova Scotia and the Laws of Canada
applicable therein.
We have assumed the Credit Agreement constitutes the legal, valid and
binding obligations of the Agent and the Lenders, enforceable against each of
them in accordance with its terms.
Subject to the foregoing and the qualifications set forth herein, we
are of the opinion that:
a. the Borrower was [INCORPORATED/AMALGAMATED] under the
Companies Act (Nova Scotia) and is validly subsisting
thereunder;
b. the Borrower has the corporate capacity to authorize the
execution and delivery of the Credit Agreement and to perform
its obligations and covenants thereunder;
c. the Credit Agreement has been duly authorized and executed by
the Borrower and constitutes its legal, valid and binding
obligations enforceable against the Borrower in accordance
with its terms; and
d. there are no filings or registrations required with any
Governmental Authority in the Province of Nova Scotia to
perfect or preserve the rights of the Lenders under the
Documents.
<PAGE> 103
- 3 -
Our opinion is subject to the following qualifications:
(a) the validity and enforceability of the obligations of the
Borrower under the Credit Agreement are subject to the
following:
(i) any applicable bankruptcy, insolvency, winding-up,
arrangement, liquidation, reorganization, moratorium
or other Laws affecting creditors' rights generally;
(ii) the power of a court to grant relief from forfeiture,
to stay proceedings before it and to stay the
execution of judgments;
(iii) applicable Laws regarding limitations of actions;
(iv) general principles of equity which may apply to
proceedings inequity or at Law, including equitable
limitations on the availability of certain remedies;
(v) limitations upon the right of a creditor to receive
immediate payment of amounts stated to be payable on
demand; and
(vi) a provision of the Credit Agreement that purports to
establish evidentiary standards, such as provisions
stating that certain determinations, calculations,
requests or certificates will be conclusive and
binding on the Borrower, may not be enforceable or
may be limited in its applications.
(b) Canadian courts will give a monetary judgment in Canadian
currency and such judgment may be based on a rate of exchange
in existence on a day other than as provided for in the Credit
Agreement;
(c) the provisions of the Interest Act (Canada) may limit
interest on a judgment debt to a rate less than as provided
for in the Credit Agreement;
(d) determinations or demands made by the Agent of the Lenders in
the exercise of a discretion purported to be given to them
under the Credit Agreement may be unenforceable if made in an
unreasonable or arbitrary fashion;
(e) the ability to recover a claim for certain costs or expense
may be restricted by a court to a reasonable amount and legal
fees are subject to taxation;
<PAGE> 104
- 4 -
(f) the effectiveness of a provision of the Credit Agreement which
purports to relieve a Person from a duty or liability
otherwise owed may be limited by applicable Law, and a
provision requiring indemnification or reimbursement may not
be enforced by a court to the extent that it relates to the
failure of such Person to have performed such duty or
liability; and
(g) no opinion is expressed on the enforceability of any provision
of the Credit Agreement which:
(i) suggests that modification, amendments or waivers of
the Credit Agreement that are not in writing will not
be effective;
(ii) provides for agreement between the Parties at a later
date; and
(iii) purports to sever unlawful or unenforceable
provisions from the Credit Agreement.
This opinion is intended solely for the use of the Agent and the
Lenders and their permitted assignees and may not be relied upon by any other
Person, nor quoted from or referred to in any other document, without our prior
written consent.
Yours very truly,
<PAGE> 1
EXHIBIT 10.51
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT dated as of February ,1997 among ULTRAMAR DIAMOND
SHAMROCK CORPORATION, CANADIAN ULTRAMAR COMPANY (the "Borrower"), the LENDERS
listed on the signature pages hereof (the "Lenders") and CANADIAN IMPERIAL BANK
OF COMMERCE, as Agent (the "Agent").
PREAMBLE:
1. The parties hereto entered into a Credit Agreement dated December 19,
1996 (the "Agreement").
2. The parties hereto desire to amend certain provisions of the Agreement
in the manner set forth below.
AGREEMENT:
For good an valuable consideration, the parties hereto agree as
follows:
1.1 Definition, References. Unless otherwise specifically defined
herein, each term used herein which is defined in the Agreement shall have the
meaning given such term in the Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Agreement" and each other similar reference contained in the
Agreement shall from and after the date hereof refer to the Agreement as
amended hereby.
2.1 Amendment to Section 1.1 of the Agreement. The definition of
"Consolidated Net Income" in Section 1.1 of the Agreement is
replaced with the following:
"Consolidated Net Income" means, for any period, the net
income (or loss) of the Borrower or UDSC, as the case may be,
and its Consolidated Subsidiaries for such period; provided
that there shall be excluded (i) any after-tax gains or losses
attributable to asset sales (other than sales in the ordinary
course of business) or returned surplus assets of any Plan,
(ii) in the case of UDSC only, up to U.S. $127,800,000 of
non-recurring charges in connection with or as a result of (A)
the Merger or (B) certain changes to conform the accounting
practices of Ultramar Corporation and Diamond Shamrock, Inc.
and (iii) to the extent not
<PAGE> 2
- 2 -
included in clauses (i) and (ii), any net extraordinary gains
or net extraordinary losses.
3.1 Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the Province of
Ontario, Canada.
4.1 Counterparts; Effectiveness. This Amendment may be signed in
any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Amendment
shall become effective as of the date hereof when the Agent
shall have received duly executed counterparts hereof signed
by the Borrower and the Majority Lenders (or, in the case of
any party as to which an executed counterpart shall not have
been received, the Agent shall have received telegraphic,
telex or other written confirmation from such party of
execution of a counterpart hereof by such party).
The parties hereto have caused this Amendment to be executed
by their respective authorized representatives or officers effective the date
referred to above.
CANADIAN ULTRAMAR COMPANY
By:
-----------------------------------
Name:
Title:
Address:
Facsimile:
<PAGE> 3
- 3 -
ULTRAMAR DIAMOND SHAMROCK CORPORATION
By:
-----------------------------
Name: Steven A. Blank
Title: Treasurer
Address: 9830 Collonade Boulevard
San Antonio, Texas 78230
Facsimile: (210) 641-8484
<PAGE> 4
- 4 -
LENDERS SIGNATURES
CANADIAN IMPERIAL BANK OF COMMERCE, AS AGENT
By:
-------------------------------------
Name:
Title:
Address: Commerce Court West, 7th Flr.,
Toronto, Ontario M5L 1A2
Facsimile: (416) 980-2804
By:
-----------------------------------------
Name:
Title:
Address: Commerce Court West, 7th Flr.,
Toronto, Ontario M5L 1A2
Facsimile: (416) 980-2804
<PAGE> 5
- 5 -
CANADIAN IMPERIAL BANK OF COMMERCE
By:
-----------------------------------------
Name:
Title:
Address: 10th Flr., 855 - 2nd Street,
S.W. Calgary, Alberta, T2P 2P2
Facsimile: (403) 221-5779
By:
-----------------------------------------
Name:
Title:
Address: 10th Flr., 855 - 2nd Street,
S.W. Calgary, Alberta, T2P 2P2
Facsimile: (403) 221-5779
BANK OF TOKYO - MITSUBISHI (CANADA)
By:
-----------------------------------------
Name: Amos Simpson
Title: General Manager
Address: 600 rue de la Gauchetiere Ouest,
Suite 2780, Montreal, Quebec H3B 4L8
Facsimile: (514) 875-9392
<PAGE> 6
- 6 -
FUJI BANK CANADA
By:
----------------------------------------
Name:
Title:
Address:
Facsimile:
THE BANK OF NOVA SCOTIA
By:
----------------------------------------
Name: David Torrey
Title: Relationship Manager
Address: 44 King Street West,
Toronto, Ontario M5H 1H1
Facsimile: (416) 866-2009
By:
-----------------------------------------
Name:
Title:
Address: 44 King Street West,
Toronto, Ontario M5H 1H1
Facsimile:(416) 866-2009
<PAGE> 7
- 7 -
ABN AMRO BANK CANADA
By:
-----------------------------------------
Name: Enrico Pallatto
Title:
Address: #1500, 600 de Maisonneuve Ouest
Montreal, Quebec H3A 3J2
Facsimile: (514) 284-2357
CAISSE CENTRALE DESJARDINS
By:
-----------------------------------------
Name: Robert LaBelle
Title: Director, Corporate Banking
Address:1 Complexe Desjardins, Suite 2822
Montreal, Quebec H5B 1B3
Facsimile: (514) 284-2357
CREDIT LYONNAIS CANADA
By:
-----------------------------------------
Name: Daniel Arpin
Title: Vice President
Address: 2000 Mansfield, 16th Floor
Montreal, Quebec H3A 3A6
Facsimile: (514) 288-9683
<PAGE> 8
- 8 -
INDUSTRIAL BANK OF JAPAN (CANADA)
By:
-----------------------------------------
Name: Guy Racine
Title: Vice President, Business Development
Address: 100 Yonge Street, Suite 1102
Toronto, Ontario M5C 2W1
Facsimile: (416) 367-3452
ROYAL BANK OF CANADA
By:
-----------------------------------------
Name: Ritta Lee
Title: Senior Account Manager
Address: Royal Bank Plaza, South Tower, 14th
Floor, Toronto, Ontario M5J 2J5
Facsimile:(416) 974-7376
<PAGE> 1
EXHIBIT 10.52
________________________________________________________________________________
AMENDED AND RESTATED LEASE AGREEMENT
Dated as of December 19, 1996
AMONG
JAMESTOWN FUNDING, LIMITED PARTNERSHIP,
on the one hand, as Lessor,
AND
ULTRAMAR INC.,
ULTRAMAR ENERGY INC.,
DIAMOND SHAMROCK LEASING, INC.,
DIAMOND SHAMROCK ARIZONA, INC.
AND
DIAMOND SHAMROCK REFINING AND MARKETING COMPANY,
on the other hand, as Lessees
THIS LEASE HAS BEEN ASSIGNED AS SECURITY
FOR INDEBTEDNESS OF THE LESSOR. SEE SECTION 21.
This Lease has been manually executed in nine (9) counterparts, numbered
consecutively from 1 through 9, of which this is No.___. To the extent, if
any, that this Lease constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction), no
security interest in this Lease may be created or perfected through the
transfer or possession of any counterpart other than the original executed
counterpart which shall be the counterpart identified as counterpart No. 1.
________________________________________________________________________________
<PAGE> 2
AMENDED AND RESTATED LEASE AGREEMENT
AMENDED AND RESTATED LEASE AGREEMENT, dated as of December 19,
1996 (as the same may be amended, restated, modified or supplemented from time
to time, this "LEASE"), among JAMESTOWN FUNDING, LIMITED PARTNERSHIP, a
Delaware limited partnership, on the one hand, as the "LESSOR", and ULTRAMAR
INC., a Nevada corporation, ULTRAMAR ENERGY INC., a Delaware corporation,
DIAMOND SHAMROCK LEASING, INC., a Delaware corporation, DIAMOND SHAMROCK
ARIZONA, INC., a Delaware corporation and DIAMOND SHAMROCK REFINING AND
MARKETING COMPANY, a Delaware corporation, severally and not jointly, on the
other hand, as the "LESSEES".
WHEREAS, each Lessee and Lessor are parties to that Amended
and Restated Acquisition and Construction Agreement pursuant to which Lessor
has or will acquire title to certain property that is intended to be used in
such Lessee's business as an office building and for other commercial purposes
or as retail fuel outlets/convenience stores/car washes and related uses such
as quick service restaurants; and
WHEREAS, the Lessor wishes to lease such property to a Lessee
pursuant to the provisions hereof;
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1 Defined Terms.
Unless the context otherwise requires, each term defined in
this SECTION 1, when used in this Lease, has the meaning indicated; capitalized
terms used herein without definition shall have the meanings ascribed to such
terms in the Acquisition and Construction Agreement.
"ACCRUED DEFAULT OBLIGATIONS" has the meaning set forth in
SECTION 19 hereof.
"ACQUISITION AND CONSTRUCTION AGREEMENT" means the Amended and
Restated Acquisition and Construction Agreement, dated as of the date hereof,
between the Lessor, as owner, and the Lessee, as agent, providing for the
acquisition of fee or leasehold interests in real property and the construction
or installation of improvements including personal property and equipment on
each such interest of real property so acquired, as the same may be amended,
restated, modified or supplemented from time to time.
"ACQUISITION COST" means, with respect to any Unit, the amount
shown on the Unit Leasing Record relating to such Unit, as amended from time to
time.
"ADDITIONAL RENT" has the meaning set forth in paragraph (d)
of SECTION 7 hereof.
"AFFILIATE" of any Person means any other Person controlling,
controlled by or under direct or indirect common control with, such Person.
For the purposes of this definition, "control," when used with respect to any
specified Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"ASSIGNEE" means the bank acting as agent pursuant to the
Amended and Restated Financing Agreement, in it capacity as such agent and as
collateral agent under any security document referred to therein.
AMENDED AND RESTATED LEASE AGREEMENT - Page 1
<PAGE> 3
"ASSIGNMENT" means each assignment agreement referred to in
SECTION 20 hereof, between the Lessor and a third party, pursuant to which the
Lessor assigns certain of its rights under this Lease to such third party, as
the same may be amended, restated, modified or supplemented from time to time.
"ASTM" means the American Society for Testing and Materials.
"BASIC RENT" means, with respect to all Units of Property, the
sum of the Monthly Fixed Component of Rent and Monthly Variable Component of
Rent:
A. Monthly Variable Component of Rent is computed by multiplying
the following:
(i) the aggregate Acquisition Cost at the beginning of
such month less $203,500 by,
(ii) a fraction having a numerator equal to the number of
days in such month, and a denominator of 365, or in a leap year, 366, by
(iii) the Lessor's weighted average percentage cost per
annum (including, without limitation, any interest accruing at a default rate
and any fees payable by Lessor under or pursuant to the Financing Agreement),
and adjusted to an actual /365 basis, in respect of all borrowings outstanding
at any time during the period from and including the sixteenth (16th) day of
the preceding calendar month to and including the 15th day of the calendar
month for which Basic Rent is being computed (the "COMPUTATION PERIOD") to
finance or refinance the acquisition and ownership of the Units of Property;
and
B. Monthly Fixed Component of Rent is $9,365.00 (Nine Thousand
Three Hundred Sixty-Five and No/100 Dollars) until December 20, 1996, $9,729.00
(Nine Thousand Seven Hundred Twenty-Nine and No/100 Dollars) until July 25,
2001, $9,583.00 (Nine Thousand Five Hundred Eighty-Three and No/100 Dollars)
from July 25, 2001 until July 25, 2002, and $9,438.00 (Nine Thousand Four
Hundred Thirty-Eight and No/100 Dollars) after July 24, 2002.
Notwithstanding the foregoing, "BASIC RENT" shall, with respect to all Units of
Property, (A) for the partial first and last calendar months during the Lease
Term, be calculated by multiplying the result obtained pursuant to the
foregoing for such months by a fraction the denominator of which shall be the
number of days in such calendar month and the numerator of which shall be the
number of days during such partial month for which Units are under lease;
provided that if the Effective Date for any Property is after the Lease Rate
Date for any partial first month, the Basic Rent for such partial first month
shall be included in the Basic Rent for the next following month, and (B) shall
be adjusted as mutually agreed by the Lessor and the Lessee with the consent of
Assignee (x) if the Guarantor's long-term unsecured debt rating falls below BBB
by Standard & Poor's or Baa2 by Moody's Investor Services or (y) should the
Extended Term go into effect.
"BASIC RENT PAYMENT DATE" means, with respect to any Unit, the
twentieth (20th) day of any calendar month during the Lease Term or Extended
Term, if any, of such Unit, or, if such day is not a Business Day, the next
succeeding Business Day.
"BASIC TERM" has the meaning set forth in paragraph (b) of
SECTION 6 hereof.
"BUSINESS DAY" means any day other than a Saturday, a Sunday
or a day on which banking institutions in the City of New York are authorized
by law to close.
"CAP" means a written corrective action plan prepared by the
Lessee with respect to a Remediation Property which addresses the clean-up or
corrective action which is proposed to be taken by the Lessee and which, if
taken, is designed to clean-up, within twenty-four (24) months from the date of
acquisition of such Remediation
AMENDED AND RESTATED LEASE AGREEMENT - Page 2
<PAGE> 4
Property, the petroleum hydrocarbons at the Remediation Property to levels
which would pass a Tier 2 ASTM risk based corrective action screening analysis.
"CERTIFICATE HOLDER" means each beneficiary of the trust
estate that is created pursuant to the Trust Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPUTATION PERIOD" has the meaning set forth in subclause
A(iii) of the definition of Basic Rent in SECTION 1 hereof.
"CONSENT" means each consent of the Lessee to an Assignment,
pursuant to which the Lessee consents to the terms of such Assignment, as the
same may be amended, restated, modified or supplemented from time to time.
"CONTAMINANT" means any petroleum or petroleum-derived waste,
including, but not limited to, crude oil or any products of the fractional
distillation of crude oil and the products of weathering or breaking down of
petroleum products.
"EFFECTIVE DATE" means, with respect to any Unit of Property,
the date on which such Unit becomes subject to this Lease, as evidenced by
execution by the Lessor and the Lessee of a Unit Leasing Record; provided that
in no event shall the Effective Date occur on a date later than forty-eight
(48) months from the date of execution of this Lease.
"ENVIRONMENTAL AGENCY" means the Governmental Authority (i)
having environmental oversight jurisdiction over any Unit of Property or (ii)
having environmental oversight jurisdiction over the use, storage or disposal
of Contaminants, including petroleum hydrocarbons.
"ENVIRONMENTAL APPROVALS" means all permits, consents,
licenses, and other approvals or authorizations required under Environmental
Laws.
"ENVIRONMENTAL LAWS" means all applicable federal, state and
local laws, statutes, codes, ordinances, rules, regulations, directives,
binding policies, permits, or orders relating to or addressing the environment,
health or safety, including, but not limited to, any law, statute, code,
ordinance, rule, regulation, directive, binding policy, permit or order
relating to the use, handling or disposal of any Contaminant or Hazardous
Substance, as such requirements are promulgated and applied by the Governmental
Authority responsible for administering such requirements.
"ENVIRONMENTAL LIEN" means a lien in favor of any Governmental
Authority for any (a) liability under any Environmental Law, or (b) damages
arising from, or costs incurred by, such Governmental Authority in response to
a Release or threatened Release of a Contaminant or Hazardous Substance into
the environment.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA CONTROLLED GROUP" shall mean a group consisting of an
entity and all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) under common control with such entity
that, together with such entity, are treated as a single employer under Section
4001(b).
"EVENT OF DEFAULT" has the meaning set forth in SECTION 18
hereof.
AMENDED AND RESTATED LEASE AGREEMENT - Page 3
<PAGE> 5
"EXPENSES" has the meaning set forth in SECTION 11 hereof.
"EXTENDED TERM" means the term, up to a maximum of two (2)
seven (7) year periods, during which, if the conditions set forth in SECTION 13
hereof are met, a Unit of Property may be leased pursuant to the provisions of
this Lease, which term would commence on the day following the end of the Lease
Term with respect to such Unit of Property.
"FINANCING AGREEMENT" means the Amended and Restated Financing
Agreement, dated as of the date hereof, and entered into between the Lessor and
the banks that are parties thereto or any substitute financing, credit or loan
agreement entered into by the Lessor and a lender, with the written approval of
the Lessee, related to the financing of Property, in each case as the same may
be amended, restated, modified or supplemented from time to time.
"GOVERNMENTAL ACTION" has the meaning set forth in paragraph
(d) of SECTION 2 hereof.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GROUND LEASE" means a lease between a landlord who shall be
the Lessee, in the case of a Remediation Property, or the Lessee or any other
Person, in all other cases, and the Lessor of land and underground equipment,
if any, including, without limitation, underground storage tanks.
"GUARANTOR" means Ultramar Diamond Shamrock Corporation, a
Delaware corporation, and its successors.
"GUARANTOR'S CONSENT" means the Consent of the Guarantor to
the assignment by the Lessor of certain of the rights under the Guaranty to the
Assignee, as the same may be amended, restated, modified or supplemented from
time to time.
"GUARANTY" means the Guaranty Agreement, dated as of the date
hereof, as the same may be amended, restated, modified or supplemented from
time to time, pursuant to which the Guarantor guarantees the payment in full of
all amounts due and owing by the Lessee in respect of this Lease and the
Acquisition and Construction Agreement and the performance by the Lessee of all
of its obligations hereunder and thereunder.
"HAZARDOUS SUBSTANCE" means any substance defined as a
"hazardous substance" by or pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq., or by or
pursuant to any state law of similar purpose, any radioactive material,
polychlorinated biphenyls, and asbestos containing material, except that any
Contaminants shall not be considered as hazardous substances regardless of
whether included on any list of, or incorporated within the statutory
definition of, the term "hazardous substance" in any Environmental Law.
"INDEBTEDNESS" means for any Person (i) all indebtedness or
other obligations of such Person for borrowed money and all indebtedness of
such Person with respect to any other items (other than income taxes payable,
deferred taxes, deferred credits and accounts payable) which would, in
accordance with generally accepted accounting principles, applied on a
consistent basis, be classified as a liability on the balance sheet of such
Person, (ii) all obligations of such Person to pay the deferred purchase price
of property or services, including any such obligations created under or
arising out of any conditional sale or other title retention agreement, (iii)
all obligations of such Person (contingent or otherwise) under reimbursement or
similar agreements with respect to the issuance of letters of credit, (iv) all
indebtedness or other obligations of any other Person of the type specified in
clause (i), (ii) or (iii) above, the payment or collection of which such Person
has guaranteed (except by reason of endorsement for collection
AMENDED AND RESTATED LEASE AGREEMENT - Page 4
<PAGE> 6
in the ordinary course of business) or in respect of which such Person is
liable, contingently or otherwise, including, without limitation, liable by way
of agreement to purchase products or securities, to provide funds for payment,
to maintain working capital or other balance sheet conditions or otherwise to
assure a creditor against loss, and (v) all indebtedness or other obligations
of any other Person of the type specified in clause (i), (ii), (iii) or (iv)
above secured by (or for which the holder of such indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien, upon or in property
(including, without limitation, accounts and contract rights) owned by such
Person, whether or not such Person has assumed or becomes liable for the
payment of such indebtedness or obligations.
"INDEMNIFIED PERSON" has the meaning set forth in SECTION 11
hereof.
"INSURANCE REQUIREMENTS" means all terms of any insurance
policy covering or applicable to any Unit of Property, all requirements of the
issuer of any such policy, all statutory requirements and all orders, rules,
regulations and other requirements of any governmental body related to
insurance applicable to such Unit.
"INTERIM TERM" has the meaning set forth in paragraph (a) of
SECTION 6 hereof.
"LEASE RATE DATE" has the meaning set forth in paragraph (b)
of SECTION 7 hereof.
"LEASE TERM" means, with respect to any Unit of Property, the
Interim Term plus the Basic Term thereof plus, if applicable, the Extended
Term.
"LEASE TERMINATION DATE" means for any Unit of Property, the
earlier of (i) the last day of the Lease Term of such Unit (unless the lease
hereunder of such Unit has been extended pursuant to SECTION 13 hereof) or (ii)
if the lease of such Unit has been extended pursuant to SECTION 13 hereof, the
last day of the Extended Term of such Unit.
"LEGAL REQUIREMENTS" means all applicable laws, judgments,
decrees, ordinances and regulations and any other governmental rules, orders
and determinations and all requirements having the force of law, now or
hereinafter enacted, and all agreements, covenants, conditions and
restrictions, applicable to each Unit and/or the construction, ownership,
operation or use thereof, including, without limitation, compliance with all
requirements of labor laws and environmental statutes, compliance with which is
required at any time from the date hereof through the Lease Term and any
Extended Term thereof.
"LENDER" means each bank that is a party to the Financing
Agreement and each permitted assignee thereof.
"LESSEE" means each of Ultramar Inc., a Nevada corporation,
Ultramar Energy Inc., a Delaware corporation, Diamond Shamrock Leasing, Inc., a
Delaware corporation, Diamond Shamrock Arizona, Inc., a Delaware corporation
and Diamond Shamrock Refining and Marketing Company, a Delaware corporation, as
applicable, and any successor or assign permitted hereby.
"LESSOR" means Jamestown Funding, Limited Partnership, a
Delaware limited partnership, or any successor or successors to all of its
rights and obligations as the Lessor hereunder and, for purposes of SECTION 11
hereof, shall include any Person the income of which for federal income tax
purposes is determined by reference to the income of the Lessor or its
successors.
"LETTER AGREEMENT" means the letter agreement dated as of the
date hereof between the Lessor and the Lessee.
"LIEN" means any security interest, mortgage, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other), or other
security agreement of any kind or nature whatsoever (including, without
limitation,
AMENDED AND RESTATED LEASE AGREEMENT - Page 5
<PAGE> 7
any conditional sale or other title retention agreement, any financing lease
having substantially the same economic effect as any of the foregoing, and the
filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction in respect of any of the foregoing).
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
the financial condition or business of the Guarantor and its subsidiaries
(including, without limitation, each Lessee), taken as a whole or a material
adverse impact on the ability of the Lessee to perform its obligations under
this Lease or the Acquisition and Construction Agreement or of the Guarantor to
perform its obligations under the Guaranty or the Residual Guaranty Payment
Support.
"MORTGAGEABLE GROUND LEASE" means a Ground Lease which is
delivered to the Lessor for execution by the Lessor, or assigned to the Lessor
by an assignment in form and substance satisfactory to the Lessor, and having
such terms and characteristics as are reasonably required by the Lessor or the
Assignee including, without limitation, the following: (a) free assignability
to (i) any lender as security for a borrowed money obligation of the Lessor
and, upon foreclosure of such security, free assignability by such lender to
any third party, and (ii) any purchaser in connection with a sale of the
related Unit of Property pursuant to the provisions of this Lease and the
Acquisition and Construction Agreement (the Lessor and any Assignee being
released from liability upon such assignment); (b) a term (including renewals)
(i) of at least forty (40) years in excess of the Lease Term of the Unit of
Property to which a Ground Lease between Lessee, as ground lessor, and Lessor,
as ground lessee, relates; provided, however, that any such Ground Lease
relating to a Unit of Property located in California shall have a term
(including renewals) of at least thirty-five (35) years and (ii) of at least
twenty (20) years in excess of the Lease Term of the Unit of Property to which
a Ground Lease between any party other than Lessee or its Affiliates, as ground
lessor, and Lessor, as ground lessee, relates; (c) no provisions for percentage
or variable rent; (d) permission for any lawful use except that the Ground
Lease may contain prohibitions on use which are similar to those applicable to
other adjacent parcels of property; (e) no provision for a security deposit;
(f) a requirement that the Assignee will receive copies of all notices of
default delivered under or pursuant to such Ground Lease; (g) a provision that
any Assignee shall have the right to cure any defaults thereunder (whether
monetary or nonmonetary in nature), and in the event of such cure to receive a
new ground lease on the same terms as the original Ground Lease; (h) a no
recourse section substantially similar to the language set forth in SECTION 30
hereof; (i) a prohibition of any mortgages or other Liens on the underlying fee
except Permitted Liens except that the ground lessor under any Ground Lease may
encumber the Unit of Property relating to such Ground Lease with mortgages or
deeds of trust securing the repayment of money provided that (i) the
document(s) creating such Lien provides that either such Lien is subordinated
to such Ground Lease, the Assignee's interest as leasehold mortgagee under the
leasehold mortgage encumbering such Unit of Property, such leasehold mortgage
and any modifications, extensions or renewals of such Ground Lease and
leasehold mortgage, or (ii) the ground lessee or Assignee, as leasehold
mortgagee, will not be disturbed in their possession of the Unit of Property so
long as they remain in compliance with the terms and conditions of the Ground
Lease; and (j) no provision requiring the Lessor to indemnify any Person if
such indemnity would be broader in scope or subject matter than that provided
in SECTION 11 hereunder. A Mortgageable Ground Lease shall be delivered with
such estoppel certificates, recognition and attornment agreements, or
confirmation of customary mortgagee protection as are reasonably acceptable to
the Lessor and any Assignee.
"MULTIEMPLOYER PLAN" shall mean a Plan which is a
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA.
"NOTICE OF SUBSTITUTION" has the meaning set forth in
paragraph (c) of SECTION 32 hereof.
"PERMITTED CONTEST" has the meaning set forth in paragraph (a)
of SECTION 27 hereof.
"PERMITTED LIENS" means the following Liens and other matters
affecting the title to any Unit of Property: (a) Liens securing the payment of
taxes, assessments and other governmental charges or levies which are either
not delinquent or, if delinquent, are being contested by the Lessee in good
faith as a Permitted Contest; (b)
AMENDED AND RESTATED LEASE AGREEMENT - Page 6
<PAGE> 8
zoning and planning restrictions, subdivision and platting restrictions,
easements, rights-of-way, licenses, reservations, covenants, conditions,
waivers, restrictions on the use of any Unit of Property, minor encroachments
or minor irregularities of title, none of which materially impairs the intended
use by, or value of such Unit of Property to, the Lessee; (c) reservations of
mineral interests; (d) the Lien created pursuant to the Financing Agreement;
(e) Liens disclosed in the title insurance commitments or policies with respect
to the Property delivered to and accepted by the Lessor and any Assignee on
acquisition of such Property pursuant to the provisions hereof or the
Acquisition and Construction Agreement, as applicable; (f) leases and licenses
in effect with respect to any Unit of Property which are permitted by this
Lease or which are delivered to and accepted by the Lessor prior to such Unit's
Effective Date; and (g) such other or additional matters as may be approved in
writing by the Lessor and any Assignee.
"PERSON" means any individual, corporation, partnership
(general or limited), limited liability company, private limited company, joint
venture, association, joint-stock company or trust.
"PLAN" shall mean any employee benefit plan covered by Title
IV of ERISA, the funding requirements of which are the responsibility of the
Lessee or a member of its ERISA Controlled Group at any relevant time.
"POTENTIAL DEFAULT" means any event which, with the lapse of
time, or giving of notice, or both, would constitute an Event of Default.
"PROPERTY" means (i) any and all parcels of land together with
all buildings and other improvements (including, without limitation, the
attachments, appliances, equipment, machinery and other affixed property which,
in each case, would constitute "fixtures" under Section 9-313(1)(a) of the
Uniform Commercial Code) now or hereafter located on such parcels of land,
leased or to be leased hereunder and when leased, evidenced by Unit Leasing
Records, and the respective easements, rights and appurtenances relating to
such parcels of land, buildings and improvements and (ii) any personal property
of any type, leased or to be leased hereunder and, when leased, evidenced by
Unit Leasing Records, as the case may be (including, without limitation, all
related appliances, appurtenances, accessions, furnishings, materials and parts
leased or to be leased by the Lessor to the Lessee as provided herein and
including all replacements and subsequent replacements of such related
appliances, appurtenances, accessions, furnishings, materials and parts to
which the Lessor obtains title), in each case in connection with the use
thereof as an office building or as or in a retail fuel outlet/convenience
store/car wash and related uses such as quick service restaurants.
"RECONCILIATION AMOUNT" has the meaning set forth in paragraph
(f) of SECTION 7 hereof.
"RELEASE" means the release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migrating into the indoor or outdoor environment of any Contaminant through or
in the air, soil, surface water, groundwater, or any structure.
"REMEDIAL ACTION" means actions required to (i) clean up,
remove, treat, or in any other way address Contaminants in the indoor or
outdoor environment; (ii) prevent the Release or threat of Release or minimize
the further Release of Contaminants; or (iii) investigate and determine if a
remedial response is needed, to design such a response and post-remedial
investigation, monitoring, operation, maintenance and care.
"REMEDIATION PROPERTY" means a Unit of Property with respect
to which, as indicated by a Phase II environmental report, (i) soil or ground
water contamination by Contaminants exists at a level which exceeds the
threshold for remediation established pursuant to a Tier 2 ASTM risk based
corrective action screening analysis, and (ii) no contamination by Hazardous
Substances exists at levels that exceed the threshold for remediation of such
substances established pursuant to a Tier 2 ASTM risk based corrective action
screening analysis.
AMENDED AND RESTATED LEASE AGREEMENT - Page 7
<PAGE> 9
"RESIDUAL GUARANTY PAYMENT" means, as to any Unit of Property,
an amount equal to (i) at or before the end of the Lease Term, eighty-four
percent (84%) of the Acquisition Cost of such Unit or (ii) at the end of the
Extended Term, a percentage of the Acquisition Cost of such Unit to be agreed
to between the Lessee and the Lessor prior to the commencement of such Extended
Term; provided that for purposes of this definition, Acquisition Cost of each
Unit shall include the amount, if any, by which the Acquisition Cost of such
Unit under the Acquisition and Construction Agreement exceeds the Acquisition
Cost of such Unit under this Agreement and provided further that under no
circumstances shall the amount of such payment at the end of the Lease Term
exceed $83,999,986.00 (Eighty-Three Million Nine Hundred Ninety- Nine Thousand
Nine Hundred Eighty-Six Thousand Dollars) with respect to all Units of Property
originally subject to this Lease.
"RESIDUAL GUARANTY PAYMENT SUPPORT" means the Residual
Guaranty Payment Support, dated as of the date hereof, pursuant to which the
Guarantor guarantees to the Banks (as defined in the Financing Agreement) the
payment of all principal of, and interest on, the Term Loan A Notes (as defined
in the Financing Agreement), together with any and all other sums which are or
may become due pursuant to the Financing Agreement and any Related Document (as
defined in the Financing Agreement) with respect to the Term Loan A Notes.
"RESPONSIBLE OFFICER" means the Chief Executive Officer,
President, the Chief Operating Officer, any Vice President, Secretary or
Treasurer of the Lessee, or the Guarantor, as the context may require, or other
officer or similar official of the Lessee, or the Guarantor, as the context may
require, responsible for the administration of the obligations of the Lessee or
the Guarantor, as the context may require, with respect to this Lease.
"RETURN PROVISIONS" has the meaning set forth in paragraph (b)
of SECTION 12 hereof.
"SUBSTITUTION DATE" has the meaning set forth in paragraph (b)
of SECTION 32 hereof.
"SUBSTITUTION PROPERTY" has the meaning set forth in paragraph
(a) of SECTION 32 hereof.
"TAKING" has the meaning set forth in paragraph (a) of SECTION
16 hereof.
"TERMINATION PAYMENT" has the meaning set forth in SECTION
19(a) hereof.
"TRUST AGREEMENT" means the Trust Agreement dated as of July
30, 1996, pursuant to which the Trustee agrees to act as the limited partner of
the Lessor and to hold the trust property for the benefit of each Certificate
Holder.
"TRUSTEE" means the entity that acts as owner trustee pursuant
to the Trust Agreement and any successor or additional trustee.
"UNECONOMIC CONDITION" has the meaning set forth in SECTION
13.
"UNFUNDED BENEFIT LIABILITIES" shall mean, with respect to any
Plan at any time, the amount (if any) by which (i) the present value of all
"benefit liabilities" under such Plan as defined in Section 4001(a)(16) of
ERISA, 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 (on the basis of the assumptions used in the most recent actuarial
valuation report for such Plans).
"UNIT" or "Unit of Property" means a specific unit or units of
Property.
"UNIT LEASING RECORD" means an instrument, substantially in
the form of EXHIBIT A hereto, evidencing the lease of any Unit of Property
under this Lease.
AMENDED AND RESTATED LEASE AGREEMENT - Page 8
<PAGE> 10
SECTION 2 [Reserved].
SECTION 3 Lease of Property.
(a) The Lessor hereby agrees, upon satisfaction by the
Lessee of the conditions set forth in Section 6 of the Acquisition and
Construction Agreement, to lease to the Lessee, and the Lessee hereby agrees,
upon satisfaction of such conditions, to lease from the Lessor, pursuant to
this Lease, the relevant Unit for use as an office building or for other
commercial purposes or a retail fuel outlet/convenience store/car wash and
related uses such as quick service restaurants. Upon the execution of a Unit
Leasing Record pursuant to the Acquisition and Construction Agreement in
respect of the relevant Unit, the lease of such Unit pursuant to this Lease
shall commence.
(b) In the event that, following the commencement of the
lease with respect to a Unit, the Acquisition Cost of such Unit is increased
pursuant to the Acquisition and Construction Agreement following the making by
Owner thereunder of one or more additional advances, and a revised Unit Leasing
Record is executed in respect thereof pursuant to the Acquisition and
Construction Agreement, such increased Acquisition Cost with respect to such
Unit shall, from and after the date of execution of such revised Unit Leasing
Record, be used for all purposes of this Lease including, without limitation,
the payment of Basic Rent with respect thereto.
SECTION 4 Operating Lease.
The Lessor and the Lessee hereby declare that it is their
mutual intent that for accounting and regulatory purposes this Lease be treated
as an operating lease and not an instrument or evidence of indebtedness, and
that the relationship between the Lessor and the Lessee under this Lease shall
be that of lessor and lessee only. Legal title to any and all Property shall
at all times remain in the Lessor and at no time become vested in the Lessee
except in accordance with an express provision of this Lease.
SECTION 5 Disclaimer; Net Lease.
(a) The obligations of the Lessee to pay all amounts
payable pursuant to this Lease (including specifically and without limitation
amounts payable under SECTIONS 7 and 11 hereof) shall be absolute and
unconditional under any and all circumstances and such amounts shall be paid
without notice, demand, defense, setoff, deduction or counterclaim and without
abatement, suspension, deferment, diminution or reduction of any kind
whatsoever, except as herein expressly provided. The obligation of the Lessee
to lease and pay Basic Rent for any and all Property accepted for use pursuant
to this Lease is without any warranty or representation, express or implied, as
to any matter whatsoever on the part of the Lessor or any Assignee or any
Affiliate of either, or anyone acting on behalf of any of them.
THE LESSEE HAS SELECTED AND SHALL SELECT ALL PROPERTY ACQUIRED
OR ORDERED ON THE BASIS OF ITS OWN JUDGMENT. NEITHER THE LESSOR NOR ANY
ASSIGNEE NOR ANY AFFILIATE OF EITHER, NOR ANYONE ACTING ON BEHALF OF ANY OF
THEM MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, AS TO THE SAFETY, TITLE, CONDITION,
QUALITY, QUANTITY, FITNESS FOR USE, MERCHANTABILITY, CONFORMITY TO
SPECIFICATION, OR ANY OTHER CHARACTERISTIC, OF ANY PROPERTY, OR AS TO WHETHER
ANY PROPERTY OR THE OWNERSHIP, USE, OCCUPANCY OR POSSESSION THEREOF, COMPLIES
WITH ANY LAWS, RULES, REGULATIONS OR REQUIREMENTS OF ANY KIND.
AS BETWEEN THE LESSEE AND THE LESSOR, ANY ASSIGNEE OR ANY
INDEMNIFIED PERSON, THE LESSEE ASSUMES ALL RISKS AND WAIVES ANY AND ALL
DEFENSES, SET-OFFS, DEDUCTIONS, COUNTERCLAIMS (OR OTHER RIGHTS), EXISTING OR
FUTURE, AS TO ITS OBLIGATION
AMENDED AND RESTATED LEASE AGREEMENT - Page 9
<PAGE> 11
TO PAY BASIC RENT AND ALL OTHER AMOUNTS PAYABLE HEREUNDER, INCLUDING, WITHOUT
LIMITATION, ANY RELATING TO:
(A) THE SAFETY, TITLE, CONDITION, QUALITY, QUANTITY,
FITNESS FOR USE, MERCHANTABILITY, CONFORMITY TO SPECIFICATION OR ANY OTHER
QUALITY OR CHARACTERISTIC OF ANY PROPERTY, LATENT OR NOT;
(B) ANY SET-OFF, COUNTERCLAIM, RECOUPMENT, ABATEMENT,
DEFENSE OR OTHER RIGHT WHICH THE LESSEE MAY HAVE AGAINST THE LESSOR, ANY
ASSIGNEE OR ANY INDEMNIFIED PERSON FOR ANY REASON WHATSOEVER ARISING OUT OF
THIS OR ANY OTHER TRANSACTION OR MATTER;
(C) ANY DEFECT IN TITLE OR OWNERSHIP OF PROPERTY OR ANY
TITLE ENCUMBRANCE NOW OR HEREAFTER EXISTING WITH RESPECT TO THE PROPERTY;
(D) ANY FAILURE OR DELAY IN DELIVERY OR ANY LOSS, THEFT
OR DESTRUCTION OF, OR DAMAGE TO, ANY PROPERTY, IN WHOLE OR IN PART, OR
CESSATION OF THE USE OR POSSESSION OF ANY PROPERTY BY THE LESSEE FOR ANY REASON
WHATSOEVER AND OF WHATEVER DURATION, OR ANY CONDEMNATION, CONFISCATION,
REQUISITION, SEIZURE, PURCHASE, TAKING OR FORFEITURE OF ANY PROPERTY, IN WHOLE
OR IN PART;
(E) ANY INABILITY OR ILLEGALITY WITH RESPECT TO THE USE,
OWNERSHIP, OCCUPANCY OR POSSESSION OF THE PROPERTY BY THE LESSEE;
(F) ANY INSOLVENCY, BANKRUPTCY, REORGANIZATION OR SIMILAR
PROCEEDING BY OR AGAINST THE LESSEE OR THE LESSOR OR ANY ASSIGNEE;
(G) ANY FAILURE TO OBTAIN, OR EXPIRATION, SUSPENSION OR
OTHER TERMINATION OF, OR INTERRUPTION TO, ANY REQUIRED LICENSES, PERMITS,
CONSENTS, AUTHORIZATIONS, APPROVALS OR OTHER LEGAL REQUIREMENTS;
(H) THE INVALIDITY OR UNENFORCEABILITY OF THIS LEASE OR
ANY OTHER INFIRMITY HEREIN OR ANY LACK OF POWER OR AUTHORITY OF THE LESSOR OR
THE LESSEE TO ENTER INTO THIS LEASE;
(I) THE INVALIDITY OR UNENFORCEABILITY OF ANY BILL OF
SALE EXECUTED IN CONNECTION WITH THIS LEASE OR ANY OTHER INFIRMITY THEREIN OR
LACK OF POWER OR AUTHORITY OF ANY PARTY THERETO TO ENTER INTO SUCH BILL OF
SALE; OR
(J) ANY OTHER CIRCUMSTANCES OR HAPPENING WHATSOEVER,
WHETHER OR NOT SIMILAR TO ANY OF THE FOREGOING.
THE LESSEE HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHTS WHICH IT MAY NOW HAVE OR WHICH AT ANY TIME
HEREAFTER MAY BE CONFERRED UPON IT, BY STATUTE OR OTHERWISE, TO TERMINATE,
CANCEL, QUIT, RESCIND OR SURRENDER THIS LEASE EXCEPT IN ACCORDANCE WITH THE
EXPRESS TERMS HEREOF. Each payment of Basic Rent, Additional Rent and any
other amount due hereunder made by the Lessee shall be final, and the Lessee,
without waiving any other remedies it may have, will not seek or have any right
to recover all or any part of such payment from the Lessor or any Assignee for
any reason whatsoever; provided that the foregoing shall not be construed as
requiring the Lessee to waive any cause of action against any (i) Assignee for
breach of any of such Assignee's representations or covenants contained in the
Financing Agreement or in any other agreement or instrument
AMENDED AND RESTATED LEASE AGREEMENT - Page 10
<PAGE> 12
relating to the transactions contemplated hereby or thereby or (ii) or any
other Person arising out of the gross negligence or willful misconduct of such
Person.
(b) Notwithstanding any other provision contained in this
Lease, it is specifically understood and agreed that neither the Lessor nor any
Assignee nor any Affiliate of either, nor anyone acting on behalf of any of
them makes any warranties or representations or has any responsibility to
disclose any relevant information, or has any other responsibility or duty,
nor, except as set forth in SECTION 21 of this Lease, has the Lessor or any
Assignee or any Affiliate of either, or anyone acting on behalf of any of them
made any covenants or undertakings, as to the accounting treatment to be
accorded the Lessee or as to the U.S. Federal or any state income or any other
tax consequences, if any, to the Lessee as a result of or by virtue of the
transactions contemplated by this Lease. The parties, however, acknowledge
that Lessor has covenanted in the Letter Agreement, that it will not enter into
any transactions or other business other than the transactions contemplated
hereby and by the Financing Agreement.
(c) In the event the title insurance policy insuring the
Lessor's interest in any Unit of Property would not, in the absence of special
insurance by the Lessee, become effective until the date of recordation of the
deed, then the Lessee shall furnish such indemnity to the title insurance
company as it shall reasonably require in order to insure the Lessor's interest
in such Unit of Property, effective as of the date of the Effective Date.
SECTION 6 Interim Term; Basic Term.
(a) The "Interim Term" with respect to any Unit of
Property leased hereunder shall commence on the Effective Date set forth in the
Unit Leasing Record for such Unit of Property and shall continue until December
19, 2000, unless terminated earlier pursuant to SECTION 12, 13, 14, 15, 16, 19
or 32 hereof.
(b) The "Basic Term" with respect to any Unit of Property
shall commence on the day immediately following the last day of the Interim
Term of such Unit and shall continue until July 25, 2003, unless terminated
earlier pursuant to SECTION 12, 13, 14, 15, 16, 19 or 32 hereof.
(c) Notwithstanding the two preceding paragraphs of this
SECTION 6, if any Ground Lease is terminated prior to the expiration of the
then current term of such Ground Lease, then, as provided in paragraph (d) of
SECTION 28 hereof, the lease of any Unit of Property subject to such Ground
Lease shall terminate on the date of termination of such Ground Lease and all
of the other terms and provisions of paragraph (d) of SECTION 28 hereof shall
apply to such termination.
SECTION 7 Rent and Other Payments.
(a) The Lessee hereby agrees to pay to the Lessor (i) on
each Basic Rent Payment Date, Basic Rent for the calendar month (or part
thereof) in which such Basic Rent Payment Date falls, with respect to each Unit
of Property leased during any part of such calendar month hereunder for which
the Effective Date is before the Lease Rate Date for such calendar month, and
(ii) on the Basic Rent Payment Date in the next succeeding calendar month,
Basic Rent for any partial first calendar month, with respect to each Unit of
Property for which the Effective Date is on or after the Lease Rate Date for
such calendar month. In addition, without duplication of any amount payable
pursuant to the first sentence of this SECTION 7(a), the Lessee shall pay
interest at the default rate specified in the Financing Agreement on any amount
due hereunder that is not paid on the due date thereof, without taking into
account any grace periods specified herein.
(b) On the sixteenth (16th) day of each calendar month
or, if such day is not a Business Day, on the next succeeding Business Day (the
"LEASE RATE DATE") the Lessor shall provide to the Lessee the amount (together
with a detailed calculation) referred to in paragraph (A)(iii) of the
definition of "Basic Rent" in SECTION 1 hereof for such calendar month. Prior
to each Basic Rent Payment Date, the Lessor shall furnish to the Lessee a
summary of the calculations of Basic Rent payable on such Basic Rent Payment
Date.
AMENDED AND RESTATED LEASE AGREEMENT - Page 11
<PAGE> 13
(c) The Lessee hereby agrees to pay on demand but upon
not less than thirty (30) days' written notice all amounts (other than Basic
Rent) due and payable to the Lessor or to any Indemnified Person pursuant to
SECTION 11 hereof.
(d) Without prejudice to the full exercise by the Lessor
of its rights under SECTIONS 18 and 19 hereof, the Lessee shall pay to the
Lessor from time to time, on demand, as additional rent ("ADDITIONAL RENT") (i)
amounts required to reimburse the Lessor for its obligations, costs and
expenses (not previously included in Acquisition Cost or Basic Rent) incurred
in acquiring, financing (including, without limitation, equity financing and
all costs required to be paid by the Lessor to a lender under the Financing
Agreement) and leasing the Property, (ii) the initial fee and annual ongoing
fees of the Trustee, and (iii) to the extent legally enforceable, an amount
computed by multiplying (A) all sums not paid by the Lessee to the Lessor as
provided in this Lease on or before the date such payments are due, by (B) the
decimal equivalent of the percentage referred to in paragraph (A)(iii) of the
definition of "Basic Rent" as most recently furnished by the Lessor, and by (C)
a fraction having a numerator equal to the number of days in the period from
but excluding such due date to and including the date of payment thereof and a
denominator of 365 or 366 in a leap year. The Lessee shall also pay to the
Lessor on demand an amount equal to any expenses incurred by the Lessor in
collecting such unpaid sums. To the extent that any of the obligations, costs
and expenses contemplated in this SECTION 7(d) are not specifically
attributable to Ultramar Inc., Ultramar Energy Inc., Diamond Shamrock Leasing,
Inc., Diamond Shamrock Arizona, Inc. or Diamond Shamrock Refining and Marketing
Company, those entities shall decide, in their sole discretion, which of them
shall be responsible for such obligations, costs and expenses; provided that
under all circumstances, as between those entities, responsibility shall be
allocated for one hundred percent (100%) of all such obligations, costs and
expenses and if those entities shall fail to decide within three (3) Business
Days of demand as to which of them shall be responsible, the Lessor may in its
sole discretion allocate such obligations, costs and expenses between them as
it deems appropriate.
(e) Basic Rent and Additional Rent and any other amount
payable by the Lessee to the Lessor shall be paid in full in immediately
available funds on the date due, to the account of the Lessor, or to the
account of such other Person as the Lessor may from time to time designate if
permitted by the Financing Agreement.
(f) During the Lease Term of any Unit of Property, the
Lessor shall provide detailed calculations to the Lessee on each Lease Rate
Date (except the first Lease Rate Date hereunder), of the difference, if any,
between (i) the Basic Rent paid by the Lessee for the previous calendar month
and (ii) an amount equal to what the Basic Rent would have been for such
calendar month had Basic Rent been calculated using the weighted average
interest rate per annum of all borrowings outstanding at any time (as specified
in subparagraph (A)(iii) of the definition of Basic Rent) during the previous
calendar month (rather than during the Computation Period); provided that with
respect to the Basic Rent for the last month of the Lease Term, the Lessor
shall make such calculation and provide the same to the Lessee on the last day
of the Lease Term. On or about February 16, 1997, and thereafter on or about
August 16 and February 16 of each year, and on the last day of the Lease Term,
the Lessor shall furnish to the Lessee a calculation of the aggregate
difference between the amounts determined under clause (i) above and the
correlating amounts determined under clause (ii) above (the "RECONCILIATION
AMOUNT") for each calendar month since the date of this Lease or each calendar
month since the last time the Reconciliation Amount was calculated, whichever
is later. The Lessor and the Lessee agree that if the Reconciliation Amount is
a positive number, then such amount shall be credited against the amount of
Basic Rent that the Lessee is required to pay on the next Basic Rent Payment
Date (or Basic Rent Payment Dates, if such amount shall exceed the amount of
Basic Rent payable in the next succeeding month), and if the Reconciliation
Amount is a negative number, then such amount shall be payable by the Lessee on
the next Basic Rent Payment Date in addition to the amount of Basic Rent due
and payable on such Basic Rent Payment Date (and treated as Basic Rent for
purposes of this Lease) except that with respect to the Reconciliation Amount
computed on the last day of the Lease Term, such amount shall be paid by the
Lessor to the Lessee (in the case of a positive number) or by the Lessee to the
Lessor (in the case of a negative number) on the last day of the Lease Term.
Subject to Lessee's verification rights set forth below in this SECTION 7(f),
any notices required by this paragraph (f) which are furnished to the Lessee by
the Lessor shall be conclusive, absent manifest error, as to the contents
thereof. The Lessee shall have the right to verify calculations by the Lessor
of any Reconciliation Amount
AMENDED AND RESTATED LEASE AGREEMENT - Page 12
<PAGE> 14
and may, by written notice to the Lessor, request such information as is
necessary to conduct such verification. In the event that the Lessee elects to
exercise such verification rights, the Lessee shall, nevertheless, continue to
pay the Reconciliation Amount as calculated by the Lessor pending such
verification and if such verification subsequently results in a reduction in
the Reconciliation Amount that the Lessee should have paid, then such excess
Reconciliation Amount shall be credited against the next payment of
Reconciliation Amount to be made by the Lessee hereunder; provided that with
respect to the last such payment during the Lease Term, the Lessor shall
provide the relevant calculations to the Lessee with sufficient advance notice
such that such a verification can be completed and any adjustments resulting
therefrom can be made no later than such last day of the Lease Term.
SECTION 8 Restricted Use and Sublease; Compliance with
Laws.
(a) So long as no Event of Default shall have occurred
and be continuing, the Lessee may use the Property in the regular course of its
business for any lawful purpose. The Lessee will not do or permit any act or
thing which might impair other than in the normal use thereof, the value or
usefulness of any Property.
(b) The Lessee shall promptly and duly execute, deliver,
file and record, at the Lessee's expense, all such documents, statements,
filings and registrations, and take such further action, as the Lessor shall
from time to time reasonably request in order to establish, perfect and
maintain the Lessor's title to and interest in the Property and any Assignee's
interest in this Lease or any Property as against the Lessee or any third party
in any applicable jurisdiction.
(c) The Lessee shall use commercially reasonable efforts
to prevent injury to third persons or property of third persons. The Lessee
shall cooperate fully with the Lessor and all insurance companies providing
insurance pursuant to SECTION 10 hereof in the investigation and defense of any
claims or suits arising from the ownership, operation, occupancy or use of any
Property; provided that nothing contained in this paragraph (c) shall be
construed as imposing on the Lessor any duty to investigate or defend any such
claims or suits. The Lessee shall comply, and shall use commercially
reasonable efforts to cause all Persons using, occupying or operating Property
to comply, with all Insurance Requirements and Legal Requirements applicable to
such Property and to the acquiring, titling, registering, leasing, subleasing,
insuring, using, occupying, operating and disposing of Property, and the
licensing of operators thereof.
(d) The Lessor or any Assignee or any authorized
representative of either, may, no more often than once in any twelve (12)
consecutive month period, unless an Event of Default has occurred and is
continuing, during reasonable business hours (unless an Event of Default has
occurred and is continuing), inspect Property and Permits and related documents
covering Property wherever the same may be located, but neither the Lessor nor
any Assignee shall have any duty to make any such inspection.
(e) The Lessee shall not, without the prior written
consent of the Lessor, permit, or suffer to exist, and shall promptly remove
and discharge any Lien, including mechanics' liens (other than Permitted Liens
or those Liens placed thereon by, or arising from, the Lessor's own actions or
which are subject to a Permitted Contest), and the Lessee shall not assign any
right or interest herein or in any Property or in the leasehold interest in any
Ground Lease, or its obligations in respect of Basic Rent or any other sum
payable under this Lease or the Acquisition and Construction Agreement. The
Lessee shall not, without the prior written consent of the Lessor, which
consent shall not be unreasonably withheld or denied, sublease or otherwise
relinquish possession of any Property, except that (i) the Lessee may
relinquish possession of any Property to any contractor for use in performing
work for the Lessee on such Property; provided that such relinquishment of
possession shall in no way affect the obligations of the Lessee or the rights
of the Lessor hereunder or with respect to the Property or any obligation of
the Guarantor under the Guaranty with respect thereto and (ii) the Lessee may
sublease any Property so long as (A) no such sublease shall modify or limit any
right or power of the Lessor hereunder or affect or reduce any obligation of
the Lessee hereunder, and all such obligations shall continue in full force and
effect as obligations of a principal and not of a guarantor or surety, as
though no such subletting had been made and (B) the Guarantor shall remain
liable for the payment and
AMENDED AND RESTATED LEASE AGREEMENT - Page 13
<PAGE> 15
performance of the Lessee under this Lease or any Ground Lease. Any sublease
made otherwise than as expressly permitted by this paragraph (e) shall be void
and of no force and effect. As additional security to the Lessor for the
performance of the Lessee's obligations under this Lease, the Lessee hereby
assigns to the Lessor all of its right, title and interest in and to all
subleases permitted hereby. Unless an Event of Default shall have occurred and
be continuing hereunder, the Lessee shall be entitled to collect and enjoy such
rents and other sums; upon the occurrence of an Event of Default, the Lessor
shall have the present and continuing right to collect and enjoy all rents and
other sums of money payable under any such sublease as long as such Event of
Default is continuing, and the Lessee hereby irrevocably assigns such rents and
other sums to the Lessor for the benefit and protection of the Lessor. The
Lessee shall, within thirty (30) days after the execution of any such sublease,
deliver a conformed copy thereof to the Lessor. Nothing contained in this
Lease shall be construed as constituting the consent or request of the Lessor,
express or implied, to or for the performance by any contractor, laborer,
materialman or vendor of any labor or services or for the furnishing of any
materials for any construction, alteration, addition, repair or demolition of
or to any Property or any part thereof. Notice is hereby given that the Lessor
will not be liable for any labor, services or materials furnished or to be
furnished to the Lessee, or to anyone holding any Property or any part thereof
through or under the Lessee, and that no mechanics' or other liens for any such
labor, services or materials shall attach to or affect the interest of the
Lessor in and to the Property.
(f) If any Lien or charge of any kind or any judgment,
decree or order of any court or other governmental authority (including,
without limitation, any state or local tax lien affecting the Property),
whether or not valid, shall be asserted or entered which might interfere with
the due and timely payment of any sum payable or the exercise of any of the
rights or the performance of any of the duties or responsibilities under this
Lease, the Lessee shall, upon obtaining knowledge thereof or upon receipt of
notice to that effect from the Lessor and subject to SECTION 27 hereof,
promptly take such action as may be necessary to prevent or terminate such
interference.
(g) Unless otherwise required by law, all documents
submitted to or filed with or generated pursuant to the requirements of any
Environmental Agency shall be filed solely in the name of the Lessee or of the
previous owner(s) or operator(s) of each Remediation Property, if such previous
owner(s) or operator(s) are or may be liable or responsible, by law, contract
or otherwise, for remediation of such Remediation Property. In the event that
the Lessee obtains a formal determination from an Environmental Agency that
remediation is complete with respect to a Remediation Property, the Lessee
shall promptly deliver a copy thereof to the Lessor and any Assignee.
SECTION 9 Maintenance, Improvement and Repair of
Property.
(a) The Lessor hereby assigns and otherwise makes
available to the Lessee any and all rights the Lessor may have under any
vendor's or manufacturer's warranties or undertakings with respect to any
Property; provided that upon the occurrence of an Event of Default, the Lessee
shall, upon the request of the Lessor, relinquish all rights in any such
warranties or undertakings to the Lessor and shall, in such connection, execute
such documents as the Lessor may reasonably request.
(b) The Lessee shall pay all costs, expenses, fees and
charges incurred in connection with the ownership, use, occupancy or operation
of any Unit of Property. Except as otherwise provided in SECTION 15 hereof,
the Lessee shall at all times, at its own expense, and subject to ordinary wear
and tear, keep all Property in good operating order, repair, condition and
appearance and maintain all Property in accordance with prudent industry
standards and in a manner consistent with that of other similar facilities
owned or operated by it or its affiliates. The foregoing undertaking to
maintain Property in good repair shall apply regardless of the cause
necessitating repair and regardless of whether the Lessee has possession of the
Property, and as between the Lessor and the Lessee, all risks of damage to
Property are assumed by the Lessee. With respect to any Unit of Property, the
undertaking to maintain in good repair shall include, without limitation, all
interior and exterior repairs, whether structural or nonstructural, foreseen or
unforeseen, ordinary or extraordinary and all common area maintenance,
including, without limitation, replacement of worn out parts of Property,
removal of dirt, snow, ice, rubbish and other obstructions and maintenance of
sidewalks and landscaping. The Lessee hereby agrees to indemnify and hold the
Lessor harmless from and against
AMENDED AND RESTATED LEASE AGREEMENT - Page 14
<PAGE> 16
all costs, expenses, claims, losses, damages, fines or penalties, including
reasonable counsel fees, arising out of or due to the Lessee's failure to
fulfill its obligations under this paragraph (b).
(c) With respect to any Unit of Property, the Lessee
shall pay: all property taxes, sales, use and value-added taxes, assessments,
levies, fees, water and sewer rents and charges, and all other governmental
charges, general and special, ordinary and extraordinary, foreseen and
unforeseen, which are, at any time, imposed or levied upon or assessed against
(A) such Unit or (B) any Basic Rent, any Additional Rent or other sum payable
hereunder or this Lease, the leasehold estate hereby created, and all charges
of utilities and communications services serving such Unit. The Lessee will
furnish to the Lessor, promptly after demand therefor, proof of payment of all
items referred to above which are payable by the Lessee. If any such
assessments may legally be paid in installments, the Lessee may pay such
assessment in installments; provided that unless the Lessee has irrevocably
committed or is required to, and does, purchase such Unit on or prior to the
expiration or earlier termination of the Lease Term or any Extended Term, all
assessments referred to in this paragraph (c) shall be paid in full prior to
the expiration or earlier termination of the Lease Term or any Extended Term.
(d) So long as no Event of Default shall have occurred
and be continuing, the Lessee may, at its expense, make additions to and
alterations to any Unit of Property; provided that upon completion of such
additions or alterations (i) neither the fair market value of the Unit of
Property shall be lessened thereby nor the condition of such Unit of Property
impaired, below the value, utility or condition thereof immediately prior to
such action (assuming such Unit of Property was then of a condition and repair
required to be maintained pursuant to paragraph (b) of this SECTION 9), and
(ii) such work shall be completed in a good and workmanlike manner and shall be
in compliance with all applicable Legal Requirements and Insurance
Requirements. Any and all such additions and alterations shall be and remain
part of the Unit of Property and shall be subject to this Lease, except that
any addition to Property made by the Lessee shall remain the property of the
Lessee if it can be removed from such Property without causing an unrepaired
material impairment of the functioning of such Property or its resale value,
excluding such addition. Any improvements or additions which do not remain the
property of the Lessee shall be evidenced by a revised Unit Leasing Record.
(e) The Lessee agrees to use and operate each Unit such
that the fair market value of such Unit is not lessened as a result of any
change in the nature of use and operation of any such Unit as compared to the
fair market value that such Unit would have had such Unit been used in the same
manner as contemplated at the inception of this Lease.
(f) The Lessee may, from time to time, replace any
equipment, furnishings or fixtures used in connection with any Unit with
similar or different equipment, furnishings or fixtures so long as such
replacement property (i) is of equal or greater value, in the Lessee's good
faith judgment, as compared to the replaced property and (ii) will be in such
condition so as to enable the Lessee to use and operate each such Unit for the
same general purpose as contemplated at the inception of this Lease. As any
equipment, furnishing or fixture is substituted at a Unit pursuant to this
paragraph (f), title to such substitute property shall automatically be
transferred to the Lessor and such substitute property shall be subject to this
Lease and title to the replaced equipment, furnishing or fixture shall be
automatically transferred by the Lessor to the Lessee.
SECTION 10 Insurance.
(a) Commercial General Liability Insurance. The Lessee
will carry at its own expense comprehensive commercial general liability
insurance covering the legal liability of the Lessor and the Lessee against
claims for bodily injury, death or property damage, occurring on, in or about
each Unit of Property or occurring as a result of ownership of facilities
located on each Unit of Property or as a result of the use of products or
materials manufactured, stored, processed, constructed or sold, or services
rendered, (i) in an amount which is consistent with prudent industry practice
but, in any event, not less than the commercial general liability insurance
applicable to similar property owned, leased or held by the Lessee; provided
that in no event shall such amounts be less than
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$15,000,000 per occurrence, (ii) of the types usually carried by corporations
engaged in the same or a similar business, similarly situated with the Lessee,
and owning or operating similar property and which cover risk of the kind
customarily insured against by such corporations, and (iii) which is maintained
in effect with insurers of recognized responsibility reasonably satisfactory to
the Lessor.
(b) All Risk Property Insurance. The Lessee will maintain
in effect with insurers of recognized responsibility reasonably satisfactory to
the Lessor, at its own expense, physical damage insurance with respect to each
Unit of Property, which is of the type usually carried by corporations engaged
in the same or similar business, similarly situated with the Lessee, and owning
or operating similar property and which covers risk of the kind customarily
insured against by such corporations, and in substantially the amount
applicable to similar property owned, leased or held by the Lessee; provided
that such insurance shall at all times be in an amount not less than the
Termination Payment with respect to such Unit. Such insurance shall include
all risk insurance coverage against losses by fire, lightning, explosion and
other risks for the full insurable replacement value of such Unit, with agreed
amount endorsement or endorsements providing equivalent protection, including
loss by windstorm, flood, hail, explosion, riot (including riot attending a
strike), civil commotion, aircraft, vehicles, smoke damage, and vandalism and
malicious mischief, in amounts not less than the full insurable replacement
value of all buildings and other improvements on such Unit, but in no event
less than the Acquisition Cost of such Unit. The term "full insurable
replacement value" as used herein means the actual replacement cost, including
the costs of debris removal, but excluding the cost of constructing foundation
and footings.
(c) Other Policies. The Lessee shall comply with
applicable workers' compensation laws of the states where each Unit of Property
is located, and shall maintain such insurance if and to the extent necessary
for such compliance. The Lessee will maintain explosion and machinery
insurance in respect of any boilers and similar apparatus located on each Unit
in the minimum amount of $250,000 or in such greater amounts as are then
customary for property similar in use to such Unit.
(d) Self-Insurance; Adjustments. Notwithstanding the
foregoing, the Lessee may self-insure (i) with respect to the required coverage
for physical damage insurance, for up to $5,000,000 with respect to any one
occurrence, and (ii) with respect to the required coverage for liability
insurance, for up to $10,000,000 with respect to any one occurrence. Insurance
claims by reason of damage or destruction to any Unit of Property shall be
adjusted by the Lessee unless a Potential Default or an Event of Default has
occurred and is continuing.
(e) Additional Insureds; Notice. Any policies of
insurance carried in accordance with this SECTION 10 and any policies taken out
in substitution or replacement for any such policies (i) shall name the Lessor,
the general partner of the Lessor and its members, officers and directors, the
limited partners of the Lessor, the Trustee, each Certificate Holder, the
Assignee and each Lender as additional insureds, as their respective interests
may appear (but without imposing upon any such Person any obligation imposed on
the insured, including, without limitation, the liability to pay the premium
for any such policy), (ii) with respect to insurance carried in accordance with
the preceding paragraph (b), shall name the Assignee, if any, and the Lessor as
loss payees, (iii) with respect to insurance carried in accordance with the
preceding paragraphs (a) and (b), shall provide that as against the Lessor the
insurers shall waive any rights of subrogation, (iv) shall provide that if the
insurers cancel such insurance for any reason whatsoever, or any substantial
change is made in the coverage, such cancellation, or change shall not be
effective as to the Lessor, the general partner of the Lessor, and its members,
officers and directors, the limited partners of the Lessor, the Trustee, any
Certificate Holder, the Assignee or any Lender for thirty (30) days after
receipt by the Lessor, the general partner of the Lessor, and its members,
officers and directors, the limited partners of the Lessor, the Trustee, any
Certificate Holder, any Lender or such Assignee, as the case may be, of written
notice by such insurers of such cancellation or change and (v) shall provide
that in respect of the interest of the Lessor, the general partner of the
Lessor, and its members, officers and directors, the limited partners of the
Lessor, the Trustee, any Certificate Holder, the Assignee and any Lender, in
such policies, the insurance shall not be invalidated by any action or inaction
of the Lessee or any other Person (other than of the Lessor, the general
partner of the Lessor, and its members, officers and directors, the limited
partners of the Lessor, the Assignee or any Lender in respect of its
AMENDED AND RESTATED LEASE AGREEMENT - Page 16
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own interest) and shall insure the interests of the Lessor, the general partner
of the Lessor, and its members, officers and directors, the limited partners of
the Lessor, the Trustee, any Certificate Holder, the Assignee and any Lender,
as they appear, regardless of any breach or violation of any warranties,
declarations or conditions contained in such policies by the Lessee or any
other Person. Each liability policy (A) shall be primary without right of
contribution from any other insurance which is carried by the Lessor with
respect to its interest as such in the Property and (B) shall expressly provide
that all of the provisions thereof, except the limits of liability, shall
operate in the same manner as if there were a separate policy covering each
insured.
(f) Application of Insurance Proceeds for Loss or Taking.
As between the Lessor and the Lessee it is agreed that any insurance payments
received as the result of the occurrence of (i) any event of loss described in
paragraph (c) of SECTION 15 hereof with respect to any Unit of Property, or
(ii) any event of Taking described in SECTION 16 hereof shall be paid to an
account of the Lessor and disposed of, as set forth in paragraph (c) of SECTION
15 hereof.
(g) Application of Insurance Proceeds for Other than Loss
or Taking. As between the Lessor and the Lessee, the insurance proceeds of any
property damage loss to any Property in excess of $3,000,000 (Three Million
Dollars) will be held in an account of the Lessor and applied in payment (or to
reimburse the Lessee) for repairs or replacement in accordance with the terms
of paragraph (b) of SECTION 15 hereof. The Lessee shall be entitled (i) to
receive the amounts so deposited against certificates, invoices or bills
reasonably satisfactory to the Lessor, delivered to the Lessor from time to
time as such work or repair progresses, and (ii) to direct the investment of
the amounts so deposited as provided in paragraph (g) of this SECTION 10. Any
moneys remaining in the aforesaid account after final payment for repairs has
been made shall be paid to the Lessee.
(h) Investment. The Lessor, at the Lessee's instruction,
shall invest the amounts deposited with the Lessor pursuant to paragraph (f) of
this SECTION 10 in any investments permitted under the Financing Agreement.
Such investments shall mature in such amounts and on such dates so as to
provide that amounts shall be available on the draw dates sufficient to pay the
amounts requested by and due to the Lessee. Any interest earned on investments
of such funds shall be paid to the Lessee. The Lessor shall not be liable for
any loss resulting from the liquidation of each and every such investment and
the Lessee shall bear the risk of such loss, if any.
(i) Application in Default. Any amount referred to in
paragraphs (d), (e) or (f) of this SECTION 10 which is payable to the Lessee
shall not be paid to the Lessee or, if it has been previously paid to the
Lessee, shall not be retained by the Lessee, if at the time of such payment an
Event of Default shall have occurred and be continuing. In such event, all
such amounts shall be paid to and held by the Lessor as security for the
obligations of the Lessee hereunder or, at the Lessor's option, applied by the
Lessor toward payment of any of such obligations of the Lessee at the time due
hereunder as the Lessor may elect. At such time as there shall not be
continuing any Event of Default, all such amounts at the time held by the
Lessor in excess of the amount, if any, which the Lessor shall have elected to
apply as above provided shall be paid to the Lessee.
(j) Certificates, etc. On or before the execution of
this Lease, on the Effective Date with respect to any Unit of Property, and
annually on or before the anniversary of the date of this Lease, the Lessee
will furnish to the Lessor certificates or other evidence from the Lessee's
independent insurance brokers certifying that the insurance then carried and
maintained on each Unit of Property complies with the terms hereof.
(k) Prosecution of Claims. The Lessee may, at its own
cost and expense, prosecute any claim against any insurer or contest any
settlement proposed by any insurer, and the Lessee may bring any such
prosecution or contest in the name of the Lessor, the Lessee, or both, and the
Lessor will join therein at the Lessee's request; provided that the Lessee
shall indemnify the Lessor against any losses, costs or expenses (including
reasonable attorneys' fees) which the Lessor may incur in connection with such
prosecution or contest.
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SECTION 11 Indemnities.
The Lessee shall indemnify and hold harmless the Lessor, the
Trustee, each Certificate Holder, the Assignee and each Lender, any successor
or successors, and any Affiliate of each of them, and their respective
officers, directors, shareholders, members, partners (general and limited,
including, without limitation, the general and limited partners of the Lessor),
employees, agents and servants (each of the foregoing, an "INDEMNIFIED PERSON")
from and against all liabilities (including, without limitation, strict
liability in tort or under any Environmental Law), taxes (to the extent set
forth in SECTION 11(c) below), losses, obligations, claims, damages, penalties,
causes of action, suits, costs and expenses (including, without limitation,
reasonable fees and expenses of attorneys and accountants so long as, unless an
Event of Default shall have occurred and be continuing, such attorneys and
accountants were hired with the prior written consent of the Lessee or the
Guarantor, not to be unreasonably withheld) or judgments of any nature
(collectively, "EXPENSES") relating to or in any way arising out of:
(a) The ordering, design, delivery, acquisition,
construction, maintenance, title on acquisition, rejection, installation,
possession, titling, retitling, registration, reregistration, custody by the
Lessee of title and registration documents, ownership, use, non-use, misuse,
financing, lease, sublease, operation, transportation, repair, reconstruction,
control, lease under a Ground Lease, or disposition, including, without
limitation, disposition at the end of any Basic Term or Extended Term of any
Property or the presence of or the release of Contaminants or Hazardous
Substances on, under, to or from, or the generation or transportation of
Contaminants or Hazardous Substances to or from, or the failure to report,
disclose or remediate the foregoing with respect to any Property, leased or to
be leased hereunder (including, without limitation, any costs, claims, or
liabilities arising under any Federal, state or local Environmental Law, rule
or regulation, relating to the ownership, financing or use of any Property),
except (i) to the extent that such costs are included in the Acquisition Cost
of such Property, (ii) for any general administrative expenses of the Lessor,
(iii) taxes (the sole indemnification for which is acknowledged by the Lessor
and each Indemnified Person to be provided under paragraph (c) of this SECTION
11) and (iv) that this indemnity shall not increase any payment required to be
made by the Lessee pursuant to SECTION 12 of this Lease;
(b) The assertion of any claim or demand based upon any
infringement or alleged infringement of any patent or other right, by or in
respect of any Property; provided, however, that upon request of the Lessee,
the Lessor will make available to the Lessee the Lessor's rights under any
similar indemnification arising from any manufacturer's or vendor's warranties
or undertakings with respect to any Property;
(c) All U.S. Federal, state, county, municipal, or other
fees and taxes of whatsoever nature, including, but not limited to, license,
qualification, franchise, withholding, sales, use, gross income, gross
receipts, ad valorem, business, personal property, real estate, value added,
excise, motor vehicle, occupation fees and stamp or other taxes or tolls of any
nature whatsoever, and penalties and interest thereon, whether assessed, levied
against or payable by the Lessor or otherwise, with respect to any Property or
the acquisition, purchase, sale, rental, use, operation, control, ownership or
disposition of any Property (including, without limitation, any claim by any
Governmental Authority for transfer tax, transfer gains tax, mortgage recording
tax, filing or other similar taxes or fees in connection with the acquisition
of any Property by the Lessor or otherwise in connection with this Lease) or
measured in any way by the value thereof or by the business of, investment in,
or ownership by the Lessor with respect thereto; provided that this indemnity
shall not apply to Federal, state or local net income taxes with respect to the
receipt or accrual of Basic Rent (or amounts payable from Basic Rent), interest
or fees or to franchise or other doing business taxes imposed against any
Indemnified Person, in each case by a jurisdiction in which the Indemnified
Person would be subject to such taxes without regard to the use or location of
any Property in such jurisdiction or the activities of the Lessee in such
jurisdiction; provided that notwithstanding the foregoing, the Lessee shall
indemnify the Lessor for the imposition of New York City unincorporated
business tax on the Lessor due to a determination that this transaction, or the
management of the Lessor with respect thereto, gives rise to a taxable
unincorporated business in New York City; or
AMENDED AND RESTATED LEASE AGREEMENT - Page 18
<PAGE> 20
(d) Any violation or alleged violation by the Lessee of
this Lease or of any contracts or agreements to which the Lessee is a party or
by which it is bound or of any laws, rules, regulations, orders, writs,
injunctions, decrees, consents, approvals, exemptions, authorizations, licenses
and withholdings of objection, of any governmental or public body or authority
and all other Legal Requirements.
The Lessee shall, no later than thirty (30) days following
demand, reimburse any Indemnified Person for any sum or sums expended with
respect to any of the foregoing or, upon request from any Indemnified Person,
shall pay such amounts directly, not later than five (5) Business Days prior to
the due date for such indemnified amount. Any payment made to or on behalf of
any Indemnified Person pursuant to this SECTION 11 shall be adjusted to such
amount as will, after taking into account all taxes imposed with respect to the
accrual or receipt of such payment (as the same may be increased pursuant to
this sentence), and all tax savings actually and currently realized as a result
of the payment of such taxes or the deductibility of the underlying indemnified
item including, without limitation, by way of the deductibility or ability to
credit items payable from Additional Rent, equal the amount of the payment. To
the extent that the Lessee in fact indemnifies any Indemnified Person under the
indemnity provisions of this Lease, the Lessee shall be subrogated to such
Indemnified Person's rights in the affected transaction and shall have a right
to determine the settlement of claims therein. In addition, if any Indemnified
Person determines in its reasonable discretion that as a result of an event
giving rise to the Lessee's indemnification obligations hereunder, it has
realized a tax benefit (by way of refund, deduction, credit, allocation,
apportionment or otherwise including, without limitation, the deductibility or
ability to credit items payable from Additional Rent) that was not otherwise
taken into account in calculating the amount of Lessee's indemnification
payments, then, as long as no Event of Default has occurred and is continuing,
such Indemnified Person shall pay the amount of such tax benefit promptly to
the Lessee, together with any additional benefit arising from the payment to
the Lessee hereunder.
The indemnities contained in this SECTION 11 shall not be
affected by any termination of this Lease as a whole or in respect of any Unit
of Property leased hereunder or any failure or refusal of the Lessee to accept
any Property acquired or ordered pursuant to the terms hereof.
Notwithstanding any provisions of this SECTION 11 to the
contrary, the Lessee shall not indemnify and hold harmless any Indemnified
Person against any taxes, claims and liabilities which would not have occurred
but for the following: (A) in the case of the Assignee and any Lender, any
representation or warranty by the Assignee or such Lender in the Financing
Agreement or in any other document related to this transaction being incorrect
in any material respect; or in the case of the Lessor (or any partner in the
Lessor), the failure of the Lessor to comply with its covenant set forth in the
Letter Agreement that it will not enter into transactions other than those
contemplated by the Agent Documents and the Financing Agreement, (B) in the
case of the Assignee or any Lender, the failure by such Indemnified Person to
perform or observe any agreement, covenant or condition contained herein or in
any other document related to this transaction in any material respect, (C) the
willful misconduct or the gross negligence of such Indemnified Person, (D) a
voluntary or involuntary disposition (other than a disposition during the
continuance of an Event of Default) by such Indemnified Person of all or any
part of its interest in any Property (other than as contemplated by this
Agreement or the Financing Agreement).
Nothing in this SECTION 11 shall be construed as a guaranty by
the Lessee of the market value of any Property.
If a claim is made against an Indemnified Person involving one
or more Expenses and such Indemnified Person has notice thereof, such
Indemnified Person shall promptly, upon receiving such notice, give notice of
such claim to the Lessee; provided that the failure to provide such notice
shall not release the Lessee from any of its obligations hereunder, and no
payment by the Lessee to an Indemnified Person pursuant to this SECTION 11
shall be deemed to constitute a waiver or release of any right or remedy which
the Lessee may have against such Indemnified Person for any actual damages as a
result of the failure by such Indemnified Person to give the Lessee such
notice. The Lessee shall be entitled, at its sole cost and expense, acting
through counsel reasonably acceptable to the relevant Indemnified Person, (A)
in any judicial or administrative proceeding that involves solely a claim for
AMENDED AND RESTATED LEASE AGREEMENT - Page 19
<PAGE> 21
one or more Expenses, to assume responsibility for and control thereof, (B) in
any judicial or administrative proceeding involving a claim for one or more
Expenses and other claims related or unrelated to the transactions contemplated
by this Agreement, to assume responsibility for and control of such claim for
Expenses, to the extent that the same may be and is severed from such other
claims (and such Indemnified Person shall use its best efforts to obtain such
severance), and (C) in any other case, to be consulted by such Indemnified
Person with respect to judicial proceedings subject to the control of such
Indemnified Person. Notwithstanding anything in the foregoing to the contrary,
the Lessee shall not be entitled to assume responsibility for and control of
any such judicial or administrative proceedings (x) while an Event of Default
shall have occurred and be continuing; (y) if such proceedings will involve any
risk of criminal liability or a material risk of the sale, forfeiture or loss
of any Property; or (z) to the extent that the Indemnified Person has defenses
available to it which are not available to the Lessee and allowing the Lessee
to assert such defenses will be prejudicial to the interests of such
Indemnified Person; provided that the limitation on the Lessee's ability to
control such judicial or administrative proceeding shall apply only to those
aspects of such proceeding which address issues with respect to which such
defenses are available.
The relevant Indemnified Person shall supply the Lessee with
such information reasonably requested by the Lessee as is necessary or
advisable for the Lessee to control or participate in any proceeding to the
extent permitted by this SECTION 11. Such Indemnified Person shall not enter
into a settlement or other compromise with respect to any Expense without the
prior written consent of the Lessee, which consent shall not be unreasonably
withheld or delayed, unless such Indemnified Person waives its right to be
protected with respect to such Expense under this SECTION 11.
To the extent that any of the Expenses contemplated in this
SECTION 11 are not specifically attributable to either Ultramar Inc., Ultramar
Energy Inc., Diamond Shamrock Leasing, Inc., Diamond Shamrock Arizona, Inc., or
Diamond Shamrock Refining and Marketing Company, those entities shall decide,
in their sole discretion, which of them shall be responsible for such Expenses;
provided that under all circumstances, as between those entities,
responsibility shall be allocated for one hundred percent (100%) of all such
Expenses and if those entities shall fail to decide within three (3) Business
Days of demand as to which of them shall be responsible, the Lessor may in its
sole discretion allocate such Expenses between them as it deems appropriate.
SECTION 12 Lease Expiration.
(a) In the event the Lessee has not notified the Lessor
that it intends to purchase all Property under this Lease pursuant to SECTION
13 hereof and the Lessee desires to terminate this Lease with respect to such
Property, the Lessee shall provide notice to the Lessor of its intention to
exercise such right at least twelve (12) months prior to the expiration of the
Lease Term or the Extended Term, as the case may be.
(b) In the event that the Lessee provides the termination
notice contemplated in paragraph (a) above, the Lessor's obligations under this
SECTION 12 shall be subject to satisfaction of the following conditions (the
"RETURN PROVISIONS"): (A) on the Lease Termination Date, (i) no Event of
Default or Potential Default shall have occurred and be continuing, (ii) no
Unit of Property shall be undergoing any repairs, additions or alterations that
would have an adverse effect on the fair market value of such Unit of Property
and (iii) each Unit of Property shall be in compliance with all Legal
Requirements, except any Legal Requirements, the non-compliance with which,
individually or in the aggregate, (1) will not place either the Lessor or any
Assignee in any danger of civil liability for which the Lessor or any Assignee
is not adequately indemnified (the Lessee's obligations under SECTION 11 of
this Lease shall be deemed to be adequate indemnification if no Event of
Default exists and if the aggregate amount of such civil liability for which
such Person is not indemnified by bond or otherwise is reasonably likely to be
less than $300,000 with respect to all Units or subject the Lessor or any
Assignee to any risk of criminal liability as a result of a failure to comply
therewith, (2) will not decrease by any amount the fair market value of the
Unit, (3) is consistent with prudent business practices, and (4) is not
prohibited under the provisions of any Ground Lease relating to such Unit, (B)
on or prior to the Lease Termination Date, the Lessee shall deliver to the
Lessor a report of an independent environmental consultant (which may be
selected by the Lessor and shall be at the expense of the Lessee),
AMENDED AND RESTATED LEASE AGREEMENT - Page 20
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which report of such consultant shall be satisfactory in scope and substance to
the Lessor, the Assignee and the Certificate Holders, each in its sole
discretion addressing the environmental hazards or liabilities associated with
such Unit of Property, (C) on or prior to the Lease Termination Date, the
Lessee shall deliver to the Lessor a report of an independent appraiser (which
may be selected by the Lessor and shall be at the expense of the Lessee;
provided that the report of such appraiser shall be satisfactory in scope and
content to the Lessor, the Assignee and the Certificate Holders, each in its
sole discretion), to the effect that each Unit of Property under this Lease (i)
has been maintained in accordance with the terms and conditions of SECTION 9 of
this Lease and has not been subjected to any wear and tear in excess of that
attributable to normal use and (ii) meets or exceeds the design specifications
listed in the appraisal provided to the Lessor and the Assignee pursuant to
Section 4 of the Acquisition and Construction Agreement, and includes all items
of personal property contemplated by such appraisal and (D) the Lessee shall
take all steps as are required to transfer to, or to procure on behalf of, the
Lessor, or a designee of the Lessor, all required Permits and to bring the
Property into conformity with all Legal Requirements and Insurance Requirements
for occupancy and use as a retail fuel outlet convenience store/car wash or
office building and other commercial use and related uses of the kind
contemplated by the appraisal required pursuant to clause (C) above.
In the event the Lessee fails to comply with any of the Return
Provisions, the Lessee shall, on the Lease Termination Date, purchase all
Property from the Lessor for an amount equal to the Termination Payment. In
connection with any such purchase, the Lessee shall pay to the Lessor the
Termination Payment, all Basic Rent payable and any Additional Rent and all
other amounts owing hereunder. Lessor and Lessee agree that this provision is
of the essence of this Agreement and that specific performance is the only
remedy sufficient to enforce the parties' intention in this regard.
(c) In the event the Lessee has complied with each of the
Return Provisions, the Lessee shall, on the Lease Termination Date, terminate
this Lease with respect to all Property, surrender such Property to the Lessor
and pay to the Lessor the Residual Guaranty Payment with respect to such
Property and all other amounts owing by the Lessee hereunder. Upon such
surrender, the Lessor shall sell such Property to a third party on an arms
length basis and the Lessee shall have no further right, claim or interest in
such Property (it being understood that the Lessor shall be entitled to
commence the marketing of such Property at any time subsequent to the receipt
of the termination notice contemplated in paragraph (a) of this SECTION 12, and
the Lessee agrees that it shall cooperate in connection therewith). The
proceeds of sale received by the Lessor from any sale of such Property shall be
retained by the Lessor; provided that if the proceeds of such sale, together
with the Residual Guaranty Payment paid by the Lessee, exceed the sum of (x)
the Acquisition Cost of such Property, (y) all other amounts payable by the
Lessee hereunder or by the Lessor under the Financing Agreement, and (z) the
equity return on such Acquisition Cost that the Lessor would have earned had
this Lease remained in effect through the date of such sale, such excess shall,
no later than one hundred eighty (180) days following receipt thereof, be paid
by the Lessor to the Lessee. The Lessee shall use reasonable efforts during
the last six (6) months of the Lease Term with respect to such Property (unless
this Lease has been extended pursuant to SECTION 13 hereof), and during the
last six (6) months of the Extended Term, if any, to seek on behalf of the
Lessor bona fide arms-length bids for not less than all such Property from
prospective purchasers who are financially capable of purchasing such Property
for cash, on an as-is, non-installment sale basis, without warranty by, or
recourse to, the Lessor. The Lessee shall notify the Lessor of the amount of
each such bid, and the name and address of the Person submitting such bid.
(d) In the event the Lessee shall surrender such Property
to the Lessor or to a purchaser of such Property from the Lessor pursuant to
the provisions of this SECTION 12, on the Lease Termination Date applicable to
such Property, the Lessee shall pay to the Lessor, in addition to the Residual
Guaranty Payment, all Basic Rent payable with respect to such Property and any
Additional Rent and other amounts owing hereunder. Upon payment by the Lessee
to the Lessor of all amounts owing under this SECTION 12 and delivery of all
Property under this Lease to the Lessor or such purchaser, this Lease shall
terminate with respect to such Property, except to the extent provided in
SECTION 11 hereof.
SECTION 13 Lessee's Rights of Purchase; Lease Extension.
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(a) The Lessee shall have the right (i) upon at least
twelve (12) months' written notice to the Lessor, to purchase the Lessor's
interest in all Property on the Lease Termination Date, (ii) in the case of any
purchase during the Lease Term other than during the twelve (12) month period
prior to and ending on the Lease Termination Date, upon at least thirty (30)
days written notice to the Lessor, to purchase the Lessor's interest in all
Property then subject to this Lease on any Basic Rent Payment Date during the
Lease Term or (iii) upon at least thirty (30) days' written notice to the
Lessor, to purchase any Unit of Property which has, in the good faith judgment
of the Lessee, become uneconomic, impractical or unsuitable for continued use
and occupancy as an office building, for such other commercial purposes as such
Other Commercial Improvements have been constructed, or as a retail fuel
outlet/convenience store/car wash and related uses such as a quick service
restaurant ("UNECONOMIC CONDITION"), on any Basic Rent Payment Date during the
Lease Term. The purchase price payable by the Lessee shall be the Termination
Payment, in the case of a purchase pursuant to clauses (i) or (ii) above or the
Acquisition Cost of the relevant Unit in the case of a purchase pursuant to
clause (iii) above. In connection with any purchase under this paragraph (a),
on the date upon which such purchase occurs, the Lessee shall pay to the Lessor
the purchase price, all Basic Rent payable and any Additional Rent and other
amounts owing hereunder.
(b) Notwithstanding anything to the contrary in the
foregoing, so long as no Event of Default has occurred and is continuing, the
Lessee may, in its notice to the Lessor of its intent to exercise its purchase
option pursuant to SECTION 13(A)(I) hereof, specify that the Lessor obtain
financings (including both debt and equity financing) on terms acceptable to it
and the Lessee in order to finance the Lessor's ownership of the Property
during the Extended Term. After its receipt of such request, the Lessor shall
make reasonable efforts to arrange for such financing commitments. The terms
of such financing commitment shall be subject to the written approval of the
Lessee.
(c) The Lessor will advise the Lessee in writing not
later than three (3) months prior to the Lease Termination Date as to whether
it has been able to obtain financing commitments on terms and conditions
acceptable to it to finance the Property for the period of the Extended Term.
In such notice, the Lessor shall identify such terms and conditions. The
Lessee shall have the right, within thirty (30) days of its receipt of the
foregoing notice of the Lessor, to specify in writing (i) whether the terms and
conditions of such financing are acceptable to it and (ii) whether the Lessee
agrees to lease the Property for the Extended Term. The notice of the Lessee
contemplated by the preceding sentence shall be irrevocable.
(d) In the event that (i) the Lessor shall not obtain
financing commitments to finance the Property on terms and conditions
acceptable to it and the Lessee or (ii) the Lessee shall not give the notice
set forth in paragraph (c) above within the 30 day period specified therein,
then this Lease shall not be extended and the Lessee shall purchase the
Property by paying the Termination Payment and all other amounts payable
pursuant to SECTION 13(A) hereof.
(e) If the Lessee states in its notice delivered pursuant
to paragraph (c) above that the terms and conditions of the proposed financing
are acceptable to it, the Lessor shall schedule the closing of the financing
contemplated by the financing commitments on or before the date which is one
(1) month prior to the Lease Termination Date. The Lessor shall notify the
Lessee in writing promptly of the closing of such financing or that such
financing shall have failed to close on such scheduled date. Upon the date of
such closing the Property shall, subject to the terms and conditions of this
Lease, be leased hereunder for the Extended Term. If the closing shall not
occur on or before the date which is one (1) month prior to the last day of the
Lease Term, then the lease of the Property shall terminate on the Lease
Termination Date and the Lessee shall on such date purchase all Property from
the Lessor by paying the Termination Payment and all other amounts payable
pursuant to SECTION 13(A) hereof.
SECTION 14 Lessor's Right to Terminate.
If with respect to a Remediation Property the Lessee shall
fail to complete all Clean-Up within twenty- four (24) months from the date
such Unit of Property was acquired, then the Lessor shall have the right (after
AMENDED AND RESTATED LEASE AGREEMENT - Page 22
<PAGE> 24
considering, based on the Lessor's good faith judgment and in consultation with
any Assignee, any request from the Lessee for an extension of the period set
forth above; provided, however, that any such consideration or consultation
shall not, and shall not be deemed to, extend such period in any way) upon at
least three (3) days notice to the Lessee to terminate the lease of such
Remediation Property as of the immediately succeeding Basic Rent Payment Date.
On such Basic Rent Payment Date, the Lessee shall be obligated to purchase the
Lessor's interest in such Remediation Property and Property related thereto and
to pay to the Lessor, as the purchase price for such interest, the sum of the
Acquisition Cost of such Remediation Property. The Lessor shall on such Basic
Rent Payment Date transfer to the Lessee title to the Lessor's interest in such
Remediation Property and all rights of the Lessor against the lessor under the
Ground Lease relating to such Remediation Property and the Lessor shall have no
further obligations under this Lease with respect to such Remediation Property.
In connection with any purchase under this SECTION 14, on such stipulated Basic
Rent Payment Date, the Lessee shall pay to the Lessor, in addition to any
purchase price payable, all Basic Rent payable, and any Additional Rent and
other amounts owing hereunder.
SECTION 15 Loss of or Damage to Property.
(a) The Lessee hereby assumes all risk of loss of or
damage to Property, however caused. No loss of or damage to any Property shall
impair any obligation of the Lessee under this Lease, which shall continue in
full force and effect with respect to any lost or damaged Property.
(b) Subject to the right of the Lessee to effect
substitution of a Unit of Property pursuant to SECTION 32 hereof, in the event
of damage of any kind whatsoever to any Property (unless the same is determined
by the Lessee to be damaged beyond repair) the Lessee, at its own cost and
expense, shall place the same in good operating order, repair, condition and
appearance. The Lessee's right to any proceeds paid under any insurance policy
or policies required under SECTION 10 of this Lease with respect to any such
damage to any Property which has been so placed by the Lessee in good operating
order, repair, condition and appearance shall be governed by paragraph (g) of
SECTION 10 hereof.
(c) If (i) any Unit of Property is lost, stolen,
destroyed, seized, confiscated, rendered unfit for use or damaged beyond repair
(in the reasonable judgment of the Lessee), or (ii) the use thereof by the
Lessee in the ordinary course of business is prevented by the act of any third
Person or Persons or governmental instrumentality for a period exceeding
forty-five (45) days, or (iii) such Unit of Property is attached (other than on
a claim against the Lessor as to which the Lessee is not obligated to indemnify
the Lessor) and the attachment is not removed within forty- five (45) days, or
(iv) a Taking as described in SECTION 16 hereof shall occur, or (v) any Unit of
Property is damaged and the Lessee elects not to rebuild or repair such Unit or
such rebuilding or repairs could not be expected to restore such Unit to its
previous working order prior to the expiration of the Lease Term or such
rebuilding or repairs would exceed forty percent (40%) of the Acquisition Cost
of such Unit, then (subject to the right of the Lessee to effect substitution
of a Unit of Property pursuant to SECTION 32 hereof), in any such event, (A)
the Lessee shall promptly notify the Lessor in writing of such event, (B) on
the first Basic Rent Payment Date following such event the Lessee shall pay to
the Lessor an amount equal to the Acquisition Cost of such Unit, (C) the Lease
Term or Extended Term of such Unit shall continue until the Basic Rent Payment
Date on which the Lessor receives payment from the Lessee of the amount payable
pursuant to clause (B) of this paragraph (c) and of Basic Rent payable to and
including the date of purchase, and any Additional Rent and other amounts owing
hereunder in respect of such Unit, and shall thereupon terminate and (D) the
Lessor shall on such Basic Rent Payment Date transfer title to such Unit to the
Lessee, and the Lessee shall be subrogated to the Lessor's rights in the
affected transaction. So long as no Event of Default relating to nonpayment of
money or insolvency has occurred and is continuing hereunder, the right to
insurance and condemnation proceeds, if any, received by the Lessor shall be
assigned by the Lessor to the Lessee upon the payment by the Lessee of all
amounts referred to in the preceding sentence.
SECTION 16 Condemnation and Dedication of Property;
Easements.
AMENDED AND RESTATED LEASE AGREEMENT - Page 23
<PAGE> 25
(a) If the use, occupancy or title to all or a
substantial portion of a Unit of Property is taken, requisitioned or sold in,
by or on account of actual or threatened eminent domain proceedings or other
action by any person or authority having the power of eminent domain (such
events collectively referred to as a "TAKING"), then (subject to the right of
the Lessee to effect substitution of a Unit of Property pursuant to SECTION 32
hereof) the Lease Term or Extended Term shall terminate as provided in
paragraph (c) of SECTION 15 hereof. Upon receipt of proceeds from any award or
sale made in connection with such Taking, if the Lessee has paid all amounts
owing under paragraph (c) of SECTION 15 hereof, so long as no Event of Default
or Potential Default has occurred and is continuing, the Lessor shall remit to
the Lessee the net amount of such proceeds remaining after reimbursement for
all costs and expenses (including, without limitation, reasonable attorneys'
fees) incurred by the Lessor in connection with the negotiation and settlement
of any proceedings related to such Taking. A Taking shall be deemed to affect
a "substantial portion" of a Unit if, after such Taking, such Unit of Property
is unusable for the Lessee's ordinary business purposes.
(b) If less than a substantial portion of a Unit of
Property is subject to a Taking, then this Lease shall continue in effect as to
the portion of the Unit not taken and any proceeds, so long as no Event of
Default or Potential Default has occurred and is continuing, shall be paid to
the Lessee; provided that if the amount of such proceeds exceeds $10,000, such
proceeds shall be paid to the Lessor, the Acquisition Cost of such Unit shall
be reduced accordingly and, to the extent required by the Financing Agreement,
the Lessor shall make a corresponding prepayment of the amounts owed under the
Financing Agreement. A revised Unit Leasing Record shall be prepared by the
Lessor to properly reflect the correct legal description and any reduction in
the Acquisition Cost of such Unit following such Taking.
(c) So long as no Event of Default hereunder has occurred
and is continuing, the Lessee shall have the right (i) to grant easements for
the benefit of any Unit of Property, (ii) to voluntarily dedicate or convey, as
required, portions of any Unit of Property for road, highway and other public
purposes and (iii) to voluntarily execute petitions to have any Unit of
Property or a portion thereof annexed to any municipality or included within
any utility, highway or other improvement or service district; provided that no
more than minor restoration is required. If any monetary consideration is paid
for such easement or dedication, the Lessee shall be entitled to receive or
retain such consideration.
The Lessee shall exercise the above power to grant without the
joinder of the Lessor, except that the Lessor will cooperate, without
unreasonable delay and at the Lessee's expense, as necessary and join in the
execution of any appropriate instrument or shall execute any separate
instrument as necessary. As a condition precedent to the Lessee's exercise of
any of the Lessee's powers under this SECTION 16, (i) the Lessee shall give the
Lessor five (5) Business Days' prior written notice of the proposed action and
(ii) the Lessee shall provide to the Lessor a certificate of the Lessee stating
that such action will not adversely affect either the fair market value of such
Unit or the use of such Unit for its intended purpose, will not affect the
Lessor's ability to exercise its rights and remedies under this Lease and that
the Lessee undertakes to remain obligated under this Lease to the same extent
as if the Lessee had not exercised its powers under this SECTION 16 and the
Lessee will perform all obligations under such instrument and shall prepare all
required documents and provide all other instruments and certificates as the
Lessor may reasonably request.
SECTION 17 Surrender of Property.
Subject to the provisions of SECTIONS 12, 13, 14, 15, 19, 20,
29 and 32 hereof, upon termination of the lease of any Unit of Property
hereunder, the Lessee shall surrender such Unit to the Lessor by delivering all
portions of such Unit that do not constitute real property to the Lessor packed
and crated at such location as the Lessor may direct. Such Property shall be
surrendered in the condition required by paragraph (b) of SECTION 9 of this
Lease. Any cost of removal and delivery of such Property to the Lessor shall
be paid by the Lessee.
SECTION 18 Events of Default.
AMENDED AND RESTATED LEASE AGREEMENT - Page 24
<PAGE> 26
Any of the following events of default shall constitute an
"EVENT OF DEFAULT" and shall give rise to the rights on the part of the Lessor
described in SECTION 19 hereof:
(a) (i) Failure of the Lessee to pay Basic Rent or other
amounts payable pursuant to SECTION 7(A) hereof for more than ten (10) days
after such payment is due pursuant to SECTION 7 hereof; (ii) failure of the
Lessee to comply with SECTION 14 hereof, (iii) failure of the Lessee to pay
amounts due to the Lessor at the time of any scheduled sale of any Unit of
Property hereunder, or (iv) failure of the Lessee to pay any other amount
payable by the Lessee hereunder for more than ten (10) days after receipt of
written demand requesting that such payment is past due; or
(b) Failure to maintain the insurance required by SECTION
10 hereof, or default in the performance of any covenant contained in SECTION
8(E); or
(c) Default in the performance or observance of any other
obligation or covenant of the Lessee pursuant to this Lease or any Consent and
the continuance of such default for thirty (30) days after written notice to
the Lessee by the Lessor or any Assignee; provided that if such default is
curable, then such default shall not constitute an Event of Default hereunder
for such longer period, not to exceed one hundred fifty (150) days, during
which the Lessee is diligently pursuing the cure of such default
(d) The entry of a decree or order for relief in respect
of the Lessee by a court having jurisdiction in the premises or the appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Lessee or of any substantial part of the Lessee's
property, or ordering the winding up or liquidation of the Lessee's affairs, in
an involuntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency or
other similar law; or the commencement against the Lessee of an involuntary
case under the Federal bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal or state bankruptcy, insolvency or other similar law,
and the continuance of any such case unstayed and in effect for a period of
ninety (90) consecutive days; or
(e) The suspension or discontinuance of the Lessee's
business operations, the Lessee's insolvency (however evidenced) or the
Lessee's admission of insolvency or bankruptcy, or the commencement by the
Lessee of a voluntary case under the Federal bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal or state bankruptcy,
insolvency or other similar law, or the consent by the Lessee to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Lessee or
of any substantial part of the Lessee's property, or the making by the Lessee
of an assignment for the benefit of creditors, or the failure of the Lessee
generally to pay its debts as such debts become due, or the taking of corporate
action by the Lessee in furtherance of any such action; or
(f) Any representation, warranty, or certification made
by the Lessee in this Lease, any Consent or any document or certificate
contemplated hereby or thereby proves to be false or inaccurate in any material
respect on or as of the date made or deemed made; or
(g) An Event of Default (as defined in the Guaranty or
the Residual Guaranty Payment Support) shall occur under the Guaranty or the
Residual Guaranty Payment Support; or
(h) The Guaranty or the Residual Guaranty Payment Support
ceases to be in full force and effect; or
(i) An Event of Default (as defined in the Acquisition
and Construction Agreement) shall occur under the Acquisition and Construction
Agreement; or
AMENDED AND RESTATED LEASE AGREEMENT - Page 25
<PAGE> 27
(j) Failure of the Lessee to comply with the Return
Provisions set forth in SECTION 12(B) hereof, upon the Lessee's election not to
purchase all Property in accordance with SECTION 12(B) hereof, or to extend the
Lease Term of the Property in accordance with SECTION 13 hereof.
Notwithstanding anything to the contrary contained herein, if
the sole basis for the occurrence of an Event of Default is the occurrence of a
Material Adverse Effect unrelated to any misrepresentation or failure to
perform a covenant herein or in any other agreement, then the Termination
Payment payable by the Lessee pursuant to SECTION 19 hereof shall be the
Residual Guaranty Payment.
SECTION 19 Rights upon Default.
Upon the occurrence and continuation of any Event of Default
the Lessor may do any one or more of the following:
(a) Terminate the lease of all Property leased hereunder
and require payment of an amount equal to the aggregate outstanding principal
amount of all notes outstanding under the Financing Agreement plus accrued
interest and fees plus the stated amount of the equity investment made by the
Lessor in all such Property, plus any accrued and unpaid return which would be
payable, if the Lease had been in effect through the date of sale, to any
general or limited partner of Lessor if Lessor had sufficient funds therefor,
plus all other amounts owing under the Financing Agreement and Trust Agreement
plus any unpaid fees or expenses of the Lessor and out-of-pocket costs
including taxes (other than any such taxes generally excluded from the Lessee's
indemnification obligations pursuant to SECTION 11(C) hereof), legal and other
expenses of the Lessor associated directly or indirectly with the purchase of
the Property or terminations of this Lease in each case for which the Lessee is
liable under this Lease or the Acquisition and Construction Agreement (the
"TERMINATION PAYMENT"). The Termination Payment will be allocated between the
Lessees pro rata according to the Acquisition Cost of the Units leased by each
Lessee under this Agreement;
(b) Whether or not the lease of any Property is
terminated, take immediate possession of and remove any or all Property and
other equipment or property of the Lessor in the possession of the Lessee,
wherever situated, and for such purpose, enter upon any premises without
liability to the Lessee for so doing;
(c) Whether or not any action has been taken under
paragraph (a) or (b) above, sell any Property (with or without the concurrence
or request of the Lessee);
(d) Hold, use, occupy, operate, remove, lease, sublease
or keep idle any or all Property as the Lessor in its sole discretion may
determine, without any duty to account to the Lessee with respect to any such
action or inaction or for any proceeds thereof; and
(e) Exercise any other right or remedy which may be
available under applicable law and in general proceed by appropriate judicial
proceedings, either at law or in equity, to enforce the terms hereof or to
recover damages for the breach hereof.
Notwithstanding anything to the contrary contained herein, if
the sole basis for the occurrence of an Event of Default is the occurrence of a
Material Adverse Effect unrelated to any misrepresentation or failure to
perform a covenant herein or in any other agreement, then the amount payable by
the Lessee pursuant to this SECTION 19 shall be the Residual Guaranty Payment
for all Units plus all accrued and unpaid Basic Rent and the amounts referred
to in the sixth to last paragraph of this SECTION 19; provided, further, that
the failure to pay such Residual Guaranty Payment shall be an immediate Event
of Default hereunder and the Lessee shall be required to pay the full
Termination Payment upon such failure;
AMENDED AND RESTATED LEASE AGREEMENT - Page 26
<PAGE> 28
Suit or suits for the recovery of any default in the payment
of any sum due hereunder or for damages may be brought by the Lessor from time
to time at the Lessor's election, and nothing herein contained shall be deemed
to require the Lessor to await the date whereon this Lease or the term hereof
would have expired by limitation had there been no such default by the Lessee
or no such termination or cancellation.
The receipt of any payments under this Lease by the Lessor
with knowledge of any breach of this Lease by the Lessee or of any default by
the Lessee in the performance of any of the terms, covenants or conditions of
this Lease, shall not be deemed to be a waiver of any provision of this Lease.
No receipt of moneys by the Lessor from the Lessee after the
termination or cancellation hereof in any lawful manner shall reinstate,
continue or extend the Lease Term or any Extended Term, or affect any notice
theretofore given to the Lessee, or operate as a waiver of the right of the
Lessor to enforce the payment of Basic Rent or Additional Rent or other charges
payable hereunder, or operate as a waiver of the right of the Lessor to recover
possession of any Unit of Property by proper suit, action, proceedings or
remedy, it being agreed that, after the service of notice to terminate or
cancel this Lease, and the expiration of the time therein specified, if the
default has not been cured in the meantime, or after the commencement of suit,
action or summary proceedings or of any other remedy, or after a final order,
warrant or judgment for the possession of any Unit of Property, the Lessor may
demand, receive and collect any moneys payable hereunder, without in any manner
affecting such notice, proceedings, suit, action, order, warrant or judgment;
and any and all such moneys so collected shall be deemed to be payments on
account for the use and operation of any Unit of Property, or at the election
of the Lessor, on account of the Lessee's liability hereunder. Acceptance of
the keys to any Unit of Property, or any similar act, by the Lessor, or any
agent or employee of the Lessor, during the term hereof, shall not be deemed to
be an acceptance of a surrender of any Unit of Property unless the Lessor shall
consent thereto in writing.
After any Event of Default, the Lessee shall be liable for,
and the Lessor may recover from the Lessee, (i) all Basic Rent accrued to the
date of payment, (ii) any Additional Rent owing with respect to all Property
leased by the Lessee, (iii) all amounts payable pursuant to SECTIONS 11, 24 and
26 hereof and (iv) all losses, damages, costs and expenses (including, without
limitation, attorneys' fees and expenses, commissions, filing fees and sales or
transfer taxes) sustained by the Lessor by reason of such Event of Default and
the exercise of the Lessor's remedies with respect thereto, including, in the
event of a sale by the Lessor of any Property pursuant to this SECTION 19, all
costs and expenses associated with such sale. The amounts payable in clauses
(i) through (iv) above are hereinafter sometimes referred to as the "ACCRUED
DEFAULT OBLIGATIONS".
After an Event of Default, the Lessor may sell its interest in
any Property upon any terms that the Lessor deems satisfactory, free of any
rights of the Lessee or any Person claiming through or under the Lessee. In
the event of any such sale, in addition to the Accrued Default Obligations, the
Lessor shall be entitled to recover from the Lessee, as liquidated damages, and
not as a penalty, an amount equal to the Acquisition Cost of any Property so
sold, minus the proceeds of such sale received by the Lessor. Proceeds of sale
received by the Lessor in excess of the Acquisition Cost of such Property sold
shall be credited against the Accrued Default Obligations the Lessee is
required to pay under this SECTION 19. If such proceeds exceed the Accrued
Default Obligations, or,the Lessee is required to pay under this SECTION 19.
If such proceeds exceed the Accrued Default Obligations, or, if the Lessee has
paid all amounts required to be paid under this SECTION 19, such excess shall
be paid by the Lessor to the Lessee. As an alternative to any such sale, or if
the Lessee converts any Property after an Event of Default, or if such Property
is lost or destroyed, in addition to the Accrued Default Obligations, the
Lessor may cause the Lessee to pay to the Lessor, and the Lessee shall pay to
the Lessor, as liquidated damages and not as a penalty, an amount equal to the
Acquisition Cost of such Property. In the event the Lessor receives payment
pursuant to the previous sentence of this paragraph, the Lessor shall transfer
all of the Lessor's right, title and interest in and to the Property to the
Lessee.
In the event of a sale pursuant to this SECTION 19, upon
receipt by the Lessor of the amounts payable hereunder, the Lessor shall
transfer all of the Lessor's right, title and interest in and to the Property
to the Lessee or purchaser other than the Lessee, as the case may be.
AMENDED AND RESTATED LEASE AGREEMENT - Page 27
<PAGE> 29
No remedy referred to in this SECTION 19 is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to the Lessor at law or in equity, and
the exercise in whole or in part by the Lessor of any one or more of such
remedies shall not preclude the simultaneous or later exercise by the Lessor of
any or all such other remedies. No waiver by the Lessor of any Event of
Default hereunder shall in any way be, or be construed to be, a waiver of any
future or subsequent Event of Default.
With respect to the termination of this Lease as to any Unit
of Property as a result of an Event of Default, the Lessee hereby waives
service of any notice of intention to re-enter. The Lessee hereby waives any
and all rights to recover or regain possession of any Unit of Property or to
reinstate this Lease as permitted or provided by or under any statute, law or
decision now or hereafter in force and effect.
Notwithstanding anything to the contrary set forth in this
SECTION 19, upon the payment in full by the Lessee of the Termination Payment
and all Accrued Default Obligations, title to all Property and the Lessor's
rights under any Ground Leases shall automatically be deemed to vest in the
Lessee and the Lessor shall, following the receipt of all such amounts,
execute, at the Lessee's cost and expense, such bills of sale and other title
documents, on an as- is, where-is, basis, as are reasonably requested by the
Lessee.
SECTION 20 Sale or Assignment by Lessor.
(a) The Lessor may assign any of its right, title or
interest in the Property, this Lease or the Acquisition and Construction
Agreement or in any or all amounts due from the Lessee or any third party under
this Lease; provided that unless an Event of Default shall have occurred and be
continuing, the Lessor has obtained the prior written consent of the Lessee to
such sale or assignment.
(b) Any assignee shall, except as otherwise agreed by the
Lessor and such assignee, have all the rights, powers, privileges and remedies
of the Lessor hereunder, and the Lessee's obligations as between itself and
such assignee hereunder shall not be subject to any claims or defense that the
Lessee may have against the Lessor. Upon receipt of written notice from the
Lessor of any such assignment, the Lessee shall thereafter make payments of
Basic Rent, Additional Rent and other sums due hereunder to the assignee, to
the extent specified in such notice, and such payments shall discharge the
obligation of the Lessee to the Lessor hereunder to the extent of such
payments. Anything contained herein to the contrary notwithstanding, no
assignee shall be obligated to perform any duty, covenant or condition required
to be performed by the Lessor hereunder, and any such duty, covenant or
condition shall be and remain the sole obligation of the Lessor.
SECTION 21 Income Taxes.
The Lessor agrees that it will not file any Federal, state or
local income tax returns during the Lease Term or Extended Term, if any, with
respect to any Property that are inconsistent with the treatment of the Lessee
as the sole owner of such Property for Federal, state and local income tax
purposes.
SECTION 22 Notices and Requests.
All notices, offers, acceptances, approvals, waivers,
requests, demands and other communications hereunder or under any other
instrument, certificate or other document delivered in connection with the
transactions described herein shall be in writing, shall be addressed as
provided below and shall be considered as properly given (a) if delivered in
person, (b) if sent by express courier service (including, without limitation,
Federal Express, Emery, DHL, Airborne Express, UPS and other similar express
delivery services), (c) in the event overnight delivery services are not
readily available, if mailed by postage prepaid, registered or certified with
return receipt requested, or (d) if sent by telecopy and confirmed; provided
that in the case of a notice by telecopy, the sender shall in addition confirm
such notice by writing sent in the manner specified in clauses (a), (b) or (c)
of this SECTION 22. All notices shall be effective upon receipt by the
addressee; provided, however, that if any notice is tendered to an addressee
and
AMENDED AND RESTATED LEASE AGREEMENT - Page 28
<PAGE> 30
the delivery thereof is refused by such addressee, such notice shall be
effective upon such tender. For the purposes of notice, the addresses of the
parties shall be as set forth below; provided, however, that any party shall
have the right to change its address for notice hereunder to any other location
by giving written notice to the other parties in the manner set forth herein.
The initial addresses of the parties hereto are as follows:
If to the Lessor:
Jamestown Funding, Limited Partnership
c/o ML Leasing Equipment Corp.
Project and Structured Finance Group
North Tower - 27th Floor, World Financial Center
250 Vesey Street
New York, New York 10281-1327
Attention: Jean M. Tomaselli
Telephone: (212) 449-7925
Telecopy: (212) 449-2854
If to the Lessee:
Ultramar Inc.
525 West Third Street
Hanford, California 93230
Attention: General Counsel
Telephone: (209) 582-0241
Telecopy: (209) 583-3282
and
Ultramar Inc.
111 West Ocean Avenue
Suite 1400
Long Beach, California 90802
Attention: General Counsel
Telephone: (310) 437-6795
Telecopy: (310) 495-5325
or
Ultramar Energy Inc.
2 Pickwick Plaza
Third Floor
Greenwich, CT 06830
Attention: General Counsel
Telephone: (203) 622-7015
Telecopy: (203) 622-7007
or
Diamond Shamrock Leasing, Inc.
Diamond Shamrock Arizona, Inc.
Diamond Shamrock Refining and Marketing Company
AMENDED AND RESTATED LEASE AGREEMENT - Page 29
<PAGE> 31
9830 Colonnade Boulevard
San Antonio, Texas 78230
Attention: Treasurer
Telephone: (210) 641-8484
Telecopy: (210) 641-6800
With a copy of all notices under this SECTION 22 to be
simultaneously given, delivered, or served to Guarantor at the following
address:
Ultramar Diamond Shamrock Corporation
9830 Colonnade Boulevard
San Antonio, Texas 78230
Attention: Treasurer
Telephone: (210) 641-8484
Telecopy: (210) 641-6800
With a copy of all notices under this SECTION 22 to any Assignee at such
address as such Assignee may specify by written notice to the Lessor and the
Lessee.
SECTION 23 Covenant of Quiet Enjoyment.
During the Lease Term or Extended Term, if any, of any
Property hereunder and so long as no Event of Default shall have occurred and
be continuing, the Lessor shall not interfere with the Lessee's right to quiet
enjoyment of the Property on the terms and conditions provided in this Lease.
The covenant of the Lessor in this SECTION 23 shall extend to any Person
claiming through or under the Lessor.
SECTION 24 Right to Perform for Lessee.
(a) If the Lessee fails to timely perform or comply with
any of its covenants or agreements contained in this Lease, the Lessor may,
upon notice to the Lessee but without waiving or releasing any obligations or
default, itself perform or comply with such covenant or agreement, and the
amount of the reasonable expenses of the Lessor incurred in connection with
such performance or compliance, shall be payable by the Lessee not later than
ten (10) days after written notice by the Lessor.
(b) Without in any way limiting the obligations of the
Lessee hereunder, the Lessee hereby irrevocably appoints the Lessor as its
agent and attorney at the time at which the Lessee is obligated to deliver
possession of any Unit of Property to the Lessor, to demand and take possession
of such Unit of Property in the name and on behalf of the Lessee from
whomsoever shall be at the time in possession thereof.
SECTION 25 Merger, Consolidation or Sale of Assets.
The Lessee may not consolidate with or merge into any other
corporation or sell all or substantially all of its assets to any Person unless
the surviving corporation or transferee Person is a wholly-owned subsidiary of
the Guarantor and assumes, by execution and delivery of instruments reasonably
satisfactory to the Lessor, the obligations of the Lessee hereunder and becomes
successor to the Lessee, but the Lessee shall not thereby be released, without
the consent of the Lessor, from its obligations under this Lease and provided
the Guaranty and the Residual Guaranty Payment Support shall be applicable to
the obligations under this Lease with respect to the Person assuming the
Lessee's obligations under this Lease. The terms and provisions of this Lease
shall be binding upon and inure to the benefit of the Lessee and its respective
successors and assigns.
SECTION 26 Expenses.
AMENDED AND RESTATED LEASE AGREEMENT - Page 30
<PAGE> 32
Whether or not the transactions contemplated by this Lease are
consummated, the Lessee shall pay all of the expenses, upon the receipt by the
Lessee of invoices evidencing such expenses which shall be reasonably
satisfactory to the Lessee, of the Lessor and any Assignee incurred before, on
or after the date of this Lease in connection with the preparation, execution
and delivery of this Lease, and any documents executed in connection therewith,
or any amendment or supplement thereto or any waivers or enforcement thereof,
including, without limitation:
(a) all reasonable out-of-pocket costs and expenses
incurred by the Lessor and Assignee in connection with this Lease for services
rendered to the Lessor and Assignee in connection with this Lease (provided
that unless an Event of Default shall have occurred and be continuing, any such
service providers were hired with the prior written consent of the Lessee or
the Guarantor, not to be unreasonably withheld);
(b) the reasonable fees, expenses and disbursements of
the Lessor, any Assignee, the Trustee or any beneficiary of the Trustee
(including, without limitation, the reasonable fees and disbursements of
counsel to the Lessor, to any Assignee or to the Trustee; provided that unless
an Event of Default shall have occurred and be continuing any such counsel were
hired with the prior written consent of the Lessee or the Guarantor, not to be
unreasonably withheld) in connection with this Lease; and
(c) all reasonable fees and out-of-pocket expenses in
connection with any appraisal, survey or inspection of any Property, (provided
that, unless an Event of Default shall have occurred and be continuing, any
such service providers were hired with the prior written consent of the Lessee
or the Guarantor, not to be unreasonably withheld) or any printing and other
document reproduction and distribution expenses, stamp or other similar taxes,
fees or excises, including, without limitation, interest and penalties, and all
filing fees and taxes in connection with the recording or filing of instruments
and financing statements in connection with the transactions described in this
Lease.
If the transaction contemplated hereby is not consummated as a
result of a breach by any Assignee of its obligations under the Financing
Agreement, or as a result of acts of gross negligence or willful misconduct by
the Lessor or the Assignee, or a failure by any Assignee to consummate the
transactions contemplated hereby or by the Financing Agreement after the
satisfaction of the conditions precedent to such consummation, then the Lessee
shall not be obligated to pay the expenses of such party.
SECTION 27 Permitted Contests.
(a) The Lessee shall not be required, nor shall the
Lessor have the right, to pay, discharge or remove any tax, assessment, levy,
fee, rent, charge or Lien or to comply or cause any Unit of Property to comply,
with any Legal Requirements applicable to any Unit of Property or the
occupancy, use or operation thereof, so long as no Event of Default exists
under this Lease with respect to any Unit of Property, and, in the opinion of
the Lessee's counsel, the Lessee shall have reasonable grounds to contest the
existence, amount, applicability or validity thereof by appropriate
proceedings, which proceedings in the reasonable judgment of the Lessor, (i)
shall not involve any material danger that any Unit of Property or any Basic
Rent or any Additional Rent would be subject to sale, forfeiture or loss, as a
result of failure to comply therewith, (ii) shall not affect the payment of any
Basic Rent or any Additional Rent or other sums due and payable hereunder or
result in any such sums being payable to any Person other than the Lessor or
any Assignee, (iii) will not place the Lessor or the Assignee in any danger of
civil liability for which the Lessor is not adequately indemnified (the
Lessee's obligations under SECTION 11 of this Lease shall be deemed to be
adequate indemnification if no Event of Default or Potential Default exists and
if the aggregate amounts of such civil liability for which such Person is not
indemnified by a bond or otherwise does not exceed $300,000) or subject the
Lessor or any Assignee to any criminal liability, (iv) if involving taxes,
shall suspend the collection of taxes, and (v) shall be permitted under and be
conducted in accordance with the provisions of any other instrument to which
the Lessee or the Unit of Property is subject and shall not constitute a
default thereunder (a "PERMITTED CONTEST"). The Lessee shall conduct all
Permitted Contests in good faith and with due diligence and shall promptly
after the final
AMENDED AND RESTATED LEASE AGREEMENT - Page 31
<PAGE> 33
determination (including appeals) of any Permitted Contest pay and discharge
all amounts which shall be determined to be payable therein. The Lessor shall
cooperate in good faith with the Lessee with respect to all Permitted Contests
conducted by the Lessee pursuant to this SECTION 27.
(b) In the event that the Lessor becomes aware that a
taxing authority or subdivision thereof proposes an additional assessment or
levy of any tax for which the Lessee is obligated to reimburse the Lessor under
this Lease, or in the event that the Lessor is notified of the commencement of
an audit or similar proceeding which could result in such an additional
assessment, then the Lessor shall in a timely manner notify the Lessee in
writing of such proposed levy or proceeding. The Lessee shall notify the Lessor
in writing of any proceeding in which the amount in contest exceeds $300,000.
SECTION 28 Leasehold Interests Relating to Properties
subject to a Ground Lease.
In connection with any Ground Lease, the Lessor shall make a
prepayment to the owner thereof of all rents payable thereunder, which rents
shall be in amount equal to the fair market value of the land and all
underground equipment on an as-is basis on such date. Rents so prepaid shall
be added to the Acquisition Cost of the Unit covered by such Ground Lease. In
addition, the following provisions shall apply to each Ground Lease, whether or
not such Ground Lease relates to a Remediation Property:
(a) The Lessee hereby covenants and agrees to perform and
to observe all of the terms, covenants, provisions, conditions and agreements
of the underlying Ground Leases on the Lessor's part as lessee thereunder to be
performed and observed (including, without limitation, payment to the landlord
of all rent, additional rent and other amounts required to be paid by the
Lessor as lessee under any Ground Lease, other than rent prepaid by the Lessor)
to the end that all things shall be done which are necessary to keep unimpaired
the rights of the Lessor as lessee under any Ground Lease. The Lessee further
covenants that it shall cause to be exercised any renewal option contained in
the Ground Lease which relates to renewal occurring in whole or in part during
the term of this Lease. The Lessor and the Lessee mutually agree to cooperate
fully with each other to enforce the Lessor's rights as the lessee under any
Ground Lease as against the lessor under such Ground Lease.
(b) The Lessee covenants and agrees pursuant to SECTION
11 hereof to indemnify and hold harmless the Lessor and any Assignee from and
against any and all liability, loss, damage, suits, penalties, claims and
demands of every kind and nature (including, without limitation, reasonable
attorneys' fees and expenses; provided that unless an Event of Default shall
have occurred and be continuing, such attorneys were hired with the prior
written consent of the Lessee, not to be unreasonably withheld) by reason of
the Lessee's failure to comply with any Ground Lease or the provisions of this
SECTION 28.
(c) The Lessor and the Lessee agree that the Lessor shall
have no obligation or responsibility to provide services or equipment required
to be provided or repairs or restorations required to be made in accordance
with the provisions of any Ground Lease by the lessor thereunder. The Lessor
shall in no event be liable to the Lessee nor shall the obligations of the
Lessee hereunder be impaired or the performance thereof excused because of any
failure or delay on the part of the lessor under any Ground Lease in providing
such services or equipment or making such restorations or repairs and such
failure or delay shall not constitute a basis for any claim against the Lessor
or any offset against any amount payable to the Lessor under this Lease.
(d) If the Lessor's interest under any Ground Lease shall
expire, terminate or otherwise be extinguished, the Lease of the Unit of
Property to which such Ground Lease relates shall thereupon terminate as
provided in this paragraph (d). Upon such expiration, termination or
extinguishment, the Lessee shall be required to purchase the Lessor's interest
in such Unit of Property at its Acquisition Cost. If the Lessee shall be
required to purchase the Lessor's interest in such affected Unit, then (i) on
the Basic Rent Payment Date next succeeding such event, the Lessee shall pay to
the Lessor an amount equal to the Acquisition Cost of such Unit of Property,
(ii) the Lease Term or Extended Term of such Property shall continue until the
date on which the Lessor receives payment
AMENDED AND RESTATED LEASE AGREEMENT - Page 32
<PAGE> 34
from the Lessee of the amount payable pursuant to this paragraph (d) and of all
Basic Rent payable to and including such Basic Rent Payment Date, and any
Additional Rent and other amounts owing hereunder in respect of the affected
Unit, and shall then terminate upon the payment of such amounts and (iii) the
Lessor shall on such date transfer to the Lessee title to the Lessor's interest
in such Unit and all rights of the Lessor against the lessor under the Ground
Lease.
(e) If the Lease relating to a Unit of Property covered
by a Ground Lease is terminated or expires, Lessor shall assign its interest
under the Ground Lease to the purchaser of the Unit of Property, whether such
Unit of Property is sold to Lessee pursuant to Section 13, to a third party
pursuant to Section 12, or otherwise.
(f) The Lessee shall ensure that each Ground Lease shall
be a Mortgageable Ground Lease.
SECTION 29 Miscellaneous.
(a) All agreements, indemnities, representations and
warranties, and the obligation to pay Additional Rent contained in this Lease
shall survive the expiration or other termination hereof.
(b) This Lease and the Unit Leasing Records covering
Property leased pursuant hereto and the instruments, documents or agreements
referred to herein constitute the entire agreement between the parties and no
representations, warranties, promises, guarantees or agreements, oral or
written, express or implied, have been made by any party hereto with respect to
this Lease or the Property, except as provided herein or therein.
(c) This Lease may not be amended, modified or
terminated, nor may any obligation hereunder be waived orally, and no such
amendment, modification, termination or waiver shall be effective for any
purpose unless it is in writing, signed by the party against whom enforcement
thereof is sought. A waiver on one occasion shall not be construed to be a
waiver with respect to any other occasion.
(d) The captions in this Lease are for convenience of
reference only and shall not be deemed to affect the meaning or construction of
any of the provisions hereof. Any provision of this Lease which is prohibited
by law or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and the parties hereto shall
negotiate in good faith appropriate modifications to reflect such changes as
may be required by law, and, as nearly as possible, to produce the same
economic, financial and tax effects as the provision which is prohibited or
unenforceable; and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the Lessee and the
Lessor hereby waive any provision of law which renders any provision hereof
prohibited or unenforceable in any respect. THIS LEASE HAS BEEN EXECUTED AND
DELIVERED IN THE STATE OF NEW YORK. THE LESSEE AND THE LESSOR AGREE THAT, TO
THE MAXIMUM EXTENT PERMITTED BY THE LAW OF THE STATE OF NEW YORK, THIS LEASE,
AND THE RIGHTS AND DUTIES OF THE LESSEE AND THE LESSOR HEREUNDER, SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK (INCLUDING, WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW) IN ALL RESPECTS, INCLUDING, WITHOUT LIMITATION, IN
RESPECT OF ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE BUT WITHOUT
GIVING EFFECT TO ANY PROVISION THEREOF THAT MAY REQUIRE APPLICATION OF THE LAWS
OF ANOTHER JURISDICTION. THE LESSEE HEREBY IRREVOCABLY SUBMITS, FOR ITSELF AND
ITS PROPERTY, TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND THE SUPREME COURT OF THE STATE OF NEW YORK IN
THE COUNTY OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND
RELATED TO OR IN CONNECTION WITH THIS LEASE OR THE TRANSACTIONS CONTEMPLATED
HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE LESSEE HEREBY WAIVES
AND AGREES NOT TO ASSERT BY WAY OF
AMENDED AND RESTATED LEASE AGREEMENT - Page 33
<PAGE> 35
MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY
CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT
THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE
VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS LEASE OR ANY
DOCUMENT OR ANY INSTRUMENT REFERRED TO HEREIN OR THE SUBJECT MATTER HEREOF MAY
NOT BE LITIGATED IN OR BY SUCH COURT. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, THE LESSEE AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF
THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION
WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. THE LESSEE
AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED
MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS LEASE OR ANY METHOD
AUTHORIZED BY THE LAWS OF NEW YORK. THE LESSOR AND THE LESSEE KNOWINGLY,
VOLUNTARILY AND EXPRESSLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ENFORCING OR DEFENDING ANY RIGHTS ARISING OUT OF OR
RELATING TO THIS LEASE OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE LESSOR AND
THE LESSEE ACKNOWLEDGE THAT THE PROVISIONS OF THIS PARAGRAPH (D) OF THIS
SECTION 29 HAVE BEEN BARGAINED FOR AND THAT THEY HAVE BEEN REPRESENTED BY
COUNSEL IN CONNECTION THEREWITH.
(e) In connection with any sale of Property pursuant to
SECTION 12, 13, 14, 15, 16, 19, 28 or 32 of this Lease, when the Lessor
transfers title, such transfer shall be on an as-is, non-installment sale
basis, without warranty by, or recourse to, the Lessor.
(f) Without in any way duplicating the Lessee's
obligations under SECTION 11 hereof, in connection with the sale or purchase of
Property pursuant to SECTION 12, 13, 14, 15, 16, 19, 28 or 32 of this Lease,
the Lessee shall pay or shall cause the purchaser of such Property to pay in
addition to the purchase price, all transfer taxes, transfer gains taxes,
mortgage recording tax, if any, recording and filing fees and all other similar
taxes, fees, expenses and closing costs (including reasonable attorneys' fees)
in connection with the conveyance of such Property to the Lessee or any
purchaser.
(g) If any costs of the Lessor related to the Acquisition
and Construction Agreement which were not included in the Acquisition Cost of a
of Property are allocated to such Unit of Property pursuant to the definition
of Acquisition Cost in the Acquisition and Construction Agreement, the Lessee
and the Lessor shall execute a revised Unit Leasing Record to amend the
Acquisition Cost for such Unit to reflect the increase in the Acquisition Cost.
(h) The Lessee and the Lessor agree to treat information
concerning the structure and documentation of the Acquisition and Construction
Agreement and this Lease confidentially including, without limitation, all
information received or obtained hereunder, except to the extent that
disclosure is required by law and generally accepted accounting principles.
The foregoing constraint shall not include: (i) information that is now in the
public domain or subsequently enters the public domain without fault on the
part of the Lessee or the Lessor, as the case may be; (ii) information
currently known to the Lessee from its own sources as evidenced by its prior
written records; (iii) information that the Lessee or the Lessor, as the case
may be, receives from a third party not under any obligation to keep such
information confidential; (iv) disclosure made to affiliates or the
professional advisors of the disclosing party for the purpose of obtaining
advice thereon, (v) disclosure made in connection with the enforcement of any
right pursuant hereto or pursuant to the Acquisition and Construction Agreement
and (vi) disclosure made to any Assignee, Certificate Holder, Lender, proposed
permitted transferee of any Lender and any counsel of the foregoing respecting
the transactions contemplated by this Lease and the Acquisition and
Construction Agreement. Each party hereto agrees that it will use its best
efforts not to disclose, or permit any of its employees or agents to disclose,
the terms of this Agreement in connection with the issuance or release for
external publication of any article
AMENDED AND RESTATED LEASE AGREEMENT - Page 34
<PAGE> 36
or advertising or publicity matter relating to the terms and conditions of this
Agreement or the transactions contemplated hereby without the prior written
consent of each other party hereto.
(i) Except as provided herein, the parties agree that the
obligations of each Lessee hereunder are several and not joint and that each
Lessee shall only be liable for obligations hereunder to the extent relating to
such Units with respect to which such Lessee has executed the related Unit
Leasing Record.
SECTION 30 No Recourse.
The Lessor's obligations hereunder are intended to be the
obligations of the limited partnership only and no recourse for the payment of
any amount due under this Lease or for any claim based thereon or otherwise in
respect thereof, shall be had against any partner of the Lessor, the Trustee,
any Certificate Holder, or any incorporator, shareholder, member, officer,
director or Affiliate, as such, past, present or future of the entity which is
the general partner or of any successor entity to such general partner of the
Lessor, or against any member or beneficiary of a limited partner of the Lessor
or any successor member to or a beneficiary of a limited partner of the Lessor,
or against any direct or indirect parent corporation of such general partner or
of any limited partner of the Lessor or any other subsidiary or Affiliate of
any such direct or indirect parent corporation or any incorporator,
shareholder, officer or director, as such, past, present or future, of any such
parent or other subsidiary or Affiliate, it being understood that the Lessor is
a limited partnership formed for the purpose of the transactions involved in
and relating to this Lease on the express understanding aforesaid. Nothing
contained in this SECTION 30 shall be construed to limit the exercise or
enforcement, in accordance with the terms of this Lease and any other documents
referred to herein, of rights and remedies against the limited partnership or
the general partner of the Lessor or the assets of the limited partnership
which is the Lessor.
SECTION 31 No Merger.
There shall be no merger of this Lease or of the leasehold
estate hereby created with the fee estate in any Unit of Property by reason of
the fact that the same person acquires or holds, directly or indirectly, this
Lease or the leasehold estate hereby created or any interest herein or in such
leasehold estate as well as the fee estate in any Unit of Property or any
interest in such fee estate.
SECTION 32 Substitution of Property.
(a) At any time during the Lease Term upon three (3)
months' notice to the Lessor, the Lessee may (1) deliver to the Lessor and the
Assignee a written notice signed by a Responsible Officer stating that this
Lease shall terminate on any Basic Rent Payment Date with respect to any Unit
of Property specified in such notice which has reached an Uneconomic Condition;
and (2) substitute for such Unit of Property on such date similar property
(including, without limitation, related equipment) so long as such replacement
property has a fair market value at least equal to the Acquisition Cost of the
replaced Unit of Property and a Forecasted Value at least equal to forty-nine
and two/tenths percent (49.2%) of such Acquisition Cost, assuming that the
replaced Unit of Property was in the condition required by this Lease (any such
substitute property being hereinafter referred to as "SUBSTITUTION PROPERTY").
(b) Such option set forth in paragraph (a) above shall be
exercised by the delivery to the Lessor of a notice of substitution (the
"NOTICE OF SUBSTITUTION") which shall (i) identify the Unit of Property that
the Lessee desires to replace, (ii) describe by accurate legal description the
Substitution Property, (iii) set forth the fair market value of such
Substitution Property, (iv) include a copy of an appraisal for the Substituted
Property with respect to the fair market value and Forecasted Value thereof as
described in the preceding paragraph, such appraisal to be performed by a
Person reasonably satisfactory to the Lessor and the Assignee, and, in the case
of an NTI, a Phase I environmental report and, if appropriate in light of such
environmental report, a Phase II environmental report or, in the case of a CTO,
a Phase II environmental report, certified to the Lessor and the Assignee and
reasonably satisfactory to the Lessor and the Assignee in all respects,
prepared by a reputable independent environmental
AMENDED AND RESTATED LEASE AGREEMENT - Page 35
<PAGE> 37
consulting firm reasonably acceptable to the Lessor and the Assignee which
addresses the matters required to be addressed by, and is performed in
accordance with, the requirements of the ASTM, as established by ASTM Standard
E152, and which indicates that the Substitution Property is free from Hazardous
Substance contamination which exceeds the concentrations set forth in a Tier 2
of the ASTM Risk-Based Corrective Action screening analysis, and (v) specify
the date on which such substitution shall be effected (the "SUBSTITUTION
DATE"); provided that the exercise of said option shall be ineffective if,
within twenty (20) days after receipt of the Substitution Notice, the Lessor
shall advise the Lessee that (x) the Lessor or the Assignee is not reasonably
satisfied with the appraisal or the environmental state of such Substitution
Property, or (y) as a result of such proposed substitution any taxes payable
by the Lessor and not recoverable hereunder from the Lessee would be materially
increased, or (z) such proposed substitution would require the Lessor to
qualify to do business in a jurisdiction in which it was not then qualified.
(c) At least ten (10) Business Days prior to the
Substitution Date, the Lessee shall deliver to the Lessor those documents,
certificates and representations required under Section 4(a) of the Acquisition
and Construction Agreement, substantially in the format required under Exhibit
C of the Acquisition and Construction Agreement, together with the following:
(i) An amendment to the Unit Leasing Record for the
Unit of Property for which the substitution is
being made, releasing the replaced Property from,
and subjecting the Substitution Property to the
terms of, this Lease;
(ii) A certificate, signed by a Responsible Officer of
the Lessee and dated the Substitution Date,
certifying that the Lessee has no knowledge or
reason to believe that the information contained
in any appraisal or any environmental report
furnished to the Lessor pursuant to this SECTION
32 is not accurate and complete in all respects
on and as of the Substitution Date;
(iii) A certificate, signed by a Responsible Officer of
the Lessee and dated the Substitution Date,
certifying that the representations and
warranties contained in SECTION 2 of this Lease
are true and correct in all respects on and as of
the Substitution Date as though made on and as of
such Substitution Date and that on the
Substitution Date no Event of Default or
Potential Default has occurred and is continuing;
(iv) An opinion or opinions of counsel reasonably
satisfactory to the Lessor and the Assignee,
dated the Substitution Date as to the
effectiveness of the form of documents being
delivered to transfer title to the Substitution
Property, the due authorization, execution and
delivery of documents in connection with such
substitution, the recording of security interests
with respect to such Substitution Property, that
such Substitution Property will be subject to
this Lease, and, if such Substitution Property is
a Remediation Property, also subject to a Ground
Lease, that the validity of this Lease will not
be affected by the substitution, and as to such
other matters as the Lessor and the Assignee may
reasonably request; and
(v) Such other documents as may be reasonably
necessary to consummate the transaction
contemplated herein.
The Lessor shall convey to the Lessee each Unit of Property and the Lessor's
rights under any Ground Lease related thereto for which a substitution is made
on an as-is, non-installment sale basis, without warranty by, or recourse to,
the Lessor. The Lessee shall pay all transfer taxes, transfer gains taxes,
mortgage recording tax, if any, recording and filing fees and all other similar
taxes, fees, expenses and closing costs (including reasonable attorney's fees)
in connection with the substitution of any Property.
AMENDED AND RESTATED LEASE AGREEMENT - Page 36
<PAGE> 38
(d) Each Substitution Property shall, from and after the
Substitution Date, be subject to the provisions of this Lease and, if relevant,
the related Ground Lease, and be deemed a part of the Property, as if such
Substitution Property was the Unit of Property for which it is being
substituted. For the avoidance of doubt, the Acquisition Cost of the
substituted property shall, from and after the date of any such substitution,
be deemed to be the Acquisition Cost of such Substitution Property.
AMENDED AND RESTATED LEASE AGREEMENT - Page 37
<PAGE> 39
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this
Lease to be executed and delivered by their duly authorized officers as of the
day and year first above written.
JAMESTOWN FUNDING, LIMITED PARTNERSHIP
BY: JAMESTOWN CAPITAL, L.L.C., Its
General Partner
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
ULTRAMAR INC.
By: /s/ STEPHEN A. BLANK
-----------------------------------
Name: Stephen A. Blank
Title: Treasurer
ULTRAMAR ENERGY INC.
By: /s/ STEPHEN A. BLANK
-----------------------------------
Name: Stephen A. Blank
Title: Treasurer
DIAMOND SHAMROCK REFINING AND
MARKETING COMPANY
By: /s/ R.C. BECKER
-----------------------------------
Name: R.C. Becker
Title:
AMENDED AND RESTATED LEASE AGREEMENT - Page 38
<PAGE> 40
DIAMOND SHAMROCK LEASING, INC.
By: /s/ R.C. BECKER
-----------------------------------
Name: R.C. Becker
Title:
DIAMOND SHAMROCK ARIZONA, INC.
By: /s/ R.C. BECKER
-----------------------------------
Name: R.C. Becker
Title:
AMENDED AND RESTATED LEASE AGREEMENT - Page 39
<PAGE> 41
EXHIBIT A
<TABLE>
<S> <C>
UNIT LEASING RECORD to the Amended Lessor: Jamestown Funding, Limited
and Restated Lease Agreement, dated as of Partnership
December 19, 1996 between Jamestown
Funding, Limited Partnership, as lessor, Lessee: Ultramar Inc. or
and Ultramar Inc., Ultramar Energy Inc. Ultramar Energy, Inc. or
Diamond Shamrock Leasing, Inc., Diamond Diamond Shamrock Refining
Shamrock Arizona, Inc. and Diamond Shamrock and Marketing Company or
Refining and Marketing Diamond Shamrock Leasing, Inc. or
Company, as lessee (the "LEASE AGREEMENT"). Diamond Shamrock Arizona, Inc.
</TABLE>
A. ULR No.: ____
Effective Date of this
Unite Leasing Record ("ULR") ____________________, _____.
B. PLEASE COMPLETE THE FOLLOWING STATEMENTS, IF APPLICABLE:
1. This ULR relates to [Deed/Ground Lease/Bill of Sale/Invoice]
dated ______________________, _____.
PROPERTY OR DESCRIPTION AND RENTAL INFORMATION
C. Type of Property
_______________________________________________________________________
D. Specific Description (See Schedule A hereto if more space needed)
_______________________________________________________________________
_______________________________________________________________________
E. Location of Property
_______________________________________________________________________
State County City
F. Basic Additional Sale & Use Acquisition
Cost Charges Tax Cost
$__________ + $__________ + $__________ = $__________
G. The Interim Term, Basic Term and Extended Term for the Property
placed under lease pursuant to this ULR will be in accordance with the
Lease Agreement.
H. The Basic Rent is as defined in the Lease Agreement.
I. Termination of the lease of the Unit of Property leased pursuant to
this ULR will be in accordance with the Lease Agreement.
AMENDED AND RESTATED LEASE AGREEMENT - Page 2
<PAGE> 42
J. Capitalized terms used in this Unit Leasing Record and not otherwise
defined herein shall have the meanings attributed to them in the Lease
Agreement.
K. ACKNOWLEDGMENT AND EXECUTION
The undersigned Lessor hereby leases to the undersigned Lessee, and
the Lessee acknowledges delivery to it in good condition of the Unit
of Property described in this ULR. The Lessee agrees to pay the
Basic Rent, Additional Rent and additional payments set forth in the
Lease Agreement. The covenants, terms and conditions of this lease
are those appearing in the Lease Agreement, as it may from time to
time be amended, which covenants, terms and conditions are hereby
incorporated by reference. The terms used herein have the meaning
assigned to them in the Lease Agreement.
LESSEE: LESSOR:
- ------- -------
ULTRAMAR [INC.][ENERGY, INC.] JAMESTOWN FUNDING, LIMITED PARTNERSHIP
[DIAMOND SHAMROCK LEASING, INC.
DIAMOND SHAMROCK ARIZONA, INC.
DIAMOND SHAMROCK REFINING AND
MARKETING COMPANY] BY: JAMESTOWN CAPITAL, L.L.C.,
Its General Partner
By: By:
----------------------------- ----------------------------------
Name: Name:
--------------------------- --------------------------------
Title: Title:
-------------------------- -------------------------------
AMENDED AND RESTATED LEASE AGREEMENT - Page 3
<PAGE> 43
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Heading Page
- ------- ------- ----
<S> <C> <C>
1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 [Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3 Lease of Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4 Operating Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5 Disclaimer; Net Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6 Interim Term; Basic Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7 Rent and Other Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8 Restricted Use and Sublease; Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . 13
9 Maintenance, Improvement and Repair of Property. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11 Indemnities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12 Lease Expiration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
13 Lessee's Rights of Purchase; Lease Extension. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
14 Lessor's Right to Terminate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
15 Loss of or Damage to Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
16 Condemnation and Dedication of Property; Easements. . . . . . . . . . . . . . . . . . . . . . . . . 24
17 Surrender of Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
18 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
19 Rights upon Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
20 Sale or Assignment by Lessor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
21 Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
22 Notices and Requests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
23 Covenant of Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
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<PAGE> 44
<TABLE>
<S> <C> <C>
24 Right to Perform for Lessee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
25 Merger, Consolidation or Sale of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
26 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
27 Permitted Contests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
28 Leasehold Interests Relating to Properties subject to a Ground Lease. . . . . . . . . . . . . . . . 32
29 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
30 No Recourse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
31 No Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
32 Substitution of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Exhibit A - Form of Unit Leasing Record
</TABLE>
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<PAGE> 1
EXHIBIT 10.53
_________________________________________________________________
_________________________________________________________________
AMENDED AND RESTATED GROUND LEASE AGREEMENT
between
BRAZOS RIVER LEASING L.P.
and
DIAMOND SHAMROCK REFINING AND MARKETING COMPANY
Dated as of December 19, 1996
_________________________________________________________________
_________________________________________________________________
THIS AMENDED AND RESTATED GROUND LEASE AGREEMENT HAS BEEN
ASSIGNED AS SECURITY
FOR INDEBTEDNESS OF BRAZOS RIVER LEASING L.P.
SEE SECTION 18.10
This Amended and Restated Ground Lease Agreement has been manually executed in
10 counterparts, numbered consecutively from 1 through 10, of which this is No.
____. To the extent, if any, that this Amended and Restated Ground Lease
Agreement constitutes chattel
<PAGE> 2
paper (as such term is defined in the Uniform Commercial Code as in effect in
any applicable jurisdiction) no security interest in this Amended and Restated
Ground Lease Agreement may be created or perfected through the transfer or
possession of any counterpart other than the original executed counterpart
which shall be the counterpart identified as counterpart No. 1.
<PAGE> 3
TABLE OF CONTENTS
AMENDED AND RESTATED GROUND LEASE AGREEMENT
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 1.03. Recitals, Table of Contents, Titles, and Headings . . . . . . . . . . . . . . . . . 9
Section 1.04. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE II REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF DIAMOND SHAMROCK R & M . . . . . . . . . . . . . . . . 10
Section 2.01. Corporate Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.02. Authorization; Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.03. Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.04. Consents, Approvals, Authorizations . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.05. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.06. Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.07. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.08. Delivery of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.09. Compliance with Legal Requirements and Insurance Requirements . . . . . . . . . . . 13
Section 2.10. Agreement for Ground Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE III LEASE OF PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.01. Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.02. Property Leasing Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.03. Operating Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IV DELIVERY AND ACCEPTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.01. Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.02. Payments Final . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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<TABLE>
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Section 4.03. No Warranties or Representations. . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.04. Indemnity to Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.05. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE V LEASE TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.01. Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.02. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VI RENT AND OTHER PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.01. Basic Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.02. Other Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.03. Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.04. Payment in Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.05. Credit Agreement Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VII RESTRICTED USE; COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.01. Insurance Requirement and Legal Requirement . . . . . . . . . . . . . . . . . . . . 18
Section 7.02. Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.03. Compliance with Other Requirements . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.04. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.05. No Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.06. Interference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VIII MAINTENANCE OF PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.01. Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.02. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.03. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.04. Environmental Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IX INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.01. Liability and Property Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.02. Additional Insureds; Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.03. Application of Proceeds of Loss or Substantial Taking . . . . . . . . . . . . . . . 24
</TABLE>
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<TABLE>
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Section 9.04. Application of Proceeds of other than Loss or Substantial Taking . . . . . . . . . 24
Section 9.05. Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.06. Application in Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.07. Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.08. Covenant to Keep Insurance in Force . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE X INDEMNITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10.01. Indemnified Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10.02. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.03. Continuing Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.04. Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.05. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE XI RENEWAL AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 11.01. Diamond Shamrock R & M's Right to Terminate . . . . . . . . . . . . . . . . . . . . 29
Section 11.02. Brazos' Right to Terminate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.03. Renewal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.04. Sales to Third Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 11.05. Additional Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.06. Termination of Ground Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.07. Surrender of Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XII ECONOMIC DISCONTINUANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 12.01. Uneconomic Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 12.02. Uneconomic Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 12.03. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 12.04. No Right to Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE XIII EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 13.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 13.02. Rights Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 13.03. Events of Property Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.04. Brazos' Right upon Event of Property Termination . . . . . . . . . . . . . . . . . 40
</TABLE>
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<TABLE>
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ARTICLE XIV LOSS OF OR DAMAGE TO PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 14.01. Diamond Shamrock R & M's Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 14.02. Repair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 14.03. Property Damaged Beyond Repair . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE XV CONDEMNATION OF PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 15.01. Taking of Substantially all of a Property . . . . . . . . . . . . . . . . . . . . . 41
Section 15.02. Taking of Less than Substantially all of a Property . . . . . . . . . . . . . . . . 41
Section 15.03. Grant of Minor Easements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XVI LEASEHOLD INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XVII PERMITTED CONTESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE XVIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 18.01. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 18.02. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 18.03. Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 18.04. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 18.05. No Offsets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 18.06. Non-Recourse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 18.07. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 18.08. Usury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 18.09. No Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 18.10. Sale or Assignment by Brazos. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 18.11. Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 18.12. Transfer on As-Is Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 18.13. Right to Perform for Diamond Shamrock R & M. . . . . . . . . . . . . . . . . . . . 51
Section 18.14. Merger, Consolidation or Sale of Assets. . . . . . . . . . . . . . . . . . . . . . 51
Section 18.15. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 18.16. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 18.17. Rule Against Perpetuities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 18.18. Reexecution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
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<PAGE> 7
List of Exhibits
Exhibit A Schedule of Insurance
(v)
<PAGE> 8
AMENDED AND RESTATED GROUND LEASE AGREEMENT
THIS AMENDED AND RESTATED GROUND LEASE AGREEMENT (this "Ground Lease")
is made and entered into as of December 19, 1996, by and between BRAZOS RIVER
LEASING L.P., a Texas limited partnership ("Brazos"), and DIAMOND SHAMROCK
REFINING AND MARKETING COMPANY, a Delaware corporation ("Diamond Shamrock R &
M").
W I T N E S S E T H:
WHEREAS, this Ground Lease is an amendment and restatement of that
certain Ground Lease Agreement dated as of October 30, 1992, as amended, among
Brazos and Diamond Shamrock R & M; and
WHEREAS, Brazos may hereafter acquire fee or leasehold interests in
certain parcels of real property; and
WHEREAS, on or about the date of this Ground Lease Brazos and Diamond
Shamrock R & M entered into an Amended and Restated Agreement for Ground Lease,
providing for the acquisition of the fee or leasehold interests in such parcels
of real property from time to time; and
WHEREAS, Diamond Shamrock R & M wishes to lease or sublease such
property under the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Brazos and Diamond Shamrock R & M hereby agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Defined Terms. For the purposes of this Agreement
each of the following terms shall have the meaning specified with respect
thereto:
"ABR Borrowings" means all borrowings by Brazos under a Credit
Agreement which bear interest based on an alternate base rate of interest
specified by a lender under such Credit Agreement.
<PAGE> 9
"Acquired Ground Lease" means each ground lease entered into by Brazos
under which a leasehold interest in a Property is being leased to Brazos by the
owner of such Property.
"Acquisition Cost" means for any Property, the sum of the amount of
the advances made pursuant to the Agreement for Ground Lease with respect to
such Property.
"Additional Rent" has the meaning set forth in Section 6.03 hereof.
"Affiliate" means any other person controlling, controlled by or under
direct or indirect common control with any Person. For the purposes of this
definition, "control," when used with respect to any specified Person, means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreement for Ground Lease" means the Amended and Restated Agreement
for Ground Lease, dated of even date herewith, between Brazos and Diamond
Shamrock R & M providing for the acquisition of each Property, as it may be
further amended, restated, modified or supplemented, from time to time, in
accordance with the terms thereof.
"Assignee" means any lender or agent for a lender under a Credit
Agreement and each person, firm, corporation or other entity to which any part
of Brazos' interest under this Ground Lease or in any Property shall at the
time have been assigned, conditionally or otherwise, by Brazos.
"Assignment" means each assignment or security agreement referred to
in Section 18.10 hereof between Brazos and a third party, pursuant to which
Brazos assigns or grants a security interest in any of its rights under this
Ground Lease to such third party, as from time to time amended.
"Basic Rent" means, with respect to any Property, for each calendar
month the amount computed by multiplying the following:
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(i) the Acquisition Cost of such Property as of the Effective Date
with respect to the initial Basic Rent Payment Date and
thereafter, as of the preceding Basic Rent Payment Date, by
(ii) a fraction having a numerator equal to the number of days in
such month and a denominator of 360, by
(iii) the Brazos Margin plus (A) if no Federal Funds Borrowings, ABR
Borrowings or CD Borrowings will be outstanding during the
Computation Period (as defined below) the weighted average
percentage cost per annum of LIBOR Borrowings outstanding at
any time during the period from the first day of the month to
and including the last day of the month (the "Computation
Period") for which Basic Rent is being computed, or (B) if no
LIBOR Borrowings, ABR Borrowings or CD Borrowings will be
outstanding during the Computation Period, the weighted
average cost per annum of Federal Funds Borrowings, or (C) if
no LIBOR Borrowings, Federal Funds Borrowings or CD Borrowings
will be outstanding during the Computation Period, the
weighted average cost per annum of ABR Borrowings, or (D) if
no LIBOR Borrowings, Federal Funds Borrowings or ABR
Borrowings will be outstanding during the Computation Period,
the weighted average cost per annum of CD Borrowings, or (E)
if any two or more of LIBOR Borrowings, Federal Funds
Borrowings, ABR Borrowings or CD Borrowings will be
outstanding at any time during the Computation Period, a
blended rate based on the calculations referred to in clauses
(A), (B), (C) and (D) above,
plus, on the first Basic Rent Payment Date for which Basic Rent is due with
respect to such Property, an additional amount computed by multiplying (i) and
(iii) above by a fraction having a numerator equal to the number of days from
the Effective Date of such Property to the first Basic Rent Payment Date for
which Basic Rent is due with respect to such Property and a denominator of 360,
plus, on the first Basic Rent Payment Date which follows a month in which the
Acquisition Cost was changed pursuant to Section 3.02(b) hereof prior to the
last two Business Days of such month, an
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additional amount computed by multiplying (a) the difference between the
Acquisition Cost on the Basic Rent Payment Date and the Acquisition Cost on the
day immediately preceding the day the Acquisition Cost was changed and (b) the
rate in (iii) above by a fraction having a numerator equal to the number of
days from the date of the advance which changed the Acquisition Cost pursuant
to Section 3.02(b) hereof to such Basic Rent Payment Date and a denominator of
360, and plus, on the second Basic Rent Payment Date which follows a month in
which the Acquisition Cost was changed pursuant to Section 3.02(b) hereof
within the last two Business Days of such month, an additional amount computed
by multiplying (a) the difference between the Acquisition Cost on the Basic
Rent Payment Date and the Acquisition Cost on the day immediately preceding the
day the Acquisition Cost was changed and (b) the rate in (iii) above by a
fraction having a numerator equal to the number of days from the date of the
advance which changed the Acquisition Cost pursuant to Section 3.02(b) hereof
to such Basic Rent Payment Date and a denominator of 360. If any Federal Funds
Borrowings are not converted to LIBOR Borrowings, ABR Borrowings or CD
Borrowings on a Basic Rent Payment Date on which rent is due for such Property,
or if any LIBOR Borrowings or CD Borrowings relating to such Property is
subject to an Interest Period (as defined in the Credit Agreement) which is due
to expire prior to the next Basic Rent Payment Date, the cost per annum of
Federal Funds Borrowings, the relevant LIBOR Borrowings, ABR Borrowings or CD
Borrowings two Business Days prior to such Basic Rent Payment Date shall be
used for purposes of calculating the weighted average cost per annum of Federal
Funds Borrowings, the relevant LIBOR Borrowings, ABR Borrowings or CD
Borrowings pursuant to (iii) above for the month. If the actual weighted
average cost per annum of Federal Funds Borrowings, the relevant LIBOR
Borrowings, ABR Borrowings or CD Borrowings for such month is lower than the
weighted average cost per annum of Federal Funds Borrowings, the relevant LIBOR
Borrowings, ABR Borrowings or CD Borrowings calculated as provided in the
previous sentence, the amount of Basic Rent which Diamond Shamrock R & M
overpaid shall be credited towards Basic Rent on the following Basic Rent
Payment Date and, if the actual weighted average cost per annum of Federal
Funds Borrowings, the relevant LIBOR Borrowings, ABR Borrowings or CD
Borrowings for such month is higher than the weighted average cost per annum of
Federal Funds Borrowings, the relevant LIBOR Borrowings, ABR Borrowings or CD
Borrowings calculated as provided in the previous sentence, the amount of Basic
Rent which Diamond Shamrock R & M underpaid shall
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be paid by Diamond Shamrock R & M on the following Basic Rent Payment Date.
"Basic Rent Payment Date" means the twentieth (20) day of any calendar
month during the Lease Term or Renewal Term of any Property or, if such day is
not a Business Day, the next succeeding Business Day.
"Brazos" means Brazos River Leasing L.P. or any successor or
successors to all of its rights and obligations hereunder and, for purposes of
Section 10.01(c), shall include any corporation, trust, individual, partnership
or other person or entity which computes its liability for income or other
taxes on a consolidated basis with Brazos or the income of which for purposes
of such taxes is determined or affected directly or indirectly by the income of
Brazos or its successor or successors.
"Brazos Margin" means the margin specified and calculated in
accordance with the letter from Brazos to Diamond Shamrock R & M dated of even
date herewith.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in Dallas, Texas are authorized or required by law to
close.
"CD Borrowings" means all borrowings by Brazos under a Credit
Agreement which bear interest based on the interest rate of certificates of
deposit of a lender under such Credit Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consent" means each consent of Diamond Shamrock R & M or Guarantor to
an Assignment, pursuant to which, among other things, Diamond Shamrock R & M or
Guarantor, as the case may be, consents to the terms of such Assignment insofar
as they relate to this Ground Lease, as from time to time amended.
"Credit Agreement" means each credit or loan agreement among Brazos,
an agent for lenders, and a lender or lenders related to the financing of
Property, as it may be amended, restated, modified or supplemented, from time
to time.
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"Diamond Shamrock R & M" has the meaning set forth in the first
paragraph of this Ground Lease.
"Effective Date" means with respect to any Property, the date on which
such Property is leased hereunder by Brazos to Diamond Shamrock R & M, as
evidenced by a Property Leasing Record.
"Environmental Claim" means any third party (including governmental
agencies and employees) action, lawsuit, claim, demand, regulatory action or
proceeding, order, decree, consent agreement or notice of potential or actual
responsibility or violation (including claims or proceedings under the
Occupational Safety and Health Acts or similar laws or requirements relating to
health or safety of employees) which seeks to impose liability under any
Environmental Law.
"Environmental Law" means all Legal Requirements arising from,
relating to, or in connection with the Environment (as defined in 43 U.S.C.
Section 9601(8) (1988)), health, or safety, including without limitation (i)
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, and (ii) Legal Requirements relating to (a) pollution,
contamination, injury, destruction, loss, protection, cleanup, reclamation or
restoration of the air, surface water, groundwater, land surface or subsurface
strata, or other natural resources; (b) solid, gaseous or liquid waste
generation, treatment, processing, recycling, reclamation, cleanup, storage,
disposal or transportation; (c) exposure to pollutants, contaminants, hazardous
materials or wastes; (d) the safety or health of employees; or (e) the
manufacture, processing, handling, transportation, distribution in commerce,
use, storage or disposal of hazardous, medical, infectious, or toxic
substances, materials or waste.
"Event of Default" has the meaning set forth in Section 13.01 hereof.
"Event of Property Termination" means any of the events specified in
Section 13.03.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and all regulations promulgated by the Securities and Exchange Commission
thereunder.
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"Facility" means all improvements of whatever kind or character now or
hereafter located on, in or under or affixed to an individual Property,
including, without limitation, any utilities, storage tanks, paving, signage or
lighting, and all fixtures, furniture and equipment installed in such
improvements, and all additions, replacements and subsequent replacements
thereof, but excluding all parcels of land on which such Facility sits.
"Facilities Lease" means, with respect to any Facility, the
facilities lease by and between Brazos, as lessor, and Diamond Shamrock R & M,
as lessee.
"Federal Funds Borrowings" means all borrowings by Brazos under a
Credit Agreement which bear interest based on the Federal funds rate announced
by a lender under such Credit Agreement.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Ground Lease" means this Amended and Restated Ground Lease Agreement
and each Property Leasing Record.
"Guarantor" means Ultramar Diamond Shamrock Corporation, a Delaware
corporation having its principal office at 9830 Colonnade Boulevard, San
Antonio, Texas 78230, and its successors.
"Guaranty" means the Guaranty Agreement, dated December 19, 1996, by
and between the Guarantor and Brazos, as it may be further amended, restated,
modified or supplemented, from time to time, in accordance with the terms
thereof.
"Indebtedness" for any Person, means (a) indebtedness of such Person
for borrowed money; (b) obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments; (c) obligations of such Person
to pay the deferred purchase price of property or services; (d) obligations of
such Person as lessee under capital leases; (e) reimbursement obligations in
respect of bonds or letters of credit; (f) obligations of such Person under
direct or indirect guaranties in respect of, and obligations (contingent or
otherwise) of such Person to purchase or otherwise acquire, or otherwise to
assure a creditor against loss in respect
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of, indebtedness or obligations of others of the kinds referred to in clauses
(a) through (e) above; (g) indebtedness or obligations of others of the kinds
referred to in clauses (a) through (f) secured by any Lien on or in respect of
any property of such Person whether or not assumed by such Person; and (h) all
liabilities of such Person in respect of unfunded vested benefits under any
Plan; provided, however, that all trade accounts payable incurred in the
ordinary course of business of such Person and not overdue shall be excluded
from the foregoing.
"Indemnified Person" has the meaning set forth in Section 10.01
hereof.
"Insurance Requirements" means all requirements of this Ground Lease
with respect to insurance, all terms of any insurance policy covering or
applicable to any Property, all requirements of the issuer of any such policy,
all statutory requirements and all orders, rules, regulations and other
requirements of any governmental body related to insurance applicable to any
Property.
"Lease Term" has the meaning set forth in Section 5.01 hereof.
"Legal Requirements" means all laws, judgments, decrees, ordinances
and regulations and any other governmental rules, orders and determinations and
all requirements having the force of law, now or hereinafter enacted, made or
issued, whether or not presently contemplated, and all agreements, covenants,
conditions and restrictions, applicable to each Property and/or the ownership,
operation or use thereof, including, without limitation, all requirements of
the Americans With Disabilities Act (P.L. 101-335) and environmental statutes,
compliance with which is required at any time during the Lease Term and any
Renewal Term, whether or not such compliance shall require structural,
unforeseen or extraordinary changes to any Property or the operation, occupancy
or use thereof.
"LIBOR Borrowings" means all borrowings by Brazos under a Credit
Agreement which bear interest based on the per annum rate of interest at which
Dollar deposits are offered by major banks in the London inter-bank market.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or
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preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement and any capital lease having
substantially the same economic effect as any of the foregoing).
"Lien of Record" means, with the exception of the Lien of a lender or
lender's agent under a Credit Agreement, any mechanics' or materialmen's lien
for which Diamond Shamrock R & M does not hold retainage or trapped funds in
amounts required by applicable law, lien securing the payment of taxes,
assessments or governmental charges and levies which are due, payable and
delinquent, judgment lien or any other filed, recorded, or docketed matter
(whether or not the same shall constitute a Permitted Encumbrance or be the
subject of a Permitted Contest) which (a) may result in a sale for satisfaction
of same, a loss, forfeiture, reversion of title, or right of reentry with
respect to any Property or (b) whether or not valid, is reasonably likely to
interfere with the due and timely payment of any sum payable or the exercise of
any of the rights or the performance of any of the duties or responsibilities
of Diamond Shamrock R & M under this Ground Lease.
"Maximum Rate" has the meaning set forth in Section 18.08 hereof.
"Permitted Contest" has the meaning set forth in paragraph (a) of
Article XVII hereof.
"Permitted Encumbrances" means the following Liens and other matters
affecting the title or leasehold interest of any Property: (a) mechanics' and
materialmen's liens incurred in good faith in the ordinary course of business
and securing obligations that are junior to any Liens of Assignee not exceeding
$200,000 in the aggregate which are not yet due or which are subject to a
Permitted Contest; (b) Liens securing the payment of taxes, assessments and
governmental charges or levies, either not delinquent or subject to a Permitted
Contest; (c) zoning and planning restrictions, subdivision and platting
restrictions, easements, rights-of-way, licenses, reservations, covenants,
conditions, waivers, restrictions on the use of property, minor encroachments
or minor irregularities of title which do not materially impair (i) the
intended use of the Property by Diamond Shamrock R & M or (ii) the
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value of any Property; (d) reservations of mineral interests, provided that the
holders of such mineral reservations shall have waived the right to, or
otherwise be precluded from entering on the Property for the purpose of
removing or extracting such minerals; (e) the lien created contemporaneously
with the acquisition of such Property pursuant to, and securing the obligations
under, a Credit Agreement; (f) any mechanics' or materialmen's lien for which
Diamond Shamrock R & M holds retainage or trapped funds in amounts required by
and in accordance with applicable law; and (g) any other matters, provided that
such other or additional matters shall be approved in writing by Brazos and
Assignee, whose approval shall not be unreasonably withheld or delayed.
"Person" means an individual, partnership, corporation, business
trust, joint venture, joint stock company, trust, unincorporated association or
Governmental Authority or other entity of whatever nature.
"Potential Default" means any event which, but for the lapse of time,
or giving of notice, or both, would constitute an Event of Default.
"Potential Property Termination" means any event which, but for the
lapse of time, or giving of notice, or both, would constitute an Event of
Property Termination.
"Property" means any and all parcels of land leased or to be leased
hereunder and when leased, evidenced by Property Leasing Records and the
respective easements, rights and appurtenances relating to such parcels of
land, but excluding all Facilities.
"Property Leasing Record" means an instrument evidencing the ground
lease or sublease of a Property under this Ground Lease, as prepared and
executed by Brazos, as lessor or sublessor, accepted and executed by Diamond
Shamrock R & M, as lessee or sublessee.
"Renewal Term" has the meaning set forth in Section 11.03 hereof.
"Reports" has the meaning set forth in Section 2.05 hereof.
"Residual Guaranty Payment Support" means the Residual Guaranty
Payment Support dated of even date herewith entered into
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by Guarantor, as it may be restated, amended or supplemented from time to time.
"Revised Property Leasing Record" means a Property Leasing Record
executed under the terms of Section 3.02(b) hereof.
"Uneconomic Notice" has the meaning set forth in Section 12.01 hereof.
"Uneconomic Property" has the meaning set forth in Section 12.01
hereof.
"Unitary Method of Taxation" means a method of taxation under which
the business income of individual corporations in a commonly controlled
enterprise which may be deemed to operate in the same general line of business
as a corporation or corporations subject to a state's taxing jurisdiction is
aggregated regardless of whether the individual corporations have a tax nexus
with, or presence in, such state and is then apportioned to such state based on
an apportionment formula.
Section 1.02. Forms. All forms specified by the text hereof or by
reference to exhibits attached hereto shall be substantially as set forth
herein, subject to such changes by Brazos and Diamond Shamrock R & M by mutual
consent that do not alter the substantive rights of the parties hereto or of
the Assignees or as may be required by applicable laws hereafter enacted.
Section 1.03. Recitals, Table of Contents, Titles, and Headings. The
terms and phrases used in the recitals of this Ground Lease have been included
for convenience of reference only and the meaning, construction, and
interpretation of such words and phrases for purposes of this Ground Lease
shall be determined solely by reference to Section 1.01 hereof. The table of
contents, titles, and headings of the Articles and Sections of this Ground
Lease have been inserted for convenience of reference only and are not to be
considered a part hereof and shall not in any way modify or restrict any of the
terms or provisions hereof and shall not be considered or given any effect in
construing this Ground Lease or any provision hereof or in ascertaining intent,
if any question of intent should arise.
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Section 1.04. Interpretation. Unless the context requires otherwise,
words of the masculine gender shall be construed to include correlative words
of the feminine and neuter genders and vice versa, and words of the singular
number shall be construed to include correlative words of the plural number and
vice versa. This Ground Lease, and all the terms and provisions hereof, shall
be liberally construed to effect the purposes set forth herein and to sustain
the validity of this Ground Lease.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF
DIAMOND SHAMROCK R & M
Diamond Shamrock R & M represents and warrants to Brazos and agrees as
follows:
Section 2.01. Corporate Matters. Diamond Shamrock R & M (i) has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the State of Delaware, (ii) has full corporate power and
authority to own and operate its properties and to conduct its business as
presently conducted and full corporate power, authority and legal right to
execute, deliver and perform its obligations under this Ground Lease, the
Agreement for Ground Lease and any Consent, and (iii) is duly qualified to do
business as a foreign corporation in good standing in each jurisdiction,
including, without limitation, the States of Arizona, Arkansas, Colorado,
Kansas, Louisiana, New Mexico, Oklahoma and Texas, in which its ownership or
leasing of properties or the conduct of its business requires such
qualification and where non-qualification, singly or in the aggregate, would
materially adversely affect the financial condition or creditworthiness of
Diamond Shamrock R & M, or would impair the ability of Diamond Shamrock R & M
to perform its obligations under this Ground Lease or under the Agreement for
Ground Lease.
Section 2.02. Authorization; Binding Agreement. This Ground Lease has
been duly authorized, executed and delivered by Diamond Shamrock R & M and,
assuming the due authorization, execution and delivery of this Ground Lease by
Brazos, this Ground Lease is a legal, valid and binding obligation of Diamond
Shamrock R & M, enforceable according to its terms, subject, as to
enforceability,
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to applicable bankruptcy, insolvency and similar laws affecting creditors'
rights generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
Section 2.03. Power and Authority. The consummation of the
transactions herein contemplated and the performance and observance of Diamond
Shamrock R & M's obligations under this Ground Lease and any Consent have been
duly authorized by all necessary corporate action on the part of Diamond
Shamrock R & M. The execution, delivery and performance by Diamond Shamrock R
& M of this Ground Lease and any Consent will not result in any violation of
any term of the certificate of incorporation or the by-laws of Diamond Shamrock
R & M, do not require stockholder approval or the approval or consent of any
trustee or holders of Indebtedness of Diamond Shamrock R & M except such as
have been obtained prior to the date hereof and will not conflict with or
result in a breach of any terms or provisions of, or constitute a default
under, or result in the creation or imposition of any Lien (other than a
Permitted Encumbrance on any Property as may be contemplated herein) upon any
property or assets of Diamond Shamrock R & M under, any indenture, mortgage or
other agreement or instrument to which Diamond Shamrock R & M is a party or by
which it or any of its property is bound where breach or default, singly or in
the aggregate, could materially adversely affect (i) the financial condition or
creditworthiness of Diamond Shamrock R & M or (ii) its ability to perform its
obligations under the Agreement for Ground Lease, this Ground Lease, the
Facilities Lease or the Agreement for Facilities Lease referred to in the
Facilities Lease or the Consent executed by Diamond Shamrock R & M of even date
herewith, or any existing applicable law, rule, regulation, license, judgment,
order or decree of any Governmental Authority or court having jurisdiction over
Diamond Shamrock R & M or any of its activities or properties
Section 2.04. Consents, Approvals, Authorizations. There are no
consents, licenses, orders, authorizations or approvals of, or notices to or
registrations with, any Governmental Authority which are required in connection
with the valid execution, delivery and performance of this Ground Lease that
have not been obtained or made, except such permits and licenses as Diamond
Shamrock R & M will be required to obtain for the occupancy, use or operation
of a Property and which, in the ordinary course of business, are not obtained
until just prior to the commencement of such occupancy,
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use or operation, and any such consents, licenses, orders, authorizations,
approvals, notices and registrations that have been obtained or made are in
full force and effect.
Section 2.05. Financial Statements. Diamond Shamrock R & M has caused
to be furnished to Brazos copies of Guarantor's most recent Annual Report on
Form 10-K and each subsequent Quarterly Report on Form 10-Q (the "Reports").
The financial statements contained in such documents fairly present the
financial position, results of operations and changes in financial position of
Guarantor as of the dates and for the periods indicated therein and comply with
all requirements of the Exchange Act.
Section 2.06. Changes. Since the date of the most recent Annual
Report on Form 10-K delivered pursuant to Section 2.05, there has been no
adverse change in the financial condition or business of Diamond Shamrock R & M
or the Guarantor which would materially impair the ability of Diamond Shamrock
R & M to perform its obligations under this Ground Lease or which would
materially impair the ability of the Guarantor to perform its obligations under
the Guaranty or the Residual Guaranty Payment Support.
Section 2.07. Litigation. Except as disclosed in the Reports, there
is no action, suit, proceeding or investigation at law or in equity by or
before any court, governmental body, agency, commission or other tribunal now
pending or, to the best knowledge of Diamond Shamrock R & M after due inquiry,
threatened against or affecting Diamond Shamrock R & M or the Guarantor or any
property or rights of Diamond Shamrock R & M or the Guarantor, which affects
any Property, as to which there is a significant possibility of an adverse
determination, and which if adversely determined, may have a material adverse
impact on the financial condition or business of Diamond Shamrock R & M or the
Guarantor or which, if adversely determined, could materially impair the
ability of Diamond Shamrock R & M to perform its obligations hereunder or of
the Guarantor to perform its obligations under the Guaranty or the Residual
Guaranty Payment Support, or which, if adversely determined, may have a
material adverse impact on the value or intended use of a Property and there is
no action, suit, proceeding or investigation at law or in equity by or before
any court, governmental body, agency, commission or other tribunal now pending
or, to the best knowledge of Diamond Shamrock R & M after due inquiry,
threatened which questions or would question the validity of this Ground Lease.
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Section 2.08. Delivery of Information. Diamond Shamrock R & M shall
deliver to Brazos from time to time, (i) promptly upon filing under the
Exchange Act or mailing to shareholders, copies of the Guarantor's Annual
Reports on Form 10-K, the Guarantor's Quarterly Reports on Form 10-Q and any
other reports the Guarantor files under the Exchange Act, and any report or
mailing made to Guarantor's shareholders, (ii) promptly upon request, such
other information with respect to Diamond Shamrock R & M's and the Guarantor's
operations, business, property, assets or financial condition as Brazos shall
reasonably request, (iii) promptly after an officer of Diamond Shamrock R & M
obtains knowledge of any Event of Default or Event of Property Termination
hereunder or of any Potential Default or Potential Property Termination, a
certificate of an officer of Diamond Shamrock R & M specifying the nature and
period of existence of such Event of Default, Event of Property Termination,
Potential Default or Potential Property Termination, and what action, if any,
Diamond Shamrock R & M has taken, is taking, or proposes to take with respect
thereto, (iv) promptly after an officer of Diamond Shamrock R & M obtains
knowledge of any material adverse change in the financial condition or business
of Diamond Shamrock R & M or Guarantor or of any litigation of the type
described in Section 2.07, a certificate of an officer of Diamond Shamrock R &
M describing such change or litigation as the case may be, (v) promptly after
Diamond Shamrock R & M obtains knowledge of any and all Liens, other than
Permitted Encumbrances, on, or other matters, including any litigation
affecting a Property, which may materially adversely affect the value or
intended use of, any Property, a detailed statement describing each such Lien
or other matter and (vi) promptly after Diamond Shamrock R & M obtains
knowledge of any Environmental Claim, a detailed statement describing such
Environmental Claim and what action, if any, Diamond Shamrock R & M has taken,
is taking, or proposes to take with respect thereto.
Section 2.09. Compliance with Legal Requirements and Insurance
Requirements. The operation, use and physical condition of the Property comply
in all material respects with the Insurance Requirements and are in full
compliance with all Legal Requirements, except (a) in the case of Legal
Requirements with respect to laws affecting the environment, to the extent
non-compliance was not the result of willful disregard of a Legal Requirement
by Diamond Shamrock R & M and Diamond Shamrock R & M acts diligently to cure
such non-compliance upon becoming aware of
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it or (b) any Legal Requirement the non-compliance with which, individually or
in the aggregate, (i) unless any criminal liability could result from a failure
to comply therewith, could not reasonably be expected to cause either Brazos or
any Assignee to incur civil liability for which Brazos and any Assignee are not
adequately indemnified (Diamond Shamrock R & M's obligations under Article X of
this Ground Lease shall be deemed to be adequate indemnification if no Event of
Default, Event of Property Termination, Potential Default or Potential Property
Termination exists and if such civil liability is reasonably likely to be less
than $500,000 per Property and $1,000,000 in the aggregate for all Properties),
(ii) will not result in a material diminution in the value of any Property,
(iii) is consistent with business practices normal in the industry of Diamond
Shamrock R & M, (iv) shall not involve any material danger that any Property
would be subject to sale, forfeiture or loss, as a result of failure to comply
therewith, and (v) is permitted under the provisions of the Acquired Ground
Lease, if any, on such Property.
Section 2.10. Agreement for Ground Lease. Each Property leased
pursuant to the Agreement for Ground Lease was acquired and leased in
accordance with the terms of the Agreement for Ground Lease. The
representations and warranties of Diamond Shamrock R & M in the Agreement for
Ground Lease are true and correct in all material respects.
ARTICLE III
LEASE OF PROPERTY
Section 3.01. Lease. Subject to the terms and conditions hereof,
Brazos shall lease to Diamond Shamrock R & M, and Diamond Shamrock R & M shall
lease from Brazos pursuant to this Ground Lease, or sublease in the case of an
Acquired Ground Lease, any Property, when Brazos makes an advance under the
Agreement for Ground Lease with respect to such Property and such Property is
acquired under the Agreement for Ground Lease, or if no advance is made with
respect to a Property under an Acquired Ground Lease, when Brazos enters into
such Acquired Ground Lease. The Effective
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Date of the lease or sublease of each Property shall be the date such Property
is acquired by or leased to Brazos, as applicable, pursuant to the foregoing.
Section 3.02. Property Leasing Record.
(a) The lease of each Property shall be evidenced by a Property
Leasing Record, or if the terms of (b) or (c) below apply, a Revised Property
Leasing Record. Each Property Leasing Record shall give a full legal
description of the Property covered thereby, the Acquisition Cost of such
Property, the Lease Term for such Property, the location of such Property and
such other details as Brazos, Diamond Shamrock R & M and any Assignee may from
time to time agree. Diamond Shamrock R & M shall provide to Brazos the
information necessary to describe in the Property Leasing Record the Property,
except that Brazos shall provide, pursuant to the terms hereof, the Acquisition
Cost and the Lease Term. Execution and delivery by Diamond Shamrock R & M of a
Property Leasing Record shall constitute (i) acknowledgment by Diamond Shamrock
R & M that the Property specified in such Property Leasing Record has been
delivered to Diamond Shamrock R & M in good condition and has been accepted for
lease hereunder by Diamond Shamrock R & M as of the Effective Date of the
Property Leasing Record, (ii) acknowledgment by Diamond Shamrock R & M that the
Property specified in such Property Leasing Record is subject to all of the
covenants, terms and conditions of this Ground Lease, and (iii) certification
by Diamond Shamrock R & M that the representations and warranties contained in
Article II of this Ground Lease are true and correct in all material respects
on and as of the Effective Date of the Property Leasing Record as though made
on and as of such date and that there exists on such date no Event of Default,
Event of Property Termination, Potential Default or Potential Property
Termination.
(b) Upon the making of a Reconciliation Advance or Additional Advance
(as such terms are defined in the Agreement for Ground Lease) for a Property,
Brazos and Diamond Shamrock R & M shall execute a Revised Property Leasing
Record to reflect the change in Acquisition Cost for such Property caused by
such advance.
(c) Upon the release or disposition of a Property or any
portion thereof and the application of proceeds therefrom in accordance with
Section 9.1(a)(viii) of the Credit Agreement,
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Brazos and Diamond Shamrock R & M shall execute a Revised Property Leasing
Record to reflect the change in Acquisition Cost for such Property caused by
such release or disposition.
Section 3.03. Operating Lease. Brazos and Diamond Shamrock R & M
hereby declare that it is their mutual intent that for accounting and
regulatory purposes this Ground Lease be treated as an operating lease and not
an instrument or evidence of indebtedness, and that the relationship between
Brazos and Diamond Shamrock R & M under this Ground Lease shall be that of
lessor and lessee only. Title to and ownership of any Property shall at all
times remain in Brazos and at no time become vested in Diamond Shamrock R & M
except in accordance with an express provision of this Ground Lease. Diamond
Shamrock R & M does not hereby acquire any right, equity, title or interest in
or to any Property, except pursuant to the terms hereof.
ARTICLE IV
DELIVERY AND ACCEPTANCE
Section 4.01. Acceptance. Diamond Shamrock R & M shall accept
Property acquired by purchase or lease pursuant to the Agreement for Ground
Lease. Brazos shall not be liable to Diamond Shamrock R & M for any failure to
obtain, or delay in obtaining, any Property or any delay in the delivery of
title or possession thereof to Diamond Shamrock R & M.
Section 4.02. Payments Final. Each payment of Basic Rent, Additional
Rent and any other amount due hereunder made by Diamond Shamrock R & M shall be
final, and Diamond Shamrock R & M, without waiving any other remedies it may
have, will not seek or have any right to recover all or any part of such
payment from Brazos or any Assignee for any reason whatsoever. The making of
payments under this Ground Lease by Diamond Shamrock R & M (including payments
pursuant to Article X) shall not be deemed to be a waiver of any claim or
claims that Diamond Shamrock R & M may assert against Brazos or any other
person. Brazos agrees to repay Diamond Shamrock R & M amounts paid to Brazos to
the extent such payments were in error and are not required by the various
terms and provisions of this Ground Lease.
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Section 4.03. No Warranties or Representations. Notwithstanding any
other provision contained in this Ground Lease, it is specifically understood
and agreed that neither Brazos nor any Assignee nor any Affiliate of either,
nor anyone acting on behalf of any of them makes any warranties or
representations or has any responsibility to disclose any relevant information,
or has any other responsibility or duty, nor, except as set forth in Section
18.11 of this Ground Lease, has Brazos or any Assignee or any Affiliate of
either, or anyone acting on behalf of any of them made any covenants or
undertakings, as to the accounting treatment to be accorded Diamond Shamrock R
& M or as to the U.S. Federal or any state income or any other tax
consequences, if any, to Diamond Shamrock R & M as a result of or by virtue of
the transactions contemplated by this Ground Lease.
Section 4.04. Indemnity to Title Insurance. In the event the title
insurance policy insuring Brazos' and Assignee's interest in any Property would
not, in the absence of special assurance by Diamond Shamrock R & M, become
effective until the date of recordation of the deed, then Diamond Shamrock R &
M shall furnish such indemnity to the title insurance company as it shall
require in order to insure Brazos' interest in such Property, effective as of
the date of the Effective Date.
Section 4.05. Quiet Enjoyment. During the Lease Term or Renewal Term,
if any, of any Property hereunder and so long as no Event of Default, Event of
Property Termination, Potential Default or Potential Property Termination shall
have occurred and be continuing, Brazos covenants that as between Brazos and
Diamond Shamrock R & M, Diamond Shamrock R & M shall have the right to quiet
enjoyment of the Property on the terms and conditions provided in this Ground
Lease without any interference from Brazos. Diamond Shamrock R & M agrees to
attorn to any Assignee in the event such Assignee succeeds to Brazos' interest
in the Property, and Diamond Shamrock R & M will not hold the Assignee
responsible for Brazos' obligations incurred in the period prior to the
succession of the Assignee to Brazos' interest.
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ARTICLE V
LEASE TERM
Section 5.01. Lease Term. The "Lease Term" with respect to any
Property leased hereunder shall commence on the Effective Date for such
Property and shall end on December 19, 2003. The lease of any Property may be
renewed for two (2) additional seven (7) year terms pursuant to, and in
accordance with, Section 11.03. The Lease Term or any Renewal Term may be
terminated earlier pursuant to Articles XI, XII, XIII, XIV or XV hereof or
otherwise pursuant to operation of any Legal Requirements.
Section 5.02. Termination. Notwithstanding anything contained in this
Article V or Article XI, this Ground Lease shall terminate on December 19,
2017, unless earlier terminated.
ARTICLE VI
RENT AND OTHER PAYMENTS
Section 6.01. Basic Rent. Diamond Shamrock R & M hereby agrees to pay
Brazos on each Basic Rent Payment Date, Basic Rent for the calendar month in
which such Basic Rent Payment Date falls with respect to each Property leased
prior to the last two (2) Business Days of the preceding calendar month.
Brazos shall notify Diamond Shamrock R & M at least two Business Days prior to
each Basic Rent Payment Date of the amount of the Basic Rent due with respect
to each Property on such Basic Rent Payment Date.
Section 6.02. Other Amounts. Diamond Shamrock R & M hereby agrees to
pay on demand all amounts (other than Basic Rent) due hereunder, including,
without limitation, all amounts payable to any Indemnified Person pursuant to
Article X hereof.
Section 6.03. Additional Rent. Diamond Shamrock R & M shall pay to
Brazos from time to time, on demand, as additional rent ("Additional Rent") (i)
amounts required to reimburse Brazos for its obligations, costs and expenses
(not previously included in the formula for Basic Rent) incurred in acquiring,
financing and leasing the Property and (ii) to the extent legally enforceable,
interest on each overdue amount not paid by Diamond Shamrock R & M to Brazos as
provided in this Ground Lease from the date such overdue amount was due until
paid at the per annum rate of interest equal to the most recent rate of
interest calculated pursuant to paragraph (iii) of the definition "Basic Rent"
plus two percent
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(2%). Diamond Shamrock R & M shall also pay to Brazos on demand an amount
equal to any reasonable expenses and attorneys' fees incurred by Brazos in
collecting such unpaid sums and enforcing the obligations for such unpaid sums.
Section 6.04. Payment in Advance. Basic Rent and Additional Rent and
any other amount payable by Diamond Shamrock R & M to Brazos shall be paid
sufficiently in advance of the date due to assure that immediately available
funds in the full amount due are available on the date due, to such account of
Brazos at such bank, or to such account of such other person at such bank, or
otherwise as Brazos may from time to time designate.
Section 6.05. Credit Agreement Losses. In addition to all other
payment obligations hereunder, if the lease for any Property is terminated for
any reason prior to the end of the Lease Term or, if applicable, Renewal Term,
then Diamond Shamrock R & M shall pay to Brazos within three Business Days
after receipt of the billing statement referred to below an additional amount
compensating Brazos for all penalties, costs and expenses (including
out-of-pocket costs and expenses) as are incurred by Brazos under any Credit
Agreement in connection with such termination and as are set forth in a billing
statement sent by Brazos to Diamond Shamrock R & M containing the calculation
thereof in reasonable detail.
ARTICLE VII
RESTRICTED USE; COMPLIANCE WITH LAWS
Section 7.01. Insurance Requirement and Legal Requirement. So long as
no Event of Default or Event of Property Termination shall have occurred and be
continuing, Diamond Shamrock R & M may use the Property in the regular course
of its business for any lawful purpose. Diamond Shamrock R & M will not do or
permit any act or thing which is contrary in any material respect to any
Insurance Requirement or which is contrary to any Legal Requirement or which
might impair, other than in the normal use thereof, the value or usefulness of
any Property; provided, that Diamond Shamrock R & M shall not be required to
comply with any Legal Requirements if, (a) in the case of Legal Requirements
with respect to laws affecting the environment, such non-compliance was not the
result of willful action by Diamond Shamrock R & M and Diamond Shamrock R & M
acts
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diligently to cure such non-compliance upon becoming aware of it; or (b) unless
any criminal liability could result from a failure to comply therewith, such
non-compliance, individually or in the aggregate, (i) could not reasonably be
expected to cause either Brazos or any Assignee to incur civil liability which,
in the sole judgment of Brazos or any Assignee, is not adequately indemnified
(Diamond Shamrock R & M's obligations under Article X of this Ground Lease
shall be deemed to be adequate indemnification if no Event of Default, Event of
Property Termination, Potential Default or Potential Property Termination
exists and if such civil liability is reasonably likely to be less than
$500,000 per Property and $1,000,000 in the aggregate for all Properties), (ii)
will not result in a material diminution in the value of any Property, (iii) is
consistent with business practices normal in the industry of Diamond Shamrock R
& M, (iv) shall not involve any material danger that any Property would be
subject to sale, forfeiture or loss, as a result of failure to comply
therewith, and (v) is permitted under the provisions of the Acquired Ground
Lease, if any, on such Property.
Section 7.02. Filings. Diamond Shamrock R & M shall promptly and duly
execute, deliver, file and record, at Diamond Shamrock R & M's expense, all
such documents, statements, filings and registrations, and take such further
action as Brazos or any Assignee shall from time to time reasonably request in
order to establish, perfect and maintain Brazos' or such Assignee's title to
and interest in the Property and any Assignee's interest in this Ground Lease
or any Property as against Diamond Shamrock R & M or any third party in any
applicable jurisdiction.
Section 7.03. Compliance with Other Requirements. Diamond Shamrock R
& M shall use every precaution which is commercially reasonable and which is
usually employed by corporations engaged in a business which involves owning or
operating similar property to prevent loss or damage to Property and to prevent
injury to third persons or property of third persons. Diamond Shamrock R & M
shall cooperate fully with Brazos and all insurance companies providing
insurance pursuant to Article IX hereof in the investigation and defense of any
claims or suits arising from the ownership, use, or occupancy of the Property,
provided that nothing contained in this Section 7.03 shall be construed as
imposing on Brazos any duty to investigate or defend any such claims or suits.
Diamond Shamrock R & M shall comply and shall use its commercially reasonable
best
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efforts to cause all persons using or occupying Property to comply with all
Insurance Requirements and Legal Requirements regarding acquiring, titling,
registering, leasing, insuring, using, occupying, operating and disposing of
Property, and, if applicable, the licensing of operators thereof; provided,
that Diamond Shamrock R & M shall not be required to comply with any Legal
Requirements if, (a) in the case of Legal Requirements with respect to laws
affecting the environment, such non-compliance was not the result of willful
action by Diamond Shamrock R & M and Diamond Shamrock R & M acts diligently to
cure such non-compliance upon becoming aware of it, or (b) unless any criminal
liability could result from a failure to comply therewith, such non-compliance,
individually or in the aggregate, (i) could not reasonably be expected to cause
either Brazos or any Assignee to incur civil liability which, in the sole
judgment of Brazos or any Assignee, is not adequately indemnified (Diamond
Shamrock R & M's obligations under Article X of this Ground Lease shall be
deemed to be adequate indemnification if no Event of Default, Event of Property
Termination, Potential Default or Potential Property Termination exists and if
such civil liability is reasonably likely to be less than $500,000 per Property
and $1,000,000 in the aggregate for all Properties), (ii) will not result in a
material diminution in the value of any Property, (iii) is consistent with
business practices normal in the industry of Diamond Shamrock R & M, (iv) shall
not involve any material danger that any Property would be subject to sale,
forfeiture or loss, as a result of failure to comply therewith, and (v) is
permitted under the provisions of the Acquired Ground Lease, if any, on such
Property.
Section 7.04. Inspection. Brazos or any Assignee or any authorized
representative of either may during reasonable business hours from time to time
inspect Property and deeds, registration certificates, certificates of title
and related documents covering Property wherever the same may be located, but
neither Brazos nor any Assignee shall have any duty to make any such
inspection.
Section 7.05. No Liens. Diamond Shamrock R & M shall not permit or
suffer to exist on any Property any Lien, other than Liens which are the
subject of a Permitted Contest, Permitted Encumbrances and Liens placed thereon
by, or arising from, Brazos' own actions or those of any Assignee or Affiliate
of Brazos (provided, that any Liens of Record, other than Liens placed thereon
by, or arising from, Brazos' own actions or those of any
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Assignee or Affiliate of Brazos, may not exceed an aggregate amount of
$1,000,000 with respect to the aggregate of the Properties and Facilities, and
an aggregate amount of $100,000 with respect to each Property and related
Facility), nor may it assign any right or interest herein or in any Property.
Diamond Shamrock R & M shall not without the prior written consent of Brazos
and Assignee sublease or otherwise relinquish possession of any Property,
except that Diamond Shamrock R & M may otherwise relinquish possession of
Property to any contractor for use in performing work for Diamond Shamrock R &
M, provided that such relinquishment of possession shall in no way affect the
obligations of Diamond Shamrock R & M or the rights of Brazos hereunder and
with respect to the Property. Brazos shall have the present and continuing
right to collect and enjoy all rents and other sums of money payable under any
such sublease, and Diamond Shamrock R & M hereby irrevocably assigns such rents
and other sums to Brazos for the benefit and protection of Brazos, provided
that unless an Event of Default or Event of Property Termination shall have
occurred and be continuing hereunder, Diamond Shamrock R & M shall be entitled
to collect and enjoy such rents and other sums. Diamond Shamrock R & M shall,
within thirty (30) days after the execution of any such sublease, deliver a
conformed copy thereof to Brazos. Nothing contained in this Ground Lease shall
be construed as constituting the consent or request of Brazos, express or
implied, to or for the performance by any contractor, laborer, materialman or
vendor of any labor or services or for the furnishing of any materials for any
construction, alteration, addition, repair or demolition of or to any Property
or any part thereof. Notice is hereby given that Brazos will not be liable for
any labor, services or materials furnished or to be furnished to Diamond
Shamrock R & M, or to anyone holding any Property or any part thereof through
or under Diamond Shamrock R & M.
Section 7.06. Interference. If any Lien or charge of any kind or any
judgment, decree or order of any court or other governmental authority
(including, without limitation, any state or local tax lien affecting the
Property), whether or not valid, shall be asserted or entered which is
reasonably likely to interfere with the due and timely payment of any sum
payable or the exercise of any of the rights or the performance of any of the
duties or responsibilities under this Ground Lease, Diamond Shamrock R & M
shall, upon obtaining knowledge thereof or upon receipt of notice
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to that effect from Brazos, promptly take such action as may be necessary to
prevent or terminate such interference.
ARTICLE VIII
MAINTENANCE OF PROPERTY
Section 8.01. Warranties. Brazos, so long as no Event of Default or
Event of Property Termination shall have occurred and be continuing, hereby
assigns and agrees to make available to Diamond Shamrock R & M any and all
rights Brazos may have under any vendor's warranties or undertakings with
respect to the Property. If any Event of Default or Event of Property
Termination shall have occurred and be continuing, the assignment of such
rights from Brazos to Diamond Shamrock R & M shall be deemed to be terminated.
Section 8.02. Costs and Expenses. Diamond Shamrock R & M shall pay
all costs, expenses, fees and charges incurred in connection with the
ownership, use or occupancy of any Property during the Lease Term and Renewal
Term, if any, thereof, including, without limitation, any rent under an
Acquired Ground Lease. Except as otherwise provided in Article XII hereof,
Diamond Shamrock R & M shall at all times, at its own expense, and subject to
reasonable wear and tear, keep the Property in good operating order, repair,
condition and appearance. The foregoing undertaking to maintain Property in
good repair shall apply regardless of the cause necessitating repair,
regardless of the availability or adequacy of insurance or condemnation
proceeds and regardless of whether Diamond Shamrock R & M has possession of the
Property, and as between Brazos and Diamond Shamrock R & M all risks of damage
to the Property are assumed by Diamond Shamrock R & M. With respect to any
Property, the undertaking to maintain in good repair shall include, without
limitation, all common area maintenance including, without limitation, removal
of dirt, snow, ice, rubbish and other obstructions and maintenance of sidewalks
and landscaping. Diamond Shamrock R & M hereby agrees to indemnify and hold
Brazos and any Assignee harmless from and against all costs, expenses, claims,
losses, damages, fines or penalties, including reasonable counsel fees, arising
out of or due to Diamond Shamrock R & M's failure to fulfill its obligations
under this Section 8.02.
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Section 8.03. Payment of Taxes. With respect to any Property, Diamond
Shamrock R & M shall make all required reports to the appropriate taxing
authorities and shall pay: (i) all taxes, assessments, levies, fees, water and
sewer rents and charges, and all other governmental, quasi-governmental and
non-governmental charges, general and special, ordinary and extraordinary,
foreseen and unforeseen, which are, at any time during the Lease Term or any
Renewal Term hereof, imposed or levied upon or assessed against (A) the
Property, (B) any Basic Rent, any Additional Rent or other sum payable
hereunder or (C) this Ground Lease, the leasehold estate hereby created, or
which arises in respect of the ownership, operation, occupancy, possession or
use of the Property, (ii) all gross receipts or similar taxes (i.e., taxes
based upon gross income which fail to take into account all customary
deductions (e.g., depreciation and interest) relating to the Property) imposed
or levied upon, assessed against or measured by any Basic Rent, or any
Additional Rent or other sum payable hereunder, (iii) all sales, value added,
use and similar taxes at any time levied, assessed or payable on account of the
acquisition, leasing or use of the Property, and (iv) all charges of utilities
and communications services serving the Property. Diamond Shamrock R & M shall
not be required to pay any franchise, estate, inheritance, transfer, federal
income or similar tax of Brazos (other than any tax referred to in clause (ii)
above) unless such tax is imposed, levied or assessed in substitution for any
other tax, assessment, charge or levy which Diamond Shamrock R & M is required
to pay pursuant to this Section 8.03; provided, however, that if at any time
during the term of this Ground Lease, the method of taxation shall be such that
there shall be levied, assessed or imposed on Brazos a capital levy or other
tax directly on the rents received therefrom, or upon the value of any Property
or any present or any future improvement or improvements on any Property, then
all such taxes, assessments, levies, or charges, or the part thereof so
measured or based, shall be payable by Diamond Shamrock R & M, but only to the
extent that such taxes would be payable if the Property affected were the only
property of Brazos, and Diamond Shamrock R & M shall pay and discharge the same
as herein provided. Diamond Shamrock R & M will furnish to Brazos, promptly
after demand therefor, proof of payment of all items referred to above, the
payment of which is the responsibility of Diamond Shamrock R & M. If any such
assessments may legally be paid in installments, Diamond Shamrock R & M may pay
or permit to be paid such assessment in installments. So long as, in the
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reasonable opinion of Diamond Shamrock R & M's counsel, Diamond Shamrock R & M
shall have reasonable grounds to contest the existence, amount, applicability
or validity of any tax Diamond Shamrock R & M is required to pay pursuant to
this Ground Lease, Diamond Shamrock R & M may contest such tax pursuant to the
provisions of Article XVII of this Ground Lease so long as adequate reserves
therefor are maintained by Diamond Shamrock R & M.
Section 8.04. Environmental Reports. At any reasonable time and from
time-to-time, upon reasonable notice, Diamond Shamrock R & M shall furnish
Brazos a report prepared by a qualified independent consultant, at the expense
of Diamond Shamrock R & M, concerning the condition and status of a Property in
respect of any Environmental Laws, provided that the party requesting such
report has demonstrable evidence that such Property may be affected by a
hazardous substance, a hazardous waste or an Environmental Claim not adequately
addressed in any environmental assessment previously delivered to Brazos or any
Assignee in connection with such Property.
ARTICLE IX
INSURANCE
Section 9.01. Liability and Property Damage. Diamond Shamrock R & M
shall, at its sole cost and expense, maintain such liability and property
damage insurance with respect to all Property and insurance against loss or
damage to all Property of the types usually carried by corporations engaged in
the same or a similar business, of similar size as Diamond Shamrock R & M, and
owning similar property and which cover risks of the kind customarily insured
against by such corporations and such other insurance as may be required by law
or as may be reasonably requested by Brazos for purposes of assuring compliance
with this Article IX, including, without limitation, the insurance described on
the Schedule of Insurance attached hereto as Exhibit A. Such insurance shall
be written by financially sound and reputable companies which are legally
qualified to issue such insurance. Diamond Shamrock R & M may, at its cost and
expense, prosecute any claim against any insurer or contest any settlement
proposed by any insurer, and Diamond Shamrock R & M may bring any such
prosecution or contest in the name of Brazos, Diamond Shamrock R & M, or both,
and Brazos
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will join therein at Diamond Shamrock R & M's request, provided that Diamond
Shamrock R & M shall indemnify Brazos against any losses, costs or expenses
(including reasonable attorneys' fees) which Brazos may incur in connection
with such prosecution or contest.
Section 9.02. Additional Insureds; Notice. Any policies of insurance
carried in accordance with this Article IX and any policies taken out in
substitution or replacement for any such policies (i) shall name Brazos and
Assignee as additional insureds, as their respective interests may appear (but
without imposing upon any such person any obligation imposed on the insured,
including, without limitation, the liability to pay the premium for any such
policy), (ii) shall have attached thereto a lender's loss payable endorsement
for the benefit of Brazos and Assignee as loss payees and (iii) shall provide
that as against Brazos and Assignee the insurers shall waive any rights of
subrogation. Diamond Shamrock R & M shall request the insurers to give thirty
(30) days advance written notice to Brazos and its assigns of any cancellation
of any insurance to be maintained under this Article. Diamond Shamrock R & M
shall give a copy to Brazos and any Assignee of any notice received by Diamond
Shamrock R & M regarding the cancellation or other termination of the insurance
included in the Schedule of Insurance attached hereto as Exhibit A. Each
liability policy (A) shall be primary without right of contribution from any
other insurance which is carried by Brazos with respect to its interest as such
in the Property and (B) shall expressly provide that all of the provisions
thereof, except the limits of liability, shall operate in the same manner as if
there were a separate policy covering each insured.
Section 9.03. Application of Proceeds of Loss or Substantial Taking.
Any insurance or condemnation proceeds received as the result of the occurrence
of (i) any event of loss described in Section 14.03 hereof or (ii) any event of
substantial Taking described in Section 15.01 shall be paid to Brazos, and
disposed of as contemplated by Section 14.03 hereof.
Section 9.04. Application of Proceeds of other than Loss or
Substantial Taking. As between Diamond Shamrock R & M and Brazos, if any
insurance or condemnation proceeds received as a result of any loss or Taking,
other than a loss described in Section 14.03 or
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an event of substantial Taking described in Section 15.01, is less than
$100,000, it is agreed that such proceeds will be paid to Diamond Shamrock R &
M to be used for repairs, replacement, reconstruction or restoration in
accordance with the terms of Sections 14.02 and 15.02 hereof. If the proceeds
equal or exceed $100,000, then the proceeds shall be deposited in a special
purpose account held by Assignee, to be used only for the purpose set forth in
this paragraph, and Diamond Shamrock R & M shall be entitled (i) to receive the
amounts so deposited against certificates, invoices or bills in form
satisfactory to Brazos and Assignee, delivered to Brazos and Assignee from time
to time as such work or repair progresses, and (ii) to direct the investment of
the amounts so deposited as provided in Section 9.05. Any moneys remaining in
the aforesaid account after final payment for repairs has been made shall be
paid to Diamond Shamrock R & M.
Section 9.05. Investment. Assignee, at Diamond Shamrock R & M's
instruction, shall invest the amounts deposited with Assignee pursuant to
Section 9.04 in the following:
(i) direct obligations of the United States Government;
(ii) interest-bearing time deposits at, or obligations of, any
Assignee; or
(iii) commercial paper supported by a letter of credit issued by any
Assignee.
Such investments shall mature in such amounts and on such dates so as to
provide that amounts shall be available on the draw dates sufficient to pay the
amounts requested by and due to Diamond Shamrock R & M. Any interest earned on
investments of such funds shall be paid to Diamond Shamrock R & M. Brazos and
Assignee shall not be liable for any loss resulting from the liquidation of
each and every such investment and Diamond Shamrock R & M shall be liable for
such loss, if any.
Section 9.06. Application in Default. Any amount referred to in
Sections 9.03 or 9.04 which is payable to Diamond Shamrock R & M shall not be
paid to Diamond Shamrock R & M or, if it has been previously paid to Diamond
Shamrock R & M and not applied by Diamond Shamrock R & M as provided in
Sections 9.03 or 9.04, shall not be retained by Diamond Shamrock R & M, if at
the time of such
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payment an Event of Default or Event of Property Termination shall have
occurred and be continuing. In such event, all such amounts shall be paid to
and held by Brazos as security for the obligations of Diamond Shamrock R & M
hereunder or, at Brazos' option, applied by Brazos toward payment of any of
such obligations of Diamond Shamrock R & M at the time due hereunder as Brazos
may elect. At such time as there shall not be continuing any Event of Default
or Event of Property Termination, all such amounts at the time held by Brazos
in excess of the amount, if any, which Brazos shall have elected to apply as
above provided shall be applied as provided in Sections 9.03 or 9.04.
Section 9.07. Certificates. On or before the execution of this Ground
Lease, and annually on or before the anniversary of the date of this Ground
Lease, Diamond Shamrock R & M will furnish to Brazos and Assignee certificates
or other evidence reasonably acceptable to Brazos and Assignee certifying that
the insurance then carried and maintained on each Property complies with the
terms hereof.
Section 9.08. Covenant to Keep Insurance in Force. Diamond Shamrock R
& M covenants that it will not use or occupy any Property or permit the use or
occupancy of any Property at a time when the insurance required by this Article
IX is not in force with respect to such Property.
ARTICLE X
INDEMNITIES
Section 10.01. Indemnified Persons. Diamond Shamrock R & M shall
indemnify and hold harmless Brazos, each general and limited partner of Brazos,
any Assignee, any successor or successors, and any Affiliate of each of them,
and their respective officers, directors, incorporators, shareholders, partners
(general and limited, including without limitation, the general and limited
partners of Brazos), employees, agents and servants (each of the foregoing an
"Indemnified Person") from and against all liabilities, taxes, losses,
obligations, claims, damages, penalties, causes of action, suits, costs and
expenses (including, without limitation, reasonable attorneys' and accountants'
fees and
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expenses) or judgments of any nature relating to or in any way arising out of:
(a) The acquisition, title on acquisition, rejection, possession,
titling, retitling, registration, reregistration, custody by Diamond Shamrock R
& M of title and registration documents, ownership, use, non-use, misuse,
lease, operation, repair, control or disposition of any Property leased or
subleased or to be leased or subleased hereunder, (i) except to the extent that
such costs are included in the Acquisition Cost of such Property and (ii)
except for any general administrative expenses of Brazos;
(b) The assertion of any claim or demand based upon any
infringement or alleged infringement of any right, by or in respect of any
Property; provided, however, that upon request of Diamond Shamrock R & M,
Brazos will make available to Diamond Shamrock R & M Brazos' rights under any
similar indemnification arising from any vendor's warranties or undertakings
with respect to any Property;
(c) All U.S. Federal, state, county, municipal, foreign or other
fees and taxes of whatsoever nature arising from or relating to ownership of
the Property, including but not limited to license, qualification, franchise,
sales, use, gross income, gross receipts, ad valorem, business, personal
property, real estate, value added, excise, motor vehicle, occupation fees and
stamp or other taxes or tolls of any nature whatsoever, and penalties and
interest thereon, whether assessed, levied against or payable by Brazos or
otherwise, with respect to any Property or the acquisition, purchase, sale,
rental, use, operation, control, ownership or disposition of any Property
(including without limitation any claim by any governmental authority for
transfer tax, transfer gains tax, mortgage recording tax, filing or other
similar taxes or fees in connection with the acquisition of any Property by
Brazos or otherwise in connection with this Ground Lease) or measured in any
way by the value thereof or by the business of, investment in, or ownership by
Brazos with respect thereto, provided that this indemnity shall not apply to
(i) net income taxes imposed by any state or local taxing authority utilizing
the Unitary Method of Taxation, (ii) U.S. Federal net income or capital gains
taxes or (iii) state and local net income or capital gains taxes which are
imposed by a state or locality because of a relationship between Brazos and
such state or locality unrelated to ownership of the
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Property or to this Ground Lease; and provided further, that to the extent
Diamond Shamrock R & M's obligations hereunder include indemnifying Brazos for
net income taxes imposed by a state or local taxing authority, such obligations
shall be limited to indemnifying Brazos for the inability, disallowance or
other loss of deductions relating to ownership of the Property customarily
allowed in computing net income (e.g., interest expense, depreciation,
financing, administrative and other fees and expenses);
(d) Any violation or alleged violation (other than an alleged
violation alleged by Brazos) by Diamond Shamrock R & M of this Ground Lease or
of any contracts or agreements to which Diamond Shamrock R & M is a party or by
which it is bound or any laws, rules, regulations, orders, writs, injunctions,
decrees, consents, approvals, exemptions, authorizations, licenses and
withholdings of objection, of any governmental or public body or authority and
all other Legal Requirements, including, without limitation, any Legal
Requirements with respect to the environment or the regulation of hazardous
materials or substances, or any breach of a representation or warranty by
Diamond Shamrock R & M under this Ground Lease;
(e) Any Environmental Claim or requirement of Environmental Law
concerning or relating to any Property, or the operations or business in
respect of any Property; or
(f) Any claim against Brazos' title or Assignee's interest in any
Property to the extent such claim is not fully paid by title insurance.
Section 10.02. Payments. Diamond Shamrock R & M shall forthwith upon
demand reimburse any Indemnified Person for any sum or sums expended with
respect to any of the items set forth in Section 10.01 or, upon request from
any Indemnified Person, shall pay such amounts directly. Any payment made to
or on behalf of any Indemnified Person pursuant to this Article X shall be
increased to such amount as will, after taking into account all taxes imposed
with respect to the accrual or receipt of such payment (as the same may be
increased pursuant to this sentence), equal the amount of the payment, reduced
by the amount of any savings in such taxes actually realized by the Indemnified
Person as a result of the payment or accrual of the amounts in respect of which
the payment
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to or on behalf of the Indemnified Person hereunder is made. Any Indemnified
Person seeking indemnification under this Article X shall give Diamond Shamrock
R & M written evidence supporting the amount demanded, and such written
evidence shall be deemed to be conclusive, absent manifest error. To the extent
that Diamond Shamrock R & M in fact indemnifies any Indemnified Person under
the indemnity provisions of this Ground Lease, Diamond Shamrock R & M shall be
subrogated to such Indemnified Person's rights in the affected transaction and
shall have a right to determine the settlement of claims therein.
Section 10.03. Continuing Indemnification. The indemnities contained
in this Article X shall not be affected by and shall survive any termination of
this Ground Lease as a whole or in respect of any Property leased hereunder or
any failure or refusal of Diamond Shamrock R & M to accept any Property
acquired pursuant to the Agreement for Ground Lease.
Section 10.04. Limitations.
(a) Notwithstanding any provisions of this Article X to the contrary
(except as further limited solely with respect to any Property located in the
State of New Mexico in Section 10.04(b) below), Diamond Shamrock R & M shall
not indemnify and hold harmless any Indemnified Person against any claims and
liabilities arising solely from the gross negligence (as between such
Indemnified Person or an Affiliate of such Indemnified Person and Diamond
Shamrock R & M) or willful misconduct (as between such Indemnified Person or an
Affiliate of such Indemnified Person and Diamond Shamrock R & M) of such
Indemnified Person, but shall otherwise indemnify any Indemnified Person
against its own negligence.
(b) With respect to any Property located in the State of New Mexico,
no agreement to indemnify contained in this Agreement shall extend to
liability, claims, damages, losses, or expenses, including attorney fees,
arising out of the preparation or approval of maps, drawings, opinions,
reports, surveys, change orders, designs, or specifications by the Indemnified
Person, or the agents or employees of the Indemnified Person, or the giving of
or the failure to give directions or instructions by the Indemnified Person, or
the agents or employees of the Indemnified Person, where
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such giving or failure to give directions or instructions is the primary cause
of bodily injury to persons or damage to property.
(c) Brazos and Diamond Shamrock R & M agree that the provisions of
Section 10.04(b) shall apply only with respect to any Property located in the
State of New Mexico. The provisions of Section 10.04(b) are included in this
Ground Lease for the sole purpose of complying with the provisions of Section
56-7-1 of the New Mexico Statutes Annotated (1978) and shall have no force or
effect with respect to any Property located other than in the State of New
Mexico.
(d) Brazos and Diamond Shamrock R & M agree that the activities of
Diamond Shamrock R & M under this Ground Lease relating to the preparation or
approval of any maps, drawings, opinions, reports, surveys, change orders,
designs, or specifications relating to any Property is being done by Diamond
Shamrock R & M in its capacity as the lessee of the Property and not as the
agent or employee of Brazos. Diamond Shamrock R & M and Brazos agree that to
the greatest extent possible without causing any indemnification provision of
this Ground Lease to be void and unenforceable under Section 56-7-1 of the New
Mexico Statutes Annotated (1978), it is the intention of the parties to this
Ground Lease for Diamond Shamrock R & M to bear all responsibility for and to
indemnify Brazos against any liability, claims, damages, losses or expenses,
including attorneys fees, arising out of the preparation or approval of any
maps, drawings, opinions, reports, surveys, change orders, designs, or
specifications relating to the Property.
Section 10.05. Litigation. If any claim, action, proceeding or suit
is brought against an Indemnified Person with respect to which Diamond Shamrock
R & M would be required to indemnify such Indemnified Person, Diamond Shamrock
R & M shall have the right to assume the defense thereof, including the
employment at its expense of counsel; provided that Diamond Shamrock R & M
shall not have such right, to the extent that such Indemnified Person shall
deliver to Diamond Shamrock R & M a written notice waiving the benefits of the
indemnification of such Indemnified Person provided by this Article X in
connection with such claim, action, proceeding or suit. Notwithstanding the
foregoing, if (i) any claim, action, proceeding or suit is brought against an
Indemnified Person who is an individual, (ii) the action threatens to restrain
or adversely
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affect the conduct of the business of the Indemnified Person, but not the
business of Brazos' ownership of the Property under this Ground Lease, (iii)
the claim, action, proceeding or suit seeks damages of more than $10,000,000,
or (iv) independent counsel to an Indemnified Person shall conclude that there
may be defenses available to the Indemnified Person which are different from,
or additional to, and may conflict with those available to Diamond Shamrock R &
M, Diamond Shamrock R & M shall not have the right to assume the defense of any
such action on behalf of the Indemnified Person if such Indemnified Person
chooses to defend such action, and all reasonable costs, expenses and
attorneys' fees incurred by the Indemnified Person in defending such action
shall be borne by Diamond Shamrock R & M. Notwithstanding the assumption of
its defense by Diamond Shamrock R & M pursuant to this paragraph, any
Indemnified Person shall have the right to employ separate counsel and to
participate in its defense, but the fees and expenses of such counsel shall be
borne by the Indemnified Person. In addition, Diamond Shamrock R & M will not
be liable for any settlement of any claim, action, proceeding or suit unless
Diamond Shamrock R & M has consented thereto in writing. Any decision by an
Indemnified Person to employ its own counsel rather than counsel selected by
Diamond Shamrock R & M (whether or not at Diamond Shamrock R & M's expense)
shall in no way affect any rights of such Indemnified Person otherwise arising
under this Article X.
ARTICLE XI
RENEWAL AND TERMINATION
Section 11.01. Diamond Shamrock R & M's Right to Terminate. So long
as no Event of Default or Event of Property Termination has occurred and is
continuing, Diamond Shamrock R & M shall have the right, at any time during the
Lease Term or any Renewal Term, upon not less than thirty (30) days' written
notice to Brazos and Assignee, to terminate on the Basic Rent Payment Date
specified in such notice this Ground Lease with respect to any Property, if (a)
indemnity payments to Brazos pursuant to Section 10.01(c) shall have been
required and can be reasonably expected to occur subsequently and such payments
are or would be in the aggregate (taking into account the recurring nature of
the payments) sufficient in the reasonable judgment of Diamond Shamrock R & M
to render this Ground Lease uneconomic with respect to that Property,
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(b) due to a change in accounting rules or treatment, this Ground Lease is no
longer treated as an operating lease for accounting purposes or (c) there
exists an event of default under any Credit Agreement and the payment
obligations of Brazos thereunder are declared to be immediately due and
payable. Upon exercising its rights under this Section 11.01 Diamond Shamrock
R & M shall either (i) purchase such Property for cash at its Acquisition Cost
or (ii) with the consent of Brazos, arrange, at its own cost and expense, for
such Property to be sold for cash pursuant to Section 11.04 and with the
consequences therein provided, except that such sale must occur on the Basic
Rent Payment Date stipulated in the written notice contemplated by this Section
11.01.
Section 11.02. Brazos' Right to Terminate. Brazos shall have the
right upon written notice to Diamond Shamrock R & M, to terminate the ground
lease of any or all Property as of a Basic Rent Payment Date stipulated in such
notice if at any time: (1) by reason of a nexus between a state or local taxing
jurisdiction and the Property or the activities of any user (other than Brazos)
of the Property, Brazos incurs, or, in its reasonable judgment, in the future
would incur, a state or local tax based upon the Unitary Method of Taxation
which, in its sole judgment, renders the Ground Lease uneconomic; or (2) the
Agreement for Ground Lease or any other instrument relating to this Ground
Lease, shall be deemed to require the payment or deemed to permit the
collection of interest in excess of the Maximum Rate and any such interest in
excess of such Maximum Rate cannot be spread and allocated either to the
preceding or subsequent periods in which such excess interest is to be paid or
collected pursuant to Section 18.08 of this Ground Lease. In the event of a
termination of this Ground Lease with respect to any or all Property pursuant
to this Section 11.02, Diamond Shamrock R & M shall either (i) purchase, on the
Basic Rent Payment Date stipulated in the written notice contemplated by this
Section 11.02, such Property for cash at its Acquisition Cost or (ii) with the
consent of Brazos, arrange, at its own cost and expense, for such Property to
be sold for cash pursuant to Section 11.04 and with the consequences therein
provided, except that such sale must occur on the Basic Rent Payment Date
stipulated in the written notice contemplated by this Section 11.02.
Section 11.03. Renewal.
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(a) Not later than twelve months prior to the end of the Lease
Term or the first Renewal Term, if any, as applicable, Brazos shall give notice
to Diamond Shamrock R & M as to whether it desires to renew the lease with
respect to each Property and the terms and conditions (including the rental
amounts) of any such renewal. Not later than nine months prior to the end of
the Lease Term or Renewal Term, as applicable, Diamond Shamrock R & M shall
give notice to Brazos as to whether it will renew or not renew the lease for
each Property for which Brazos has offered to renew the lease. Failure of
Diamond Shamrock R & M to give such notice with respect to any Property shall
be deemed an election not to renew the lease for such Property. So long as (i)
no Event of Default or Event of Property Termination has occurred and is
continuing, with respect to each Property for which the parties agree to renew
the lease and (ii) Brazos shall have received a commitment for financing for
each such Property through the last day of the Renewal Term (as defined below)
from the lender(s) under a then-existing Credit Agreement or from a third
party, the lease shall be renewed for a term (the "Renewal Term") equal to five
years commencing on the first day of the calendar month following the last day
of the Lease Term or Renewal Term, as applicable, thereof; provided, however,
the Lease Term or Renewal Term, as applicable, shall not be renewed if on the
first day of the new Renewal Term (a) the lender(s) under a then- existing
Credit Agreement fails to fund under its commitment pursuant to the terms of
such commitment or (b) a third party fails to fund under its commitment for any
reason.
(b) With respect to each Property for which the lease is not being
renewed, Diamond Shamrock R & M shall, at its option, either (i) purchase such
Property for cash at its Acquisition Cost during the period from one (1) month
before the end of the Lease Term or Renewal Term, as applicable, to five (5)
Business Days before the end of the Lease Term or Renewal Term, as applicable
or (ii) arrange, at its own cost and expense, for such Property to be sold for
cash pursuant to Section 11.04 and with the consequences therein provided
during the period from six (6) months before the end of the Lease Term or
Renewal Term, as applicable, to one (1) month before the end of the Lease Term
or Renewal Term, as applicable. With respect to each Property for which the
lease is not being renewed, not later than eight months prior to the end of the
Lease Term or Renewal Term, as applicable, Diamond Shamrock R & M shall give
notice to Brazos of which Properties it elects to
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purchase and which Properties will be sold to third parties. Any notice given
by Diamond Shamrock R & M pursuant to the preceding sentence shall be
irrevocable, except that Diamond Shamrock R & M may revoke the election to have
a Property sold to a third party if Diamond Shamrock R & M purchases such
Property.
Section 11.04. Sales to Third Parties. (a) If Diamond Shamrock R & M
exercises its right to arrange for a sale of a Property to a third party
pursuant to Sections 11.01, 11.02 or 11.03, Brazos shall receive the proceeds
of sale and:
(i) if the proceeds of sale are greater than the Acquisition Cost
of the Property sold, Brazos shall pay to Diamond Shamrock R &
M the amount by which such proceeds exceed such Acquisition
Cost; and
(ii) if the proceeds of sale are equal to or less than the
Acquisition Cost of the Property sold, Diamond Shamrock R & M
shall pay to Brazos an amount equal to (A) such Acquisition
Cost less (B) the proceeds of such sale.
For purposes of this Section 11.04, in connection with the sale of a Property
"proceeds of sale" shall mean the aggregate proceeds from the sale of such
Property without reduction for any amounts paid by Diamond Shamrock R & M.
(b) All payments and credits referred to in paragraph (a) above
shall be made on the date of the sale of such Property, and the parties shall
account to each other for such payments and credits. In consideration for the
receipt by Brazos of the proceeds of sale and all other amounts then due and
owing hereunder, Brazos shall transfer title to such Property to the purchaser
at the sale designated by Diamond Shamrock R & M. In the event of a sale
pursuant to this Section 11.04, neither Diamond Shamrock R & M nor any
Affiliate of Diamond Shamrock R & M shall purchase the Property. Any Property
sold to a third party pursuant to this paragraph (b) shall be free of any Liens
at the time of sale, including Liens which would otherwise be Permitted
Encumbrances if such Liens would reduce the value to the purchaser of such
Property.
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(c) If a Property and all Facilities thereon are sold to the same
third party, the proceeds of sale shall be allocated prorata between such
Property and Facility based on the Acquisition Cost of such Property and the
Acquisition Cost (as defined in the Facilities Lease) of such Facility.
Section 11.05. Additional Payments. In connection with any purchase
or sale of a Property under this Article XI, on or before the date such
purchase or sale occurs, Diamond Shamrock R & M shall pay to Brazos, in
addition to any purchase price payable, all Basic Rent payable, any Additional
Rent, all amounts owing under Section 11.04, and other amounts owing hereunder.
Section 11.06. Termination of Ground Lease. Upon receipt by Brazos
of the purchase price payable in connection with any sale or purchase of any
Property under this Article XI, together with all additional payments required
under Section 11.05 with respect to such Property, this Ground Lease shall
terminate with respect to such Property.
Section 11.07. Surrender of Property. Subject to the provisions of
this Article XI and Articles XII, XIII, XIV and XV hereof, upon termination of
the ground lease of any Property hereunder, Diamond Shamrock R & M shall
surrender such Property to Brazos. In connection with the sale of any Property
by Brazos, in consideration of the receipt of the purchase price and all other
amounts which may be owing to Brazos under Section 11.05, Brazos shall execute
and deliver all instruments of transfer necessary to convey Brazos' interest to
the purchaser of such Property.
ARTICLE XII
ECONOMIC DISCONTINUANCE
Section 12.01. Uneconomic Property. If, at any time after the end of
its Lease Term, in the good faith judgment of Diamond Shamrock R & M, any
Property shall have become uneconomic for continued use and occupancy by
Diamond Shamrock R & M (such Property hereinafter sometimes called an
"Uneconomic Property"), then Diamond Shamrock R & M shall deliver to Brazos and
Assignee a written notice (an "Uneconomic Notice") containing (i) notice of
Diamond Shamrock R & M's intention to terminate the Ground Lease as
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to such Uneconomic Property as of a Basic Rent Payment Date specified in such
notice, which Basic Rent Payment Date shall be within sixty (60) days of such
notice, and (ii) a certificate of an officer of Diamond Shamrock R & M stating
that Diamond Shamrock R & M has determined that such Property has become
uneconomic for continued use and occupancy by Diamond Shamrock R & M. Diamond
Shamrock R & M shall terminate this Ground Lease with respect to such
Uneconomic Property and shall either purchase the Uneconomic Property for cash
at its Acquisition Cost on the Basic Rent Payment Date specified in such notice
or sell such Uneconomic Property on such date; provided, that if the proceeds
of the sale of the Uneconomic Property are less than the Acquisition Cost of
such Uneconomic Property, then in addition to the purchase price Diamond
Shamrock R & M shall pay to Brazos an amount equal to such Acquisition Cost
less the proceeds of such sale.
Section 12.02. Uneconomic Notice. If, at any time during its Lease
Term, in the good faith judgment of Diamond Shamrock R & M, any Property shall
have become an Uneconomic Property, then Diamond Shamrock R & M shall deliver
to Brazos and Assignee an Uneconomic Notice containing (i) notice of Diamond
Shamrock R & M's intention to terminate the Ground Lease as to such Uneconomic
Property as of a Basic Rent Payment Date specified in such notice, which Basic
Rent Payment Date shall be within sixty (60) days of such notice, and (ii) a
certificate of an officer of Diamond Shamrock R & M stating that Diamond
Shamrock R & M has determined that such Property has become uneconomic for
continued use and occupancy by Diamond Shamrock R & M; provided, that Diamond
Shamrock R & M may not deliver an Uneconomic Notice to Brazos under the terms
of this Section 12.02 for more than an aggregate of the greater of (A) ten
percent (10%) of the Properties then subject to this Ground Lease or (B) ten
(10) Properties. Simultaneously with the delivery of an Uneconomic Notice,
Diamond Shamrock R & M shall deliver to Brazos notice of Diamond Shamrock R &
M's intent to terminate this Ground Lease with respect to such Uneconomic
Property and either to purchase the Uneconomic Property at its Acquisition Cost
on the Basic Rent Payment Date specified in such notice or to sell such
Uneconomic Property on such date; provided, that if the proceeds of the sale of
the Uneconomic Property are less than the Acquisition Cost of such Uneconomic
Property, then in addition to the purchase price Diamond Shamrock R & M shall
pay to Brazos an amount equal to such Acquisition Cost less the proceeds of
such sale.
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Section 12.03. Payment. In connection with any purchase or sale
pursuant to this Article XII, on the Basic Rent Payment Date upon which such
purchase or sale occurs, Diamond Shamrock R & M shall pay or cause the
purchaser to pay to Brazos the purchase price, and Diamond Shamrock R & M shall
pay all Basic Rent payable and any Additional Rent and other amounts owing
hereunder.
Section 12.04. No Right to Use. If Diamond Shamrock R & M terminates
this Ground Lease with respect to any Property pursuant to this Article XII,
neither Diamond Shamrock R & M nor any Affiliate of Diamond Shamrock R & M
shall have the right for one year following the date of such termination to
use, and shall not use, such Property in connection with the development of a
gasoline/convenience store.
ARTICLE XIII
EVENTS OF DEFAULT
Section 13.01. Events of Default. Any of the following events of
default shall constitute an "Event of Default" and shall give rise to the
rights on the part of Brazos described in Section 13.02 hereof:
(a) Failure to Make Payments. Failure of Diamond Shamrock R & M
to pay amounts due to Brazos at the time of any scheduled sale of a Property
hereunder, failure of Diamond Shamrock R & M to pay Basic Rent or Additional
Rent for more than five (5) days after such payment is due pursuant to Article
VI hereof, or failure of Diamond Shamrock R & M to pay any other amount payable
by Diamond Shamrock R & M hereunder within ten (10) days after demand for such
payment.
(b) Failure to Maintain Insurance. Failure of Diamond Shamrock R
& M to maintain the insurance required by Article IX hereof, or default in the
performance of the covenant contained in Section 9.04 hereof.
(c) Other Defaults. Diamond Shamrock R & M shall default in the
performance or observance of any other term, covenant, condition or obligation
contained in this Ground Lease or any Consent and such default shall (i)
continue for thirty (30) days
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after notice shall have been given to Diamond Shamrock R & M by Brazos or any
Assignee specifying such default and requiring such default to be remedied or
(ii) if such default is of a nature that it is not capable of being cured
within such 30-day period, Diamond Shamrock R & M shall not have diligently
commenced curing such default, proceeded diligently and in good faith
thereafter to complete curing such default, or cured such default within ninety
(90) days.
(d) Bankruptcy. (i) The entry of a decree or order for relief in
respect of Diamond Shamrock R & M or Guarantor by a court having jurisdiction
in the premises in an involuntary case under the Federal bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal or state
bankruptcy, insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
Diamond Shamrock R & M or Guarantor or of any substantial part of Diamond
Shamrock R & M's or the Guarantor's property, or ordering the winding up or
liquidation of Diamond Shamrock R & M's or the Guarantor's affairs, and the
continuance of any such decree or order unstayed and in effect for a period of
thirty (30) consecutive days; or (ii) the general suspension or discontinuance
of Diamond Shamrock R & M's or Guarantor's business operations, its insolvency
(however evidenced) or its admission of insolvency or bankruptcy, or the
commencement by Diamond Shamrock R & M or Guarantor of a voluntary case under
the Federal bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal or state bankruptcy, insolvency or other similar law, or the
consent by it to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of Diamond Shamrock R & M or of Guarantor of any substantial part of
its property, or the making by it of an assignment for the benefit of
creditors, or the failure of Diamond Shamrock R & M or Guarantor generally to
pay its debts as such debts become due, or the taking of corporate action by
Diamond Shamrock R & M or Guarantor in furtherance of any such action.
(e) Payment of Obligations. A default or event of default, the
effect of which is to permit the holder or holders of any Indebtedness of
Diamond Shamrock R & M or Guarantor, or a trustee or agent on behalf of such
holder or holders, to cause such Indebtedness to become due prior to its stated
maturity shall occur under the provisions of any instrument evidencing
Indebtedness in
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excess of $15,000,000 of Diamond Shamrock R & M or Guarantor (or under the
provisions of any agreement pursuant to which such instrument was issued).
(f) Misrepresentations. Any representation or warranty made by
Diamond Shamrock R & M in this Ground Lease or any Consent or which is
contained in any certificate, document or financial or other statement
furnished under or in connection with this Ground Lease proves to be false or
inaccurate in any material respect when made or deemed made.
(g) Guaranty and Residual Guaranty Payment Support. Any
representation or warranty made by Guarantor in the Guaranty, Residual Guaranty
Payment Support, any Consent or any document contemplated hereby or thereby
proves to be false or inaccurate in any material respect when made or deemed
made, or Guarantor defaults in the performance of any term, covenant, condition
or obligation contained in the Guaranty, Residual Guaranty Payment Support, or
any Consent, and such default shall not have been cured within any applicable
grace or cure period.
(h) Default Under Agreement for Ground Lease. An Event of Default
(as defined in the Agreement for Ground Lease) shall occur under the Agreement
for Ground Lease.
(i) Other Agreements. Diamond Shamrock R & M shall default in any
material respect in the performance or observance of any term, covenant,
condition or obligation contained in any other written agreement between
Diamond Shamrock R & M and Brazos and such default shall not have been cured
within any applicable grace or cure period.
(j) Unauthorized Assignment. Any assignment by Diamond Shamrock R
& M of any interest in this Agreement (except for any sublease of its interest
in any Property).
Section 13.02. Rights Upon Default. Upon the occurrence and
continuation of any Event of Default Brazos or any Assignee may in its
discretion declare this Ground Lease to be in default and do any one or more of
the following:
(a) Terminate the lease of any or all Property leased hereunder;
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(b) Whether or not any action has been taken under (a) above, sell
any Property or Brazos' interest in any Acquired Ground Lease (with or without
the concurrence or request of Diamond Shamrock R & M);
(c) Hold, use, occupy, lease or keep idle any or all Property as
Brazos in its sole discretion may determine, without any duty to account to
Diamond Shamrock R & M with respect to any such action or inaction or for any
proceeds thereof; and
(d) Exercise any other right or remedy which may be available
under applicable law and in general proceed by appropriate judicial
proceedings, either at law or in equity, to enforce the terms hereof or to
recover damages for the breach hereof.
Suit or suits for the recovery of any default in the payment of any
sum due hereunder or for damages may be brought by Brazos from time to time at
Brazos' election, and nothing herein contained shall be deemed to require
Brazos to await the date whereon this Ground Lease or the term hereof would
have expired by limitation had there been no such default by Diamond Shamrock R
& M or no such termination or cancellation.
The receipt of any payments under this Ground Lease by Brazos with
knowledge of any breach of this Ground Lease by Diamond Shamrock R & M or of
any default by Diamond Shamrock R & M in the performance of any of the terms,
covenants or conditions of this Ground Lease, shall not be deemed to be a
waiver of any provision of this Ground Lease.
No receipt of moneys by Brazos from Diamond Shamrock R & M after the
termination or cancellation hereof in any lawful manner shall reinstate,
continue or extend the Lease Term or any Renewal Term, or affect any notice
theretofore given to Diamond Shamrock R & M, or operate as a waiver of the
right of Brazos to enforce the payment of Basic Rent or Additional Rent or
other charges payable hereunder, or operate as a waiver of the right of Brazos
to recover possession of any Property by proper suit, action, proceedings or
remedy; it being agreed that, after the service of notice to terminate or
cancel this Ground Lease, and the expiration of the time therein specified, if
the default has not been cured in the meantime, or after the commencement of
suit, action or summary proceedings or of any other remedy, or after a final
order, warrant
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or judgment for the possession of the Property, Brazos may demand, receive and
collect any moneys payable hereunder, without in any manner affecting such
notice, proceedings, suit, action, order, warrant or judgment; and any and all
such moneys so collected shall be deemed to be payments on account for the use,
operation and occupation of the Property, or at the election of Brazos, on
account of Diamond Shamrock R & M's liability hereunder. Acceptance of the
keys to any Property, or any similar act, by Brazos, or any agent or employee,
during the term hereof, shall not be deemed to be an acceptance of a surrender
of any Property unless Brazos shall consent thereto in writing.
If, after an Event of Default shall have occurred, Diamond Shamrock R
& M fails to surrender promptly after written request by Brazos or converts or
destroys any Property, Diamond Shamrock R & M shall be liable to Brazos for all
Basic Rent and Additional Rent then due and payable with respect to such
Property, all other amounts payable under this Ground Lease, the Acquisition
Cost of such Property as of the date of such request, conversion or destruction
and all losses, damages and expenses (including, without limitation, attorneys'
fees and expenses) sustained by Brazos by reason of such Event of Default and
the exercise of Brazos' remedies with respect thereto.
If, after an Event of Default Brazos repossesses any Property,
notwithstanding any termination of this Ground Lease, Diamond Shamrock R & M
shall be liable for and Brazos may recover from Diamond Shamrock R & M all
Basic Rent accrued and any Additional Rent owing with respect to such Property
to the date of such repossession, all other amounts payable under this Ground
Lease, and all losses, damages and expenses (including, without limitation,
reasonable attorneys' fees and expenses) sustained by Brazos by reason of such
Event of Default and the exercise of Brazos' remedies with respect thereto. In
addition, Brazos may sell Brazos' interest in any Property upon any terms that
Brazos deems satisfactory, free of any rights of Diamond Shamrock R & M or any
person claiming through or under Diamond Shamrock R & M. In the event of such
sale, in addition to the amounts payable under the first sentence of this
paragraph, Brazos shall be entitled to recover from Diamond Shamrock R & M, as
liquidated damages, and not as a penalty, an amount equal to the Acquisition
Cost of any Property so sold, minus the net proceeds of such sale (deducting
from the gross proceeds of such sale any reasonable legal expenses,
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commissions, sales taxes or other costs or expenses associated with such sale)
received by Brazos; provided however, if the proceeds of such sale are in
excess of the amount payable to Brazos pursuant hereto, such excess shall be
the property of Diamond Shamrock R & M. In lieu of such sale, in addition to
the amounts payable under the first sentence of this paragraph, Brazos may
cause Diamond Shamrock R & M to pay to Brazos, and Diamond Shamrock R & M shall
pay to Brazos, as liquidated damages, and not as a penalty, an amount equal to
the Acquisition Cost of any or all of the Property, and upon payment in full of
all such amounts Brazos shall transfer all of Brazos' right, title and interest
in and to the Property to Diamond Shamrock R & M.
To the extent deemed necessary or advisable by counsel for Brazos,
Brazos shall have the right, and is hereby granted the power by Diamond
Shamrock R & M, to sell all or any part of any Property at public venue
pursuant to power of sale in accordance with the laws of the State in which the
Property is located.
No remedy referred to in this Section 13.02 is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Brazos at law or in equity, and the
exercise in whole or in part by Brazos of any one or more of such remedies
shall not preclude the simultaneous or later exercise by Brazos of any or all
such other remedies. No waiver by Brazos of any Event of Default hereunder
shall in any way be, or be construed to be, a waiver of any future or
subsequent Event of Default.
With respect to the termination of this Ground Lease as to any
Property as a result of an Event of Default, Diamond Shamrock R & M hereby
waives service of any notice of intention to re-enter. Diamond Shamrock R & M
hereby waives any and all rights to recover or regain possession of any
Property or to reinstate this Ground Lease as permitted or provided by or under
any statute, law or decision now or hereafter in force and effect.
Section 13.03. Events of Property Termination. The occurrence of any
of the following shall constitute an Event of Property Termination with respect
to a Property:
(a) Unsatisfactory Title. If at any time title to any
Property is not satisfactory to Brazos or Assignee by reason
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of any Lien or other defect not disclosed in writing at the time of
any advance (even though the same may have existed at the time of any
such advance), except the Permitted Exceptions, and such Lien,
encumbrance or other defect is not corrected within thirty (30) days
after notice to Diamond Shamrock R & M.
(b) Non-Compliance with Governmental Requirements. If
Diamond Shamrock R & M fails to comply with any requirement of any
Governmental Authority with respect to such Property or to contest
such requirement by means of a Permitted Contest under Article XVII
(i) within thirty (30) days after notice in writing of such
requirement shall have been given to Diamond Shamrock R & M by such
Governmental Authority or by Brazos or Assignee, or (ii) if such
requirement is of a nature that it cannot be completely complied with
within such 30-day period, if Diamond Shamrock R & M shall fail after
such notice either diligently to commence complying with such
requirement or to proceed thereafter with reasonable diligence and in
good faith to comply with such requirement; provided, however, that
Diamond Shamrock R & M shall in any event comply with such requirement
prior to the date on which such Property may be seized or sold as a
result of such non-compliance.
(c) Default under Acquired Ground Lease. Diamond
Shamrock R & M shall default in the observance or performance of any
term, covenant or condition of the Acquired Ground Lease relating to
such Property on the part of Brazos, as tenant thereunder, to be
observed or performed, unless any such observance or performance shall
have been waived or not required by the landlord under the Acquired
Ground Lease, or if any one or more of the events referred to in the
Acquired Ground Lease shall occur which would cause the Acquired
Ground Lease to terminate without notice or action by the landlord
thereunder or which would entitle the landlord under the Acquired
Ground Lease to terminate the Acquired Ground Lease and the term
thereof by the giving of notice to Brazos, as tenant thereunder, or if
the Acquired Ground Lease shall be terminated or canceled for any
reason or under any circumstance whatsoever, or if any of the terms,
covenants or conditions of the Acquired Ground Lease shall in any
manner be modified, changed, supplemented, altered or amended in any
material respect without the consent of Brazos.
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(d) Commencement of Construction. Diamond Shamrock R & M
shall fail to commence construction of a Facility on a Property within
the time period set forth in Section 2.02 of the Agreement for
Facilities Lease.
Section 13.04. Brazos' Right upon Event of Property Termination. If
any Event of Property Termination with respect to a Property shall occur,
Brazos may, as liquidated damages and not as a penalty, require Diamond
Shamrock R & M to purchase such Property on the next Basic Rent Payment Date at
a price equal to the Acquisition Cost for such Property by giving notice of
such required purchase. In connection with any such purchase under this
Section 13.04, on the Basic Rent Payment Date upon which such purchase shall
occur, Diamond Shamrock R & M shall pay to Brazos, in addition to any purchase
price payable, all Basic Rent payable and any Additional Rent and other amounts
owing hereunder with respect to such Property. At the time of such sale,
Diamond Shamrock R & M shall be required to pay to Brazos the obligations,
costs, losses, damages, and expenses (including, without limitation, reasonable
attorneys' fees and expenses) sustained by Brazos by reason of such Event of
Property Termination and exercise of Brazos' rights under this Section 13.04.
ARTICLE XIV
LOSS OF OR DAMAGE TO PROPERTY
Section 14.01. Diamond Shamrock R & M's Risk. Diamond Shamrock R & M
hereby assumes all risk of loss of or damage to Property, however caused. No
loss of or damage to any Property shall impair any obligation of Diamond
Shamrock R & M under this Ground Lease, which shall continue in full force and
effect with respect to any lost or damaged Property.
Section 14.02. Repair. In the event of damage of any kind whatsoever
to any Property (unless the same is determined by Diamond Shamrock R & M to be
damaged beyond repair) Diamond Shamrock R & M, at its own cost and expense,
shall place the same in good operating order, repair, condition and appearance.
Section 14.03. Property Damaged Beyond Repair. If any Property is
seized, confiscated, rendered unfit for use or if any
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improvements thereon are destroyed or damaged beyond repair (in the reasonable
judgment of Diamond Shamrock R & M), or if the use of the Property by Diamond
Shamrock R & M or the use of any improvement by the party entitled thereto in
the ordinary course of business is prevented by the act of any third person or
persons or governmental instrumentality for a period exceeding ninety (90) days
(other than an act which is a Taking which is substantial as described in
Section 15.01 of this Ground Lease), or if the Acquired Ground Lease applicable
to such Property is terminated due to casualty, or if such Property is attached
(other than on a claim against Brazos as to which Diamond Shamrock R & M is not
obligated to indemnify Brazos) and the attachment is not removed within ninety
(90) days, or if a Taking which is substantial as described in Section 15.01
shall occur, then in any such event, (i) Diamond Shamrock R & M shall promptly
notify Brazos and Assignee in writing of such event, (ii) on the Basic Rent
Payment Date following such event, unless such Basic Rent Payment Date occurs
within ten (10) days of such event, in which case on the next Basic Rent
Payment Date, Diamond Shamrock R & M shall pay to Brazos an amount equal to the
Acquisition Cost of such Property (after deducting any insurance proceeds
received by Brazos in respect of such event or the net amount after Brazos'
expenses of proceeds to Brazos from any award or sale made in connection with a
Taking), provided that insurance or net Taking proceeds, if any, received by
Brazos in excess of the Acquisition Cost of the affected Property shall be paid
by Brazos to Diamond Shamrock R & M, (iii) the Lease Term or Renewal Term of
such Property shall continue until the Basic Rent Payment Date on which Brazos
receives payment from Diamond Shamrock R & M of the amount payable pursuant to
this Section 14.03 and the Basic Rent and any Additional Rent and other amounts
owing hereunder, and shall thereupon terminate and (iv) Brazos shall on such
Basic Rent Payment Date transfer title to such Property to Diamond Shamrock R &
M, and Diamond Shamrock R & M shall be subrogated to Brazos' rights in the
affected transaction.
ARTICLE XV
CONDEMNATION OF PROPERTY
Section 15.01. Taking of Substantially all of a Property. If Diamond
Shamrock R & M or Brazos shall receive notice that the use, occupancy or title
to all or substantially all of a Property is to
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be taken, requisitioned or sold in, by or on account of eminent domain
proceedings or other action by any person or authority having the power of
eminent domain (such events collectively referred to as a "Taking"), and such
Taking is substantial, then the Lease Term or Renewal Term shall terminate as
provided in Section 14.03. A Taking shall be deemed substantial if the
remainder of the Property is unusable for Diamond Shamrock R & M's ordinary
business purposes or the Acquired Ground Lease applicable to such Property is
terminated as a result of such Taking.
Section 15.02. Taking of Less than Substantially all of a Property.
If less than substantially all of a Property is subject to a Taking, then this
Ground Lease shall continue in effect as to the portion of the Property not
taken and Diamond Shamrock R & M, at its own cost and expense, shall place the
same in good operating order, repair, condition and appearance. Brazos and
Diamond Shamrock R & M each hereby waives any statutory or common law right
allowing either of them to petition any court to terminate this Ground Lease in
the event of a Taking of less than substantially all of the Property.
Section 15.03. Grant of Minor Easements. So long as no Event of
Default or Event of Property Termination hereunder has occurred and is
continuing, Diamond Shamrock R & M shall have the right (i) to grant minor
easements for the benefit of any Property or which are deemed reasonably
necessary for Diamond Shamrock R & M's use of the Property; (ii) voluntarily to
dedicate or convey, as required, portions of any Property for road, highway and
other public purposes as required in the good faith judgment of Diamond
Shamrock R & M in order to obtain or maintain the use of all or part of a
Property for the purposes intended by Diamond Shamrock R & M; and (iii)
voluntarily to execute petitions to have any Property or a portion thereof
annexed to any municipality or included within any utility, highway or other
improvement or service district, provided that no more than minor restoration
is required. If Diamond Shamrock R & M receives any monetary consideration for
such easement or dedication, Diamond Shamrock R & M shall promptly deliver such
consideration to Brazos. Diamond Shamrock R & M shall exercise the above power
to grant without the joinder of Brazos, except that Brazos will cooperate, at
Diamond Shamrock R & M's expense, as necessary and join in the execution of any
appropriate instrument. As a condition precedent to Diamond Shamrock R & M's
exercise of any of Diamond Shamrock R & M's powers under this
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Article, Diamond Shamrock R & M shall give Brazos ten (10) days' prior written
notice of the proposed action. Upon the giving of such notice, Diamond
Shamrock R & M shall be deemed to have certified that such action will not
materially adversely affect either the market value of such Property or the use
of such Property for its intended purpose, will not affect Brazos' or any
Assignee's ability to exercise its rights and remedies under this Ground Lease
and that Diamond Shamrock R & M undertakes to remain obligated under this
Ground Lease to the same extent as if Diamond Shamrock R & M had not exercised
its powers under this Article and Diamond Shamrock R & M will perform all
obligations under such instrument and shall prepare all required documents and
provide all other instruments and certificates as Brazos may reasonably
request.
ARTICLE XVI
LEASEHOLD INTERESTS
The following provisions relate to each lease (an "Acquired Ground
Lease") under which a leasehold interest in a Property is being subleased to
Diamond Shamrock R & M hereunder:
(a) This Ground Lease is subject and subordinate to all of the
terms, covenants, provisions, conditions and agreements contained in each
Acquired Ground Lease and the matters to which the Acquired Ground Lease is
subject and subordinate.
(b) Diamond Shamrock R & M hereunder covenants and agrees to
perform and to observe all of the terms, covenants, provisions, conditions and
agreements of the underlying Acquired Ground Lease on Brazos' part as lessee
thereunder to be performed and observed including, without limitation, payment
of all rent, additional rent and other amounts payable by Brazos as lessee
under the Acquired Ground Lease, to the end that all things shall be done which
are necessary to keep unimpaired the rights of Brazos as lessee under the
Acquired Ground Lease.
(c) Diamond Shamrock R & M covenants and agrees that it will not
do or cause to be done or suffer or permit any act or thing to be done which
would or might cause such Acquired Ground Lease or the rights of Brazos as
lessee thereunder to be canceled,
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terminated or forfeited or which would make Diamond Shamrock R & M or Brazos
liable for any losses, costs, liabilities, damages, claims, penalties or other
expenses.
(d) Diamond Shamrock R & M covenants and agrees pursuant to
Article X hereof to indemnify and hold harmless Brazos and any Assignee from
and against any and all liability, loss, damage, suits, penalties, claims and
demands of every kind and nature (including, without limitation, reasonable
attorneys' fees and expenses) by reason of Diamond Shamrock R & M's failure to
comply with any Acquired Ground Lease or the provisions of this Article XVI.
(e) Brazos and Diamond Shamrock R & M agree that any services
which are required to be provided or repairs or restorations which are required
to be made in accordance with the provisions of such Acquired Ground Lease by
the lessor thereunder will be provided and made by such lessor, and Brazos
shall have no obligation to provide any such services or to make any such
repairs or restorations. Brazos shall in no event be liable to Diamond
Shamrock R & M nor shall the obligations of Diamond Shamrock R & M hereunder be
impaired or the performance thereof excused because of any failure or delay on
the part of the lessor under the Acquired Ground Lease in providing such
services or making such restorations or repairs and such failure or delay shall
not constitute a basis for any claim against Brazos or any offset against any
amount payable to Brazos under this Ground Lease.
(f) If Brazos' interest under any Acquired Ground Lease shall
expire, terminate or otherwise be extinguished, the Ground Lease of the
Property to which such Acquired Ground Lease relates shall thereupon terminate
as provided in this paragraph. Upon such expiration, termination or
extinguishment (i) on the Basic Rent Payment Date next succeeding such event,
Diamond Shamrock R & M shall pay to Brazos an amount equal to the Acquisition
Cost of such Property and (ii) the Lease Term or Renewal Term of such Property
shall continue until the date on which Brazos receives payment from Diamond
Shamrock R & M of the amount payable pursuant to this paragraph (f) and of all
Basic Rent payable and any Additional Rent and other amounts owing hereunder,
and shall then terminate upon the payment of such amounts.
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ARTICLE XVII
PERMITTED CONTESTS
(a) Diamond Shamrock R & M shall not be required, nor shall Brazos
have the right, to pay, discharge or remove any tax, assessment, levy, fee,
rent, charge, Lien or encumbrance, or to comply or cause any Property to comply
with any Legal Requirements applicable to any Property or the occupancy, use or
operation thereof, so long as no Event of Default, Event of Property
Termination, Potential Default or Potential Property Termination exists under
this Ground Lease with respect to any Property, and, in the opinion of Diamond
Shamrock R & M's counsel, Diamond Shamrock R & M shall have reasonable grounds
to contest, and shall be diligently contesting, the existence, amount,
applicability or validity thereof by appropriate proceedings, which proceedings
in the reasonable judgment of Brazos, (i) shall not involve any material danger
that any Property or any Basic Rent or any Additional Rent would be subject to
sale, forfeiture or loss, as a result of failure to comply therewith, (ii)
shall not affect the payment of any Basic Rent or any Additional Rent or other
sums due and payable hereunder, (iii) unless any criminal liability could
result from a failure to comply therewith, could not reasonably be expected to
cause either Brazos or any Assignee to incur civil liability which, in the sole
judgment of Brazos or any Assignee, is not adequately indemnified (Diamond
Shamrock R & M's obligations under Article X of this Ground Lease shall be
deemed to be adequate indemnification if no Event of Default, Event of Property
Termination, Potential Default or Potential Property Termination exists and if
such civil liability is reasonably likely to be less than $500,000 per Property
and $1,000,000 in the aggregate for all Properties), (iv) shall be permitted
under the provisions of the Acquired Ground Lease, if any, on such Property,
(v) if involving taxes, shall suspend the collection of such taxes, and (vi)
shall be permitted under and be conducted in accordance with the provisions of
any other instrument to which Diamond Shamrock R & M or the Property is subject
and shall not constitute a default thereunder. Diamond Shamrock R & M shall
conduct all such contests in good faith and with due diligence and shall
promptly after the final determination (including appeals) of such contest, pay
and discharge all amounts which shall be determined to be payable therein.
Notwithstanding anything in this paragraph (a) to the contrary, Diamond
Shamrock R & M shall not be obligated to actively
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contest any mechanics' or materialmen's Lien or claim which does not exceed
$100,000, provided that the failure to so contest does not violate clauses
(i)-(iv) or (vi) above, provided further, that such Lien is junior to any Lien
of an Assignee on such Property, and provided further that Diamond Shamrock R &
M shall in any event diligently contest and defend against the enforcement of
any such Lien or claim in good faith and with due diligence and shall promptly,
after the final determination (including appeals of such contest), pay and
discharge all amounts which shall be determined to be payable therein.
(b) At least ten (10) days prior to the commencement thereof,
Diamond Shamrock R & M shall notify Brazos in writing of any such proceeding in
which the amount in contest exceeds $100,000, and shall describe such
proceeding in reasonable detail. If a taxing authority or subdivision thereof
proposes an additional assessment or levy of any tax for which Diamond Shamrock
R & M is obligated to reimburse Brazos under this Ground Lease, or if Brazos is
notified of the commencement of an audit or similar proceeding which could
result in such an additional assessment, then Brazos shall in a timely manner
notify Diamond Shamrock R & M in writing of such proposed levy or proceeding.
ARTICLE XVIII
MISCELLANEOUS
Section 18.01. Survival. All agreements, indemnities, representations
and warranties, and the obligation to pay Additional Rent contained in this
Ground Lease shall survive the expiration or other termination hereof.
Section 18.02. Entire Agreement. This Ground Lease and the Property
Leasing Records covering Property leased pursuant hereto and the instruments,
documents or agreements referred to herein constitute the entire agreement
between the parties and no representations, warranties, promises, guarantees or
agreements, oral or written, express or implied, have been made by any party
hereto with respect to this Ground Lease or the Property, except as provided
herein or therein.
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Section 18.03. Modifications. This Ground Lease may not be amended,
modified or terminated, nor may any obligation hereunder be waived orally, and
no such amendment, modification, termination or waiver shall be effective for
any purpose unless it is in writing and is signed by the party against whom
enforcement thereof is sought. A waiver on one occasion shall not be construed
to be a waiver with respect to any other occasion.
Section 18.04. GOVERNING LAW. THIS GROUND LEASE SHALL IN ALL RESPECTS
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF ARKANSAS WITH RESPECT TO PROPERTY LOCATED IN ARKANSAS, THE LAWS OF
THE STATE OF COLORADO WITH RESPECT TO PROPERTY LOCATED IN COLORADO, THE LAWS OF
THE STATE OF KANSAS WITH RESPECT TO PROPERTY LOCATED IN KANSAS, THE LAWS OF THE
STATE OF LOUISIANA WITH RESPECT TO PROPERTY LOCATED IN LOUISIANA, THE LAWS OF
THE STATE OF NEW MEXICO WITH RESPECT TO PROPERTY LOCATED IN NEW MEXICO, THE
LAWS OF THE STATE OF OKLAHOMA WITH RESPECT TO PROPERTY LOCATED IN OKLAHOMA, AND
THE LAWS OF THE STATE OF TEXAS WITH RESPECT TO PROPERTY LOCATED IN TEXAS,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. ANY PROVISION
OF THIS GROUND LEASE WHICH IS PROHIBITED BY LAW OR UNENFORCEABLE IN ANY
JURISDICTION SHALL, AS TO SUCH JURISDICTION, BE INEFFECTIVE TO THE EXTENT OF
SUCH PROHIBITION OR UNENFORCEABILITY WITHOUT INVALIDATING THE REMAINING
PROVISIONS HEREOF, AND THE PARTIES HERETO SHALL NEGOTIATE IN GOOD FAITH
APPROPRIATE MODIFICATIONS TO REFLECT SUCH CHANGES AS MAY BE REQUIRED BY LAW,
AND, AS NEARLY AS POSSIBLE, TO PRODUCE THE SAME ECONOMIC EFFECTS AS THE
PROVISION WHICH IS PROHIBITED OR UNENFORCEABLE; AND ANY SUCH PROHIBITION OR
UNENFORCEABILITY IN ANY JURISDICTION SHALL NOT INVALIDATE OR RENDER
UNENFORCEABLE SUCH PROVISION IN ANY OTHER JURISDICTION. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, DIAMOND SHAMROCK R & M AND BRAZOS HEREBY WAIVE ANY
PROVISION OF LAW WHICH RENDERS ANY PROVISION HEREOF PROHIBITED OR UNENFORCEABLE
IN ANY RESPECT.
Section 18.05. No Offsets. The obligations of Diamond Shamrock R & M
to pay all amounts payable pursuant to this Ground Lease (including
specifically and without limitation amounts payable due under Articles VI and X
hereof) shall be absolute and unconditional under any and all circumstances of
any character, and such amounts shall be paid without notice, demand, defense,
setoff, deduction or counterclaim and without abatement, suspension, deferment,
diminution or reduction of any kind whatsoever, except
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as herein expressly otherwise provided. The obligation of Diamond Shamrock R &
M to lease and pay Basic Rent, Additional Rent or any other amounts for any and
all Property is without any warranty or representation, express or implied, as
to any matter whatsoever on the part of Brazos or any Assignee or any Affiliate
of either, or anyone acting on behalf of any of them.
NEITHER BRAZOS NOR ANY ASSIGNEE NOR ANY AFFILIATE OF EITHER, NOR
ANYONE ACTING ON BEHALF OF ANY OF THEM, MAKES ANY REPRESENTATION OR WARRANTY OF
ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, AS TO
THE SAFETY, TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR USE,
MERCHANTABILITY, CONFORMITY TO SPECIFICATION, ENVIRONMENTAL CONDITION
(INCLUDING THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS), OR ANY OTHER
CHARACTERISTIC, OF ANY PROPERTY, OR AS TO WHETHER ANY PROPERTY OR THE
OWNERSHIP, USE, OCCUPANCY OR POSSESSION THEREOF COMPLIES WITH ANY LAWS, RULES,
REGULATIONS OR REQUIREMENTS OF ANY KIND.
AS BETWEEN BRAZOS AND DIAMOND SHAMROCK R & M, ANY ASSIGNEE OR ANY
INDEMNIFIED PERSON, AND TO THE EXTENT ALLOWED BY LAW, DIAMOND SHAMROCK R & M
ASSUMES ALL RISKS AND WAIVES ANY AND ALL DEFENSES, SET-OFFS, DEDUCTIONS,
COUNTERCLAIMS (OR OTHER RIGHTS), EXISTING OR FUTURE, TO ITS OBLIGATION TO PAY
BASIC RENT, ADDITIONAL RENT AND ALL OTHER AMOUNTS PAYABLE HEREUNDER, INCLUDING,
WITHOUT LIMITATION, ANY RELATING TO:
(A) THE SAFETY, TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR
USE, MERCHANTABILITY, CONFORMITY TO SPECIFICATION, OR ANY OTHER QUALITY OR
CHARACTERISTIC OF ANY PROPERTY, LATENT OR NOT;
(B) ANY SET-OFF, COUNTERCLAIM, RECOUPMENT, ABATEMENT, DEFENSE OR
OTHER RIGHT WHICH DIAMOND SHAMROCK R & M MAY HAVE AGAINST BRAZOS, ANY ASSIGNEE,
OR ANY INDEMNIFIED PERSON FOR ANY REASON WHATSOEVER ARISING OUT OF THIS OR ANY
OTHER TRANSACTION OR MATTER;
(C) ANY DEFECT IN TITLE OR OWNERSHIP OF ANY PROPERTY OR ANY TITLE
ENCUMBRANCE NOW OR HEREAFTER EXISTING WITH RESPECT TO THE PROPERTY;
(D) ANY FAILURE OR DELAY IN DELIVERY OR ANY LOSS OR DESTRUCTION
OF, OR DAMAGE TO, ANY PROPERTY, IN WHOLE OR IN PART, OR CESSATION OF THE USE OR
POSSESSION OF ANY PROPERTY BY DIAMOND SHAMROCK R & M FOR ANY REASON WHATSOEVER
AND OF WHATEVER DURATION,
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OR ANY CONDEMNATION, CONFISCATION, REQUISITION, SEIZURE, PURCHASE, TAKING OR
FORFEITURE OF ANY PROPERTY, IN WHOLE OR IN PART;
(E) ANY INABILITY OR ILLEGALITY WITH RESPECT TO THE USE,
OWNERSHIP, OCCUPANCY OR POSSESSION OF THE PROPERTY BY DIAMOND SHAMROCK R & M;
(F) ANY INSOLVENCY, BANKRUPTCY, REORGANIZATION OR SIMILAR
PROCEEDING BY OR AGAINST DIAMOND SHAMROCK R & M OR BRAZOS OR ANY ASSIGNEE;
(G) ANY FAILURE TO OBTAIN, OR EXPIRATION, SUSPENSION OR OTHER
TERMINATION OF, OR INTERRUPTION TO, ANY REQUIRED LICENSES, PERMITS, CONSENTS,
AUTHORIZATIONS, APPROVALS OR OTHER LEGAL REQUIREMENTS;
(H) THE INVALIDITY OR UNENFORCEABILITY OF THIS GROUND LEASE OR ANY
OTHER INFIRMITY HEREIN OR ANY LACK OF POWER OR AUTHORITY OF BRAZOS OR DIAMOND
SHAMROCK R & M TO ENTER INTO THIS GROUND LEASE; OR
(I) ANY OTHER CIRCUMSTANCES OR HAPPENING WHATSOEVER, WHETHER OR
NOT SIMILAR TO ANY OF THE FOREGOING.
DIAMOND SHAMROCK R & M HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHTS WHICH IT MAY NOW HAVE OR WHICH AT ANY TIME
HEREAFTER MAY BE CONFERRED UPON IT, BY STATUTE OR OTHERWISE, TO TERMINATE,
CANCEL, QUIT, RESCIND OR SURRENDER THIS GROUND LEASE EXCEPT IN ACCORDANCE WITH
THE EXPRESS TERMS HEREOF.
Section 18.06. Non-Recourse. Brazos' obligations hereunder are
intended to be the limited obligations of the limited partnership and of the
corporation which is the general partner thereof. Notwithstanding any other
provision of this Ground Lease, Diamond Shamrock R & M agrees that the personal
liability of Brazos and the partners comprising Brazos shall be strictly and
absolutely limited to the Property and no recourse for the payment of any
amount due under this Ground Lease, or for any claim based thereon or otherwise
in respect thereof, shall be had against any other assets of the limited
partnership or of the general or of any limited partner of Brazos or any
incorporator, shareholder, officer, director or Affiliate (past, present or
future) of such general partner or limited partner, or of any Affiliate of
either, or of any successor corporation to any corporate general partner or
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any corporate limited partner of Brazos, it being understood that Brazos is a
limited partnership entering into the transactions involved in and relating to
this Ground Lease on the express understanding aforesaid.
Section 18.07. Notices.
(a) Any notice or request which by any provision of this Ground
Lease is required or permitted to be given by either party to the other shall
be deemed to have been given when delivered by hand (including, delivery by
courier), deposited in the mail, postage prepaid, by certified or registered
mail or, if promptly confirmed by mail or by hand-delivery, as provided above,
when sent by telex, or other written telecommunication, addressed to the
following specified addresses or to such other addresses as Brazos or Diamond
Shamrock R & M may specify by written notice to the other party:
If to Brazos:
Brazos River Leasing L.P.
2911 Turtle Creek Blvd., Suite 1240
Dallas, Texas 75219
Attention: Gregory C. Greene
Telephone: (214) 522-7296
Telecopy: (214) 520-2009
If to Diamond Shamrock R & M:
(i) By Mail:
Diamond Shamrock Refining and Marketing Company
P.O. Box 696000
San Antonio, Texas 78269-6000
Attention: Treasurer
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(ii) By Hand Delivery:
Diamond Shamrock Refining and Marketing Company
9830 Colonnade Boulevard
San Antonio, Texas 78230
Attention: Treasurer
Telephone: (210) 641-6800
Telex: 510-601-5725
Answerback: DIAMSHAM SNT UQ
Telecopy: (210) 641-8484
With a copy to any Assignee at such address as such Assignee may specify by
written notice to Brazos and Diamond Shamrock R & M.
(b) Brazos shall within five (5) Business Days give to Diamond
Shamrock R & M a copy of all notices received by Brazos pursuant to any Credit
Agreement and any other notices received with respect to any Property.
Section 18.08. Usury. No provision of this Ground Lease, the
Agreement for Ground Lease or any other instrument relating to this Ground
Lease, shall require the payment or permit the collection of interest in excess
of the maximum non-usurious interest rate under applicable law (the "Maximum
Rate"). If any excess interest in such respect is so provided for, or shall be
adjudicated to be so provided for, the provisions of this Section 18.08 shall
govern, and neither Diamond Shamrock R & M nor its successors or assigns shall
be obligated to pay the amount of such interest to the extent it is in excess
of the Maximum Rate. In determining the Maximum Rate, any interest shall be
spread over the term of the Ground Lease to the extent permitted by applicable
U.S. Federal or state law, notwithstanding the actual time for the payment of
any rent or other amounts hereunder. It is expressly stipulated and agreed to
be the intent of Brazos and Diamond Shamrock R & M at all times to comply with
applicable state law governing the Maximum Rate or the amount of interest
payable pursuant to this Ground Lease (or applicable U.S. Federal law to the
extent that it permits Brazos to contract for, charge, take, reserve or receive
a greater amount of interest than under state law). If the applicable law is
ever judicially interpreted so as to render usurious any amount called for
under the Ground Lease, the Agreement for Ground Lease or any of the other
documents relating to this Ground Lease or any amount contracted for, charged,
taken, reserved or received with respect
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to this Ground Lease, or if Brazos' exercise of any option herein or in any
other document contained to accelerate the payment of amounts required
hereunder results in Diamond Shamrock R & M having paid any interest in excess
of that permitted by applicable law, then it is Brazos' and Diamond Shamrock R
& M's intent that all excess amounts theretofore collected by Brazos be
credited on the remaining balance of payments due hereunder (or, if all amounts
due hereunder have been or would thereby be paid in full, refunded to Diamond
Shamrock R & M) and the provisions of this Ground Lease shall immediately be
deemed reformed in the amounts thereafter collectible hereunder reduced,
without the necessity of the execution of any new documents, so as to comply
with the applicable law, but so as to permit the recovery of the fullest amount
otherwise called for hereunder and under any other document relating hereto.
If at any time the amount of any interest for a year, would, but for this
Section 18.08, exceed the amount of interest that would have been accrued
during such year if the Maximum Rate had from time to time been in effect, the
total interest payable for such year shall be limited to the amount that would
have been accrued if the Maximum Rate had from time to time been in effect, and
to the fullest extent permitted by applicable law, such excess shall be (i)
spread and allocated to the preceding periods in which the interest paid was
less than the interest that would have been accrued at the Maximum Rate or (ii)
spread and allocated to subsequent periods in which the total payments on
account of interest are less than the interest that would have accrued at the
Maximum Rate.
Section 18.09. No Merger. There shall be no merger of this Ground
Lease or of the leasehold estate hereby created with the fee estate in any
Property by reason of the fact that the same person acquires or holds, directly
or indirectly, this Ground Lease or the leasehold estate hereby created or any
interest herein or in such leasehold estate as well as the fee estate in any
Property or any interest in such fee estate.
Section 18.10. Sale or Assignment by Brazos.
(a) Subject to Section 18.13(b), Brazos shall not sell or assign its
right, title, interest or obligations under this Ground Lease, except that
Brazos shall have the right to finance the acquisition and ownership of the
Property by selling, assigning or granting a security interest in its right,
title and interest in
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this Ground Lease and any or all amounts due from Diamond Shamrock R & M or any
third party under this Ground Lease, provided that any such sale, assignment or
grant of a security interest shall be subject to the rights and interests of
Diamond Shamrock R & M under this Ground Lease.
(b) Upon the occurrence of an event of default under the Credit
Agreement, any Assignee shall, except as otherwise agreed by Brazos and
Assignee, have all the rights, powers, privileges and remedies of Brazos
hereunder, and Diamond Shamrock R & M's obligations as between itself and such
Assignee hereunder shall not be subject to any claims or defense that Diamond
Shamrock R & M may have against Brazos. Upon written notice to Diamond
Shamrock R & M of any such assignment, Diamond Shamrock R & M shall attorn to
any Assignee, and Diamond Shamrock R & M shall thereafter make payments of
Basic Rent, Additional Rent and other sums due hereunder to Assignee, to the
extent specified in such notice, and such payments shall discharge the
obligation of Diamond Shamrock R & M to Brazos hereunder to the extent of such
payments. Anything contained herein to the contrary notwithstanding, no
Assignee shall be obligated to perform any duty, covenant or condition required
to be performed by Brazos hereunder, and any such duty, covenant or condition
shall be and remain the sole obligation of Brazos.
Section 18.11. Income Taxes. Brazos agrees that it will not file any
Federal, state or local income tax returns during the Lease Term or Renewal
Term, if any, with respect to any Property that are inconsistent with the
treatment of Diamond Shamrock R & M as owner of such Property for Federal,
state and local income tax purposes.
Section 18.12. Transfer on As-Is Basis. In connection with any sale
of Property pursuant to this Ground Lease, when Brazos transfers title, such
transfer shall be on an as-is, non-installment sale basis, without warranty by,
or recourse to, Brazos, but free of the Lien created by a Credit Agreement.
Section 18.13. Right to Perform for Diamond Shamrock R & M.
(a) If Diamond Shamrock R & M fails to perform or comply with any
of its covenants or agreements contained in this Ground Lease, Brazos may, upon
notice to Diamond Shamrock R & M but without waiving or releasing any
obligations or default, itself perform or
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comply with such covenant or agreement, and the amount of the reasonable
expenses of Brazos incurred in connection with such performance or compliance,
shall be payable by Diamond Shamrock R & M, not later than ten (10) days after
written notice by Brazos.
(b) Without in any way limiting the obligations of Diamond
Shamrock R & M hereunder, Diamond Shamrock R & M hereby irrevocably appoints
Brazos as its agent and attorney at the time at which Diamond Shamrock R & M is
obligated to deliver possession of any Property to Brazos, to demand and take
possession of such Property in the name and on behalf of Diamond Shamrock R & M
from whomsoever shall be at the time in possession thereof.
Section 18.14. Merger, Consolidation or Sale of Assets.
(a) Diamond Shamrock R & M may not consolidate with or merge into
any other corporation or sell all or substantially all of its assets to any
Person, except that Diamond Shamrock R & M may consolidate with or merge into
any other corporation, or sell all or substantially all of its assets to any
Person; provided that, the surviving corporation or transferee Person shall
assume, by execution and delivery of instruments satisfactory to Brazos, the
obligations of Diamond Shamrock R & M hereunder and become successor to Diamond
Shamrock R & M, but Diamond Shamrock R & M, if it is the surviving corporation,
shall not thereby be released, without the consent of Brazos, from its
obligations hereunder and, provided further, that such surviving corporation or
transferee Person will, on a pro forma basis, immediately after such
consolidation, merger or sale, possess a consolidated net worth greater than or
equal to that of Diamond Shamrock R & M immediately prior to such
consolidation, merger or sale and no Event of Default or Event of Property
Termination shall have occurred or result therefrom.
(b) Brazos may not consolidate with or merge into any other
corporation or sell all or substantially all of its assets to any Person,
except that Brazos may consolidate with or merge into any other corporation, or
sell all or substantially all of its assets to any Person; provided that, the
surviving corporation or transferee Person shall assume, by execution and
delivery of instruments satisfactory to Diamond Shamrock R & M, the obligations
of Brazos hereunder and become successor to Brazos, but Brazos shall not
thereby be released without the consent of Diamond
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Shamrock R & M from its obligations hereunder and, provided further, that such
surviving corporation or transferee Person will, on a pro forma basis,
immediately after such consolidation, merger or sale, possess a consolidated
net worth greater than or equal to that of Brazos immediately prior to such
consolidation, merger or sale and, provided further, that the Guaranty and the
Residual Guaranty Payment Support shall remain in full force and effect for the
benefit of the surviving corporation or transferee Person and Diamond Shamrock
R & M shall provide to Brazos such documents, opinions or other assurances to
such effect as Brazos may reasonably request.
(c) The terms and provisions of this Ground Lease shall be binding
upon and inure to the benefit of Brazos and Diamond Shamrock R & M and their
respective successors and assigns.
Section 18.15. Expenses. Diamond Shamrock R & M shall pay all of the
out-of-pocket costs and expenses incurred by Brazos and any Assignee in
connection with this Ground Lease, including without limitation the reasonable
fees and disbursements of counsel to Brazos and counsel to any Assignee.
Section 18.16. Payment of Taxes. In connection with the sale or
purchase of Property pursuant to this Ground Lease, Diamond Shamrock R & M
shall pay or shall cause the purchaser of such Property to pay in addition to
the purchase price, all transfer taxes, transfer gains taxes, mortgage
recording tax, if any, recording and filing fees and all other similar taxes,
fees, expenses and closing costs (including reasonable attorneys' fees) in
connection with the conveyance of such Property to Diamond Shamrock R & M or
any purchaser; provided that Diamond Shamrock R & M or any purchaser shall not
be required to pay U.S. Federal net income or capital gains taxes or to pay
state and local net income or capital gains taxes which are imposed by a state
or locality because of a relationship between Brazos and such state or locality
unrelated to ownership of such Property.
Section 18.17. Rule Against Perpetuities. The parties hereto do not
intend any interest created by this Ground Lease to be a perpetuity or to be
subject to invalidation under the perpetuities rule, however, if the rule is to
be applied, then the perpetuities period shall be twenty-one (21) years after
the last to die of the
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currently living great-grandchildren and/or grandchildren of George H. W. Bush.
Section 18.18. Reexecution. The parties hereto shall reexecute this
Ground Lease to the extent necessary to make this Ground Lease enforceable
under the laws of any State in which a Property is located.
Section 18.19. Purchase or Sale of Facility. Notwithstanding
anything to the contrary herein, Diamond Shamrock R & M shall not have the
right to purchase any Property or arrange for the sale of any Property to a
third party unless simultaneous with such purchase or sale any Facility located
on such Property is purchased by Diamond Shamrock R & M or sold to a third
party.
Section 18.20. Severability. In case one or more provisions of this
Ground Lease shall be invalid, illegal or unenforceable in any respect under
any applicable law, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected or impaired thereby.
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IN WITNESS WHEREOF, Brazos and Diamond Shamrock R & M have caused this
Amended and Restated Ground Lease Agreement to be executed and delivered by
their duly authorized officers as of the day and year first above written.
BRAZOS RIVER LEASING L.P.
By: Headwater Investments L.P.,
its General Partner
By: Headwater Holdings, Inc.,
its General Partner
By: /s/. GREGORY C. GREENE
-----------------------------------
Gregory C. Greene,
President
DIAMOND SHAMROCK REFINING
(Corporate Seal) AND MARKETING COMPANY
ATTEST:
By: /s/ R.C. BECKER
- ---------------------- -----------------------------------
Name: R.C. Becker
Title:
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<PAGE> 73
STATE OF NEW YORK Section
Section
COUNTY OF NEW YORK Section
BEFORE ME, the undersigned authority, personally appeared Gregory C.
Greene, President of HEADWATER HOLDINGS, INC., a Texas corporation, the general
partner of HEADWATER INVESTMENTS L.P.,, a Texas limited partnership, the
general partner of BRAZOS RIVER LEASING L.P., a Texas limited partnership,
known to me to be the person whose name is subscribed to the foregoing
instrument, and who acknowledged to me that he executed same for the purposes
herein expressed and in the capacity herein stated.
WITNESS MY HAND AND SEAL OF OFFICE this _____ day of December 1996.
NOTARY PUBLIC, STATE OF NEW YORK
STATE OF NEW YORK Section
Section
COUNTY OF NEW YORK Section
BEFORE ME, the undersigned authority, personally appeared
_____________________________, __________________ of DIAMOND SHAMROCK REFINING
AND MARKETING COMPANY, a Delaware corporation, known to me to be the person
whose name is subscribed to the foregoing instrument, and who acknowledged to
me that he executed same for the purposes herein expressed and in the capacity
herein stated.
WITNESS MY HAND AND SEAL OF OFFICE this _____ day of December 1996.
NOTARY PUBLIC, STATE OF NEW YORK
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EXHIBIT A
SCHEDULE OF INSURANCE
1. All risk direct physical damage insurance for the Property and
all improvements, equipment and structures located thereon in the amounts and
subject to the deductibles and self-insurance provisions that are applicable
under like insurance coverage maintained by Lessee for similar property and
equipment owned, leased or held by Lessee.
2. Comprehensive general public liability insurance, including,
without limitation, general auto liability, covering legal liability against
claims for bodily injury, death or property damage, occurring on, in or about
each Property and the improvements, equipment and structures located thereon,
or occurring as a result of the use of products sold or services rendered at a
Property in the minimum amount of $1,000,000 with respect to any one
occurrence, accident or disaster or incidence of negligence, together with
excess liability insurance covering the same risks to a combined single limit
of a minimum of $15,000,000 per occurrence, or any combination of primary and
excess liability insurance with the equivalent cumulative limits per
occurrence, which primary and excess liability coverage may be subject to such
deductibles and the Lessee may self-insure with respect to such coverage to the
extent of $1,000,000 per occurrence, or to such greater extent as may be
approved by Lessor in writing.
3. Pollution insurance covering physical damage to the Property
and the improvements, equipment, and structures located thereon and the legal
liability of Lessor and Lessee against claims for bodily injury, death or
property damage resulting from the seepage of or pollution by petroleum
products which are stored, used, handled or sold on or at Property, in the
minimum amount as may be required by law, or, if greater, in the minimum amount
as may be applicable under like insurance coverage maintained by Lessee for
similar property and equipment owned, leased or held by Lessee, under any
combination of primary and excess coverage, which primary and excess pollution
coverage may be subject to such deductibles and the Lessee may self-insure with
respect to such coverage to the extent of $10,000,000 per occurrence, or to
such greater extent as may be approved by Lessor in writing.
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<PAGE> 75
4. Workers' compensation and employers' liability insurance
covering Diamond Shamrock R & M's employees in such amount as is required by
law, or if permissible under state law, any legally appropriate alternative
providing substantially similar compensation for injured workers.
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<PAGE> 1
EXHIBIT 10.54
AMENDED AND RESTATED FACILITIES LEASE AGREEMENT
between
BRAZOS RIVER LEASING L.P.
and
DIAMOND SHAMROCK REFINING AND MARKETING COMPANY
Dated as of December 19, 1996
_________________________________________________________________
_________________________________________________________________
THIS AMENDED AND RESTATED FACILITIES LEASE AGREEMENT HAS BEEN
ASSIGNED AS SECURITY
FOR INDEBTEDNESS OF BRAZOS RIVER LEASING L.P.
SEE SECTION 19.10
This Amended and Restated Facilities Lease Agreement has been manually executed
in 9 counterparts, numbered consecutively from 1 through 9, of which this is
No.____. To the extent, if any, that this Amended and Restated Facilities
Lease Agreement constitutes
<PAGE> 2
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction) no security interest in this Amended and
Restated Facilities Lease Agreement may be created or perfected through the
transfer or possession of any counterpart other than the original executed
counterpart which shall be the counterpart identified as counterpart No. 1.
<PAGE> 3
TABLE OF CONTENTS
AMENDED AND RESTATED FACILITIES LEASE AGREEMENT
<TABLE>
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Page
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<S> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Forms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1.03. Recitals, Table of Contents, Titles, and Headings . . . . . . . . . . . . . . . . . 10
Section 1.04. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE II REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF DIAMOND SHAMROCK R & M . . . . . . . . . . . . . . . . 10
Section 2.01. Corporate Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.02. Authorization; Binding Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.03. Power and Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.04. Consents, Approvals, Authorizations. . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.05. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.06. Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.07. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.08. Delivery of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.09. Compliance with Legal Requirements and Insurance Requirements. . . . . . . . . . . 13
Section 2.10. Agreement for Facilities Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.11. Correction of Work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.12. No Encroachments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE III LEASE OF FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.01. Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.02. Facility Leasing Record. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.03. Operating Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IV DELIVERY AND ACCEPTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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<TABLE>
<S> <C>
Section 4.01. Acceptance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.02. Payments Final. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.03. No Warranties or Representations. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.04. Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE V LEASE TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.01. Lease Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.02. Insurable Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.03. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VI RENT AND OTHER PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.01. Basic Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.02. Other Amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.03. Additional Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.04. Payment in Advance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.05. Credit Agreement Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII RESTRICTED USE; COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.01. Insurance Requirement and Legal Requirement. . . . . . . . . . . . . . . . . . . . 18
Section 7.02. Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.03. Compliance with Other Requirements. . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.04. Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.05. No Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.06. Interference. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VIII MAINTENANCE, IMPROVEMENT AND REPAIR OF FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.01. Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.02. Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.03. Payment of Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.04. No Material Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.05. Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.06. Additions and Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.07. Environmental Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
ARTICLE IX INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.01. Liability and Property Damage. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.02. Additional Insureds; Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 9.04. Application of Proceeds of other than Loss or Substantial Taking . . . . . . . . . 26
Section 9.05. Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.06. Application in Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.07. Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 9.08. Covenant to Keep Insurance in Force. . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE X INDEMNITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10.01. Indemnified Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10.02. Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 10.03. Continuing Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 10.04. Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 10.05. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XI RENEWAL AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.01. Diamond Shamrock R & M's Right to Terminate. . . . . . . . . . . . . . . . . . . . 32
Section 11.02. Brazos' Right to Terminate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 11.03. Renewal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 11.04. Sales to Third Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.05. Advisement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.06. Additional Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 11.07. Termination of Facilities Lease. . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 11.08. Surrender of Facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XII ECONOMIC DISCONTINUANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.01. Uneconomic Facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.02. Uneconomic Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 12.03. Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 12.04. No Right to Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE XIII EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
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<TABLE>
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Section 13.01. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.02. Rights Upon Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 13.03. Events of Facility Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 13.04. Brazos' Right upon Event of Facility Termination. . . . . . . . . . . . . . . . . . 44
ARTICLE XIV LOSS OF OR DAMAGE TO FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 14.01. Diamond Shamrock R & M's Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 14.02. Repair. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 14.03. Facility Damaged Beyond Repair. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE XV CONDEMNATION OF FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 15.01. Taking of Substantially all of a Facility. . . . . . . . . . . . . . . . . . . . . 46
Section 15.02. Taking of Less than Substantially all of a Facility. . . . . . . . . . . . . . . . 46
Section 15.03. Grant of Minor Easements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE XVI LEASEHOLD INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE XVIII PERMITTED CONTESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE XIX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 19.01. Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 19.02. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 19.03. Modifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 19.04. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 19.05. No Offsets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 19.06. Non-Recourse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 19.07. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 19.08. Usury. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 19.09. No Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 19.10. Sale or Assignment by Brazos. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 19.11. Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 19.12. Transfer on As-Is Basis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 19.13. Right to Perform for Diamond Shamrock R & M. . . . . . . . . . . . . . . . . . . . 56
</TABLE>
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<TABLE>
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Section 19.14. Merger, Consolidation or Sale of Assets. . . . . . . . . . . . . . . . . . . . . . 57
Section 19.15. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 19.16. Payment of Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 19.17. Rule Against Perpetuities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 19.18. Reexecution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 19.20. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
List of Exhibits
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Exhibit A Schedule of Insurance
</TABLE>
(v)
<PAGE> 8
AMENDED AND RESTATED FACILITIES LEASE AGREEMENT
THIS AMENDED AND RESTATED FACILITIES LEASE AGREEMENT (this "Facilities
Lease") is made and entered into as of December 19, 1996, by and between BRAZOS
RIVER LEASING L.P., a Texas limited partnership ("Brazos"), and DIAMOND
SHAMROCK REFINING AND MARKETING COMPANY, a Delaware corporation ("Diamond
Shamrock R & M").
W I T N E S S E T H:
WHEREAS, this Facilities Lease is an amendment and restatement of that
certain Facilities Lease Agreement dated as of October 30, 1992, as amended,
among Brazos and Diamond Shamrock R & M; and
WHEREAS, Brazos may hereafter construct or acquire fee or leasehold
interests in certain gasoline/convenience stores and equipment; and
WHEREAS, on or about the date of this Facilities Lease Brazos and
Diamond Shamrock R & M entered into an Amended and Restated Agreement for
Facilities Lease, providing for the construction of such stores and purchase of
such equipment from time to time; and
WHEREAS, Diamond Shamrock R & M wishes to lease or sublease such
stores and equipment under the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Brazos and Diamond Shamrock R & M hereby agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Defined Terms. For the purposes of this Agreement each
of the following terms shall have the meaning specified with respect thereto:
"ABR Borrowings" means all borrowings by Brazos under a Credit
Agreement which bear interest based on an alternate base rate of interest
specified by a lender under such Credit Agreement.
<PAGE> 9
"Acquired Facilities Lease" means each facilities lease entered into
by Brazos under which a leasehold interest in a Facility is being leased to
Brazos by the owner of such Facility.
"Acquisition Cost" means for any Facility the sum of the amount of the
advances made pursuant to the Agreement for Facilities Lease with respect to
such Facility.
"Additional Rent" has the meaning set forth in Section 6.03 hereof.
"Affiliate" means any other person controlling, controlled by or under
direct or indirect common control with any Person. For the purposes of this
definition, "control," when used with respect to any specified Person, means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreement for Facilities Lease" means the Amended and Restated
Agreement for Facilities Lease, dated of even date herewith, between Brazos and
Diamond Shamrock R & M providing for the construction of Stores and the
acquisition of Store FF&E, as it may be further amended, restated, modified or
supplemented, from time to time, in accordance with the terms thereof.
"Assignee" means any lender or agent for a lender under a Credit
Agreement and each person, firm, corporation or other entity to which any part
of Brazos' interest under this Facilities Lease or in any Facility shall at the
time have been assigned, conditionally or otherwise, by Brazos.
"Assignment" means each assignment or security agreement referred to
in Section 19.10 hereof between Brazos and a third party, pursuant to which
Brazos assigns or grants a security interest in any of its rights under this
Facilities Lease to such third party, as from time to time amended.
"Basic Rent" means, with respect to any Facility, for each calendar
month the amount computed by multiplying the following:
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<PAGE> 10
(i) the Acquisition Cost of such Facility as of the
Effective Date with respect to the initial Basic Rent
Payment Date and thereafter, as of the preceding
Basic Rent Payment Date, by
(ii) a fraction having a numerator equal to the number of
days in such month and a denominator of 360, by
(iii) the Brazos Margin plus (A) if no Federal Funds
Borrowings, ABR Borrowings or CD Borrowings will be
outstanding during the Computation Period (as defined
below) the weighted average percentage cost per annum
of LIBOR Borrowings outstanding at any time during
the period from the first day of the month to and
including the last day of the month (the "Computation
Period") for which Basic Rent is being computed, or
(B) if no LIBOR Borrowings, ABR Borrowings or CD
Borrowings will be outstanding during the Computation
Period, the weighted average cost per annum of
Federal Funds Borrowings, or (C) if no LIBOR
Borrowings, Federal Funds Borrowings, or CD
Borrowings will be outstanding during the Computation
Period, the weighted average cost per annum of ABR
Borrowings, or (D) if no LIBOR Borrowings, Federal
Funds Borrowings or ABR Borrowings will be
outstanding during the Computation Period, the
weighted average cost per annum of CD Borrowings, or
(E) if any two or more of LIBOR Borrowings, Federal
Funds Borrowings, ABR Borrowings or CD Borrowings
will be outstanding at any time during the
Computation Period, a blended rate based on the
calculations referred to in clauses (A), (B), (C) and
(D) above,
plus, on the first Basic Rent Payment Date for which Basic Rent is due with
respect to such Facility, an additional amount computed by multiplying (i) and
(iii) above by a fraction having a numerator equal to the number of days from
the Effective Date of such Facility to the first Basic Rent Payment Date for
which Basic Rent is due with respect to such Facility and a denominator of 360,
plus, on the first Basic Rent Payment Date which follows a month in which the
Acquisition Cost was changed pursuant to Section 3.02(b) hereof prior to the
last two Business Days of such month, an
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<PAGE> 11
additional amount computed by multiplying (a) the difference between the
Acquisition Cost on the Basic Rent Payment Date and the Acquisition Cost on the
day immediately preceding the day the Acquisition Cost was changed and (b) the
rate in (iii) above by a fraction having a numerator equal to the number of
days from the date of the advance which changed the Acquisition Cost pursuant
to Section 3.02(b) hereof to such Basic Rent Payment Date and a denominator of
360, and plus, on the second Basic Rent Payment Date which follows a month in
which the Acquisition Cost was changed pursuant to Section 3.02(b) hereof
within the last two Business Days of such month, an additional amount computed
by multiplying (a) the difference between the Acquisition Cost on the Basic
Rent Payment Date and the Acquisition Cost on the day immediately preceding the
day the Acquisition Cost was changed and (b) the rate in (iii) above by a
fraction having a numerator equal to the number of days from the date of the
advance which changed the Acquisition Cost pursuant to Section 3.02(b) hereof
to such Basic Rent Payment Date and a denominator of 360. If any Federal Funds
Borrowings are not converted to LIBOR Borrowings, ABR Borrowings or CD
Borrowings on a Basic Rent Payment Date on which rent is due for such Facility,
or if any LIBOR Borrowings or CD Borrowings relating to such Facility is
subject to an Interest Period (as defined in the Credit Agreement) which is due
to expire prior to the next Basic Rent Payment Date, the cost per annum of
Federal Funds Borrowings, the relevant LIBOR Borrowings, ABR Borrowings or CD
Borrowings two Business Days prior to such Basic Rent Payment Date shall be
used for purposes of calculating the weighted average cost per annum of Federal
Funds Borrowings, the relevant LIBOR Borrowings, CD Borrowings or ABR
Borrowings pursuant to (iii) above for the month. If the actual weighted
average cost per annum of Federal Funds Borrowings, the relevant LIBOR
Borrowings, ABR Borrowings or CD Borrowings for such month is lower than the
weighted average cost per annum of Federal Funds Borrowings, the relevant LIBOR
Borrowings, ABR Borrowings or CD Borrowings calculated as provided in the
previous sentence, the amount of Basic Rent which Diamond Shamrock R & M
overpaid shall be credited towards Basic Rent on the following Basic Rent
Payment Date and, if the actual weighted average cost per annum of Federal
Funds Borrowings, the relevant LIBOR Borrowings, ABR Borrowings or CD
Borrowings for such month is higher than the weighted average cost per annum of
Federal Funds Borrowings, the relevant LIBOR Borrowings, ABR Borrowings or CD
Borrowings calculated as provided in the previous sentence, the amount of Basic
Rent which Diamond Shamrock R & M underpaid shall
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<PAGE> 12
be paid by Diamond Shamrock R & M on the following Basic Rent Payment Date.
"Basic Rent Payment Date" means the twentieth (20th) day of any
calendar month during the Lease Term or Renewal Term of any Facility or, if
such day is not a Business Day, the next succeeding Business Day.
"Brazos" means Brazos River Leasing L.P. or any successor or
successors to all of its rights and obligations hereunder and, for purposes of
Section 10.01(c), shall include any corporation, trust, individual, partnership
or other person or entity which computes its liability for income or other
taxes on a consolidated basis with Brazos or the income of which for purposes
of such taxes is determined or affected directly or indirectly by the income of
Brazos or its successor or successors.
"Brazos Margin" means the margin specified and calculated in
accordance with the letter from Brazos to Diamond Shamrock R & M dated of even
date herewith.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in Dallas, Texas are authorized or required by law to
close.
"CD Borrowings" means all borrowings by Brazos under a Credit
Agreement which bear interest based on the interest rate of certificates of
deposit of a lender under such Credit Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consent" means each consent of Diamond Shamrock R & M or Guarantor to
an Assignment, pursuant to which, among other things, Diamond Shamrock R & M or
Guarantor, as the case may be, consents to the terms of such Assignment insofar
as they relate to this Facilities Lease, as from time to time amended.
"Credit Agreement" means each credit or loan agreement among Brazos,
an agent for lenders, and a lender or lenders related to the financing of
Facilities and Property, as it may be amended, restated, modified or
supplemented, from time to time.
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<PAGE> 13
"Diamond Shamrock R & M" has the meaning set forth in the first
paragraph of this Facilities Lease.
"Effective Date" means with respect to any Facility, the date on which
such Facility is leased hereunder by Brazos to Diamond Shamrock R & M, as
evidenced by a Facility Leasing Record.
"Environmental Claim" means any third party (including governmental
agencies and employees) action, lawsuit, claim, demand, regulatory action or
proceeding, order, decree, consent agreement or notice of potential or actual
responsibility or violation (including claims or proceedings under the
Occupational Safety and Health Acts or similar laws or requirements relating to
health or safety of employees) which seeks to impose liability under any
Environmental Law.
"Environmental Law" means all Legal Requirements arising from,
relating to, or in connection with the Environment (as defined in 43 U.S.C.
Section 9601(8) (1988)), health, or safety, including without limitation (i)
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, and (ii) Legal Requirements relating to (a) pollution,
contamination, injury, destruction, loss, protection, cleanup, reclamation or
restoration of the air, surface water, groundwater, land surface or subsurface
strata, or other natural resources; (b) solid, gaseous or liquid waste
generation, treatment, processing, recycling, reclamation, cleanup, storage,
disposal or transportation; (c) exposure to pollutants, contaminants, hazardous
materials or wastes; (d) the safety or health of employees; or (e) the
manufacture, processing, handling, transportation, distribution in commerce,
use, storage or disposal of hazardous, medical, infectious, or toxic
substances, materials or waste.
"Event of Default" has the meaning set forth in Section 13.01 hereof.
"Event of Facility Termination" means any of the events specified in
Section 13.03.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and all regulations promulgated by the Securities and Exchange Commission
thereunder.
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<PAGE> 14
"Facilities Lease" means this Amended and Restated Facilities Lease
Agreement and each Facility Leasing Record.
"Facility" means each individual Store, together with the Store FF&E
installed in such Store, leased hereunder and when leased, evidenced by a
Facilities Leasing Record, but excluding all parcels of land on which such
Facility sits.
"Facility Leasing Record" means an instrument evidencing the lease or
sublease of a Facility under this Facilities Lease, as prepared and executed by
Brazos, as lessor or sublessor, accepted and executed by Diamond Shamrock R &
M, as lessee or sublessee.
"Federal Funds Borrowings" means all borrowings by Brazos under a
Credit Agreement which bear interest based on the Federal funds rate announced
by a lender under such Credit Agreement.
"FF&E Specifications" means the master list of furniture, fixtures and
equipment all or some of which will be installed in the Stores (which list
shall be specific with respect to the kind, quality, and quantities), appended
hereto as Exhibit D, as the same may be amended, modified, or supplemented from
time to time with Brazos's prior written consent, which consent shall not be
unreasonably withheld or delayed.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Ground Lease" means, with respect to any Property, the ground lease
by and between Brazos, as lessor, and Diamond Shamrock R & M, as lessee.
"Guarantor" means Ultramar Diamond Shamrock Corporation, a Delaware
corporation having its principal office at 9830 Colonnade Boulevard, San
Antonio, Texas 78230, and its successors.
"Guaranty" means the Guaranty Agreement, dated December 19, 1996, by
and between the Guarantor and Brazos, as it may be further amended, restated,
modified or supplemented, from time to time, in accordance with the terms
thereof.
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<PAGE> 15
"Indebtedness" for any Person, means (a) indebtedness of such Person
for borrowed money; (b) obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments; (c) obligations of such Person
to pay the deferred purchase price of property or services; (d) obligations of
such Person as lessee under capital leases; (e) reimbursement obligations in
respect of bonds or letters of credit; (f) obligations of such Person under
direct or indirect guaranties in respect of, and obligations (contingent or
otherwise) of such Person to purchase or otherwise acquire, or otherwise to
assure a creditor against loss in respect of, indebtedness or obligations of
others of the kinds referred to in clauses (a) through (e) above; (g)
indebtedness or obligations of others of the kinds referred to in clauses (a)
through (f) secured by any Lien on or in respect of any property of such Person
whether or not assumed by such Person; and (h) all liabilities of such Person
in respect of unfunded vested benefits under any Plan; provided, however, that
all trade accounts payable incurred in the ordinary course of business of such
Person and not overdue shall be excluded from the foregoing.
"Indemnified Person" has the meaning set forth in Section 10.01
hereof.
"Insurance Requirements" means all requirements of this Facilities
Lease with respect to insurance, all terms of any insurance policy covering or
applicable to any Facility, all requirements of the issuer of any such policy,
all statutory requirements and all orders, rules, regulations and other
requirements of any governmental body related to insurance applicable to any
Facility.
"Lease Term" has the meaning set forth in Section 5.01 hereof.
"Legal Requirements" means all laws, judgments, decrees, ordinances
and regulations and any other governmental rules, orders and determinations and
all requirements having the force of law, now or hereinafter enacted, made or
issued, whether or not presently contemplated, and all agreements, covenants,
conditions and restrictions, applicable to each Facility and/or the ownership,
operation or use thereof, including, without limitation, all requirements of
the Americans With Disabilities Act (P.L. 101-335) and environmental statutes,
compliance with which is required at any time during the Lease Term and any
Renewal Term, whether or not
-8-
<PAGE> 16
such compliance shall require structural, unforeseen or extraordinary changes
to any Facility or the operation, occupancy or use thereof.
"LIBOR Borrowings" means all borrowings by Brazos under a Credit
Agreement which bear interest based on the per annum rate of interest at which
Dollar deposits are offered by major banks in the London inter-bank market.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement and any capital lease having substantially the same
economic effect as any of the foregoing).
"Lien of Record" means, with the exception of the Lien of a lender or
lender's agent under a Credit Agreement, any mechanics' or materialmen's lien
for which Diamond Shamrock R & M does not hold retainage or trapped funds in
amounts required by applicable law, lien securing the payment of taxes,
assessments or governmental charges and levies which are due, payable and
delinquent, judgment lien or any other filed, recorded, or docketed matter
(whether or not the same shall constitute a Permitted Encumbrance or be the
subject of a Permitted Contest) which (a) may result in a sale for satisfaction
of same, a loss, forfeiture, reversion of title, or right of reentry with
respect to any Facility or (b) whether or not valid, is reasonably likely to
interfere with the due and timely payment of any sum payable or the exercise of
any of the rights or the performance of any of the duties or responsibilities
of Diamond Shamrock R & M under this Facilities Lease.
"Maximum Rate" has the meaning set forth in Section 19.08 hereof.
"Permits" means all consents, licenses and building permits required
for construction, completion, and operation of an individual Facility in
accordance with all Legal Requirements affecting the particular Facility
including, without limitation, all environmental permits.
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<PAGE> 17
"Permitted Contest" has the meaning set forth in paragraph (a) of
Article XVIII hereof.
"Permitted Encumbrances" means the following Liens and other matters
affecting the title or leasehold interest of any Facility: (a) mechanics' and
materialmen's liens incurred in good faith in the ordinary course of business
and securing obligations that are junior to any Liens of Assignee not exceeding
$200,000 in the aggregate which are not yet due or which are subject to a
Permitted Contest; (b) Liens securing the payment of taxes, assessments and
governmental charges or levies, either not delinquent or subject to a Permitted
Contest; (c) zoning and planning restrictions, subdivision and platting
restrictions, easements, rights-of-way, licenses, reservations, covenants,
conditions, waivers, restrictions on the use of property, minor encroachments
or minor irregularities of title which do not materially impair (i) the
intended use of the Facility by Diamond Shamrock R & M or (ii) the value of any
Facility; (d) the lien created contemporaneously with the acquisition of such
Facility pursuant to, and securing the obligations under, a Credit Agreement;
(e) any mechanics' or materialmen's lien for which Diamond Shamrock R & M holds
retainage or trapped funds in amounts required by and in accordance with
applicable law; and (f) any other matters, provided that such other or
additional matters shall be approved in writing by Brazos and Assignee, whose
approval shall not be unreasonably withheld or delayed.
"Person" means an individual, partnership, corporation, business
trust, joint venture, joint stock company, trust, unincorporated association or
Governmental Authority or other entity of whatever nature.
"Potential Default" means any event which, but for the lapse of time,
or giving of notice, or both, would constitute an Event of Default.
"Potential Facility Termination" means any event which, but for the
lapse of time, or giving of notice, or both, would constitute an Event of
Facility Termination.
"Property" means any and all parcels of land in which Brazos has
acquired a fee interest or leasehold interest and leased or subleased under a
ground lease to Diamond Shamrock R & M, in each
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<PAGE> 18
case for the operation of a Facility thereon, but excluding all improvements
thereon and all structures, equipment and materials affixed thereon or located
thereon, therein or thereunder.
"Renewal Term" has the meaning set forth in Section 11.03 hereof.
"Reports" has the meaning set forth in Section 2.05 hereof.
"Residual Guaranty Payment Support" means the Residual Guaranty
Payment Support dated of even date herewith entered into by Guarantor, as it
may be restated, amended or supplemented from time to time.
"Revised Facility Leasing Record" means a Facility Leasing Record
executed under the terms of Section 3.02(b) hereof.
"Store" means all improvements of whatever kind or character now or
hereafter located on, in or under or affixed to an individual Property,
including, without limitation, any utilities, storage tanks, paving, signage or
lighting, and all additions, replacements and subsequent replacements thereof
(including any Additional Improvements).
"Store FF&E" means the specific items from the FF&E Specifications
which are installed in a particular Store and including all additions,
replacements and subsequent replacements of such items (including any
Additional Improvements).
"Uneconomic Notice" has the meaning set forth in Section 12.01 hereof.
"Uneconomic Facility" has the meaning set forth in Section 12.01
hereof.
"Unitary Method of Taxation" means a method of taxation under which
the business income of individual corporations in a commonly controlled
enterprise which may be deemed to operate in the same general line of business
as a corporation or corporations subject to a state's taxing jurisdiction is
aggregated regardless of whether the individual corporations have a tax nexus
with, or presence in, such state and is then apportioned to such state based on
an apportionment formula.
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Section 1.02. Forms. All forms specified by the text hereof or by
reference to exhibits attached hereto shall be substantially as set forth
herein, subject to such changes by Brazos and Diamond Shamrock R & M by mutual
consent that do not alter the substantive rights of the parties hereto or of
the Assignees or as may be required by applicable laws hereafter enacted.
Section 1.03. Recitals, Table of Contents, Titles, and Headings. The
terms and phrases used in the recitals of this Facilities Lease have been
included for convenience of reference only and the meaning, construction, and
interpretation of such words and phrases for purposes of this Facilities Lease
shall be determined solely by reference to Section 1.01 hereof. The table of
contents, titles, and headings of the Articles and Sections of this Facilities
Lease have been inserted for convenience of reference only and are not to be
considered a part hereof and shall not in any way modify or restrict any of the
terms or provisions hereof and shall not be considered or given any effect in
construing this Facilities Lease or any provision hereof or in ascertaining
intent, if any question of intent should arise.
Section 1.04. Interpretation. Unless the context requires otherwise,
words of the masculine gender shall be construed to include correlative words
of the feminine and neuter genders and vice versa, and words of the singular
number shall be construed to include correlative words of the plural number and
vice versa. This Facilities Lease, and all the terms and provisions hereof,
shall be liberally construed to effect the purposes set forth herein and to
sustain the validity of this Facilities Lease.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
OF DIAMOND SHAMROCK R & M
Diamond Shamrock R & M represents and warrants to Brazos and agrees as
follows:
Section 2.01. Corporate Matters. Diamond Shamrock R & M (i) has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of Delaware, (ii) has full corporate power
and authority to own and operate its
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properties and to conduct its business as presently conducted and full
corporate power, authority and legal right to execute, deliver and perform its
obligations under this Facilities Lease, the Agreement for Facilities Lease and
any Consent, and (iii) is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction, including, without
limitation, the States of Arizona, Arkansas, Colorado, Kansas, Louisiana, New
Mexico, Oklahoma and Texas, in which its ownership or leasing of properties or
the conduct of its business requires such qualification and where
non-qualification, singly or in the aggregate, would materially adversely
affect the financial condition or creditworthiness of Diamond Shamrock R & M,
or would impair the ability of Diamond Shamrock R & M to perform its
obligations under this Facilities Lease or under the Agreement for Facilities
Lease.
Section 2.02. Authorization; Binding Agreement. This Facilities
Lease has been duly authorized, executed and delivered by Diamond Shamrock R &
M and, assuming the due authorization, execution and delivery of this
Facilities Lease by Brazos, this Facilities Lease is a legal, valid and binding
obligation of Diamond Shamrock R & M, enforceable according to its terms,
subject, as to enforceability, to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
Section 2.03. Power and Authority. The consummation of the
transactions herein contemplated and the performance and observance of Diamond
Shamrock R & M's obligations under this Facilities Lease and any Consent have
been duly authorized by all necessary corporate action on the part of Diamond
Shamrock R & M. The execution, delivery and performance by Diamond Shamrock R
& M of this Facilities Lease and any Consent will not result in any violation
of any term of the certificate of incorporation or the by-laws of Diamond
Shamrock R & M, do not require stockholder approval or the approval or consent
of any trustee or holders of Indebtedness of Diamond Shamrock R & M except such
as have been obtained prior to the date hereof and will not conflict with or
result in a breach of any terms or provisions of, or constitute a default
under, or result in the creation or imposition of any Lien (other than a
Permitted Encumbrance on any Facility as may be contemplated herein) upon any
property or assets of Diamond Shamrock R & M under, any indenture, mortgage or
other agreement or
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instrument to which Diamond Shamrock R & M is a party or by which it or any of
its property is bound where breach or default, singly or in the aggregate,
could materially adversely affect (i) the financial condition or
creditworthiness of Diamond Shamrock R & M or (ii) its ability to perform its
obligations under the Agreement for Facilities Lease, this Facilities Lease,
the Ground Lease or the Agreement for Ground Lease referred to in the Ground
Lease or the Consent executed by Diamond Shamrock R & M and of even date
herewith, or any existing applicable law, rule, regulation, license, judgment,
order or decree of any Governmental Authority or court having jurisdiction over
Diamond Shamrock R & M or any of its activities or properties
Section 2.04. Consents, Approvals, Authorizations. There are no
consents, licenses, orders, authorizations or approvals of, or notices to or
registrations with, any Governmental Authority which are required in connection
with the valid execution, delivery and performance of this Facilities Lease
that have not been obtained or made, except such permits and licenses as
Diamond Shamrock R & M will be required to obtain for the construction,
installation, occupancy, use or operation of a specific Facility and which, in
the ordinary course of business, are not obtained until just prior to the
commencement of such construction, installation, occupancy, use or operation,
and any such consents, licenses, orders, authorizations, approvals, notices and
registrations that have been obtained or made are in full force and effect.
Section 2.05. Financial Statements. Diamond Shamrock R & M has
caused to be furnished to Brazos copies of Guarantor's most recent Annual
Report on Form 10-K and each subsequent Quarterly Report on Form 10-Q (the
"Reports"). The financial statements contained in such documents fairly
present the financial position, results of operations and changes in financial
position of Guarantor as of the dates and for the periods indicated therein and
comply with all requirements of the Exchange Act.
Section 2.06. Changes. Since the date of the most recent Annual
Report on Form 10-K delivered pursuant to Section 2.05, there has been no
adverse change in the financial condition or business of Diamond Shamrock R & M
or the Guarantor which would materially impair the ability of Diamond Shamrock
R & M to perform its obligations under this Facilities Lease or which would
materially impair the ability of the Guarantor to perform its
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obligations under the Guaranty or the Residual Guaranty Payment Support.
Section 2.07. Litigation. Except as disclosed in the Reports,
there is no action, suit, proceeding or investigation at law or in equity by or
before any court, governmental body, agency, commission or other tribunal now
pending or, to the best knowledge of Diamond Shamrock R & M after due inquiry,
threatened against or affecting Diamond Shamrock R & M or the Guarantor or any
property or rights of Diamond Shamrock R & M or the Guarantor, which affects
any Facility, as to which there is a significant possibility of an adverse
determination, and which if adversely determined, may have a material adverse
impact on the financial condition or business of Diamond Shamrock R & M or the
Guarantor or which, if adversely determined, could materially impair the
ability of Diamond Shamrock R & M to perform its obligations hereunder or of
the Guarantor to perform its obligations under the Guaranty or the Residual
Guaranty Payment Support, or which, if adversely determined, may have a
material adverse impact on the value or intended use of a Facility and there is
no action, suit, proceeding or investigation at law or in equity by or before
any court, governmental body, agency, commission or other tribunal now pending
or, to the best knowledge of Diamond Shamrock R & M after due inquiry,
threatened which questions or would question the validity of this Facilities
Lease.
Section 2.08. Delivery of Information. Diamond Shamrock R & M
shall deliver to Brazos from time to time, (i) promptly upon filing under the
Exchange Act or mailing to shareholders, copies of the Guarantor's Annual
Reports on Form 10-K, the Guarantor's Quarterly Reports on Form 10-Q and any
other reports the Guarantor files under the Exchange Act, and any report or
mailing made to Guarantor's shareholders, (ii) promptly upon request, such
other information with respect to Diamond Shamrock R & M's and the Guarantor's
operations, business, property, assets or financial condition as Brazos shall
reasonably request, (iii) promptly after an officer of Diamond Shamrock R & M
obtains knowledge of any Event of Default or Event of Facility Termination
hereunder or of any Potential Default or Potential Facility Termination, a
certificate of an officer of Diamond Shamrock R & M specifying the nature and
period of existence of such Event of Default, Event of Facility Termination,
Potential Default or Potential Facility Termination, and what action, if any,
Diamond Shamrock R & M has taken, is taking, or proposes to take with respect
thereto, (iv) promptly
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after an officer of Diamond Shamrock R & M obtains knowledge of any material
adverse change in the financial condition or business of Diamond Shamrock R & M
or Guarantor or of any litigation of the type described in Section 2.07, a
certificate of an officer of Diamond Shamrock R & M describing such change or
litigation as the case may be, (v) promptly after Diamond Shamrock R & M
obtains knowledge of any and all Liens, other than Permitted Encumbrances, on,
or other matters, including any litigation affecting a Facility, which may
materially adversely affect the value or intended use of, any Facility, a
detailed statement describing each such Lien or other matter and (vi) promptly
after Diamond Shamrock R & M obtains knowledge of any Environmental Claim, a
detailed statement describing such Environmental Claim and what action, if any,
Diamond Shamrock R & M has taken, is taking, or proposes to take with respect
thereto.
Section 2.09. Compliance with Legal Requirements and Insurance
Requirements. The operation, use and physical condition of the Facilities
comply in all material respects with the Insurance Requirements and are in full
compliance with all Legal Requirements, except (a) in the case of Legal
Requirements with respect to laws affecting the environment, to the extent
non-compliance was not the result of willful disregard of a Legal Requirement
by Diamond Shamrock R & M and Diamond Shamrock R & M acts diligently to cure
such non-compliance upon becoming aware of it or (b) any Legal Requirement the
non-compliance with which, individually or in the aggregate, (i) unless any
criminal liability could result from a failure to comply therewith, could not
reasonably be expected to cause either Brazos or any Assignee to incur civil
liability for which Brazos and any Assignee are not adequately indemnified
(Diamond Shamrock R & M's obligations under Article X of this Facilities Lease
shall be deemed to be adequate indemnification if no Event of Default, Event of
Facility Termination, Potential Default or Potential Facility Termination
exists and if such civil liability is reasonably likely to be less than
$500,000 per Facility and $1,000,000 in the aggregate for all Facilities), (ii)
will not result in a material diminution in the value of any Facility, (iii) is
consistent with business practices normal in the industry of Diamond Shamrock R
& M, (iv) shall not involve any material danger that any Facility would be
subject to sale, forfeiture or loss, as a result of failure to comply
therewith, and (v) is permitted under the provisions of the Acquired Facilities
Lease, if any, on such Facility.
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Section 2.10. Agreement for Facilities Lease. Each Store built
pursuant to the Agreement for Facilities Lease was built and leased in
accordance with the terms of the Agreement for Facilities Lease. The
representations and warranties of Diamond Shamrock R & M in the Agreement for
Facilities Lease are true and correct in all material respects.
Section 2.11. Correction of Work. Upon demand of Brazos, Diamond
Shamrock R & M shall correct any structural defect in any Store and shall
replace any Store FF&E which does not conform to FF&E Specifications.
Section 2.12. No Encroachments. Each Store is constructed entirely on
its Property and does not encroach upon or overhang (unless consented to by the
affected property owner) any easement or right-of-way or the land of others,
and is wholly within any building restriction lines, however established,
except such non-structural encroachments or overhanging projections as may be
easily removed or corrected without affecting the value or intended use of the
Facility.
ARTICLE III
LEASE OF FACILITY
Section 3.01. Lease. Subject to the terms and conditions hereof,
Brazos shall lease to Diamond Shamrock R & M, and Diamond Shamrock R & M shall
lease from Brazos pursuant to this Facilities Lease, or sublease in the case of
an Acquired Facilities Lease, any Facility, when Brazos makes an advance under
the Agreement for Facilities Lease with respect to such Facility and such
Facility is acquired under the Agreement for Facilities Lease, or if no advance
is made with respect to a Facility under an Acquired Facilities Lease, when
Brazos enters into such Acquired Facilities Lease. The Effective Date of the
lease or sublease of each Facility shall be the date such Facility is acquired
by or leased to Brazos, as applicable, pursuant to the foregoing.
Section 3.02. Facility Leasing Record. (a) The lease of each
Facility shall be evidenced by a Facility Leasing Record, or if the terms of
(b) or (c) below apply, a Revised Facility Leasing Record. Each Facility
Leasing Record shall give a full description
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of the Facility covered thereby, the Acquisition Cost of such Facility, the
Lease Term for such Facility, the location of such Facility and such other
details as Brazos, Diamond Shamrock R & M and any Assignee may from time to
time agree. Diamond Shamrock R & M shall provide to Brazos the information
necessary to describe in the Facility Leasing Record the Facility, except that
Brazos shall provide, pursuant to the terms hereof, the Acquisition Cost and
the Lease Term. Execution and delivery by Diamond Shamrock R & M of a Facility
Leasing Record shall constitute (i) acknowledgment by Diamond Shamrock R & M
that the Facility specified in such Facility Leasing Record has been delivered
to Diamond Shamrock R & M in good condition and has been accepted for lease
hereunder by Diamond Shamrock R & M as of the Effective Date of the Facility
Leasing Record, (ii) acknowledgment by Diamond Shamrock R & M that the Facility
specified in such Facility Leasing Record is subject to all of the covenants,
terms and conditions of this Facilities Lease, and (iii) certification by
Diamond Shamrock R & M that the representations and warranties contained in
Article II of this Facilities Lease are true and correct in all material
respects on and as of the Effective Date of the Facility Leasing Record as
though made on and as of such date and that there exists on such date no Event
of Default, Event of Facility Termination, Potential Default or Potential
Facility Termination.
(b) Upon the making of a Reconciliation Advance or Additional Advance
(as such terms are defined in the Agreement for Facilities Lease) for a
Facility, Brazos and Diamond Shamrock R & M shall execute a Revised Facility
Leasing Record to reflect the change in Acquisition Cost for such Facility
caused by such advance.
(c) Upon the release or disposition of a Facility or any portion
thereof and the application of proceeds therefrom in accordance with Section
9.1(a)(vii) of the Credit Agreement, Brazos and Diamond Shamrock R & M shall
execute a Revised Facility Leasing Record to reflect the change in Acquisition
Cost for such Facility caused by such release or disposition.
Section 3.03. Operating Lease.
Brazos and Diamond Shamrock R & M hereby declare that it is their
mutual intent that for accounting and regulatory purposes this Facilities Lease
be treated as an operating lease and not an instrument or evidence of
indebtedness, and that the relationship
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between Brazos and Diamond Shamrock R & M under this Facilities Lease shall be
that of lessor and lessee only. Title to and ownership of any Facility shall
at all times remain in Brazos and at no time become vested in Diamond Shamrock
R & M except in accordance with an express provision of this Facilities Lease.
Diamond Shamrock R & M does not hereby acquire any right, equity, title or
interest in or to any Facility, except pursuant to the terms hereof.
ARTICLE IV
DELIVERY AND ACCEPTANCE
Section 4.01. Acceptance. Diamond Shamrock R & M shall accept
Facilities built or acquired by purchase or lease pursuant to the Agreement for
Facilities Lease. Brazos shall not be liable to Diamond Shamrock R & M for any
failure to build or obtain, or delay in building or obtaining, any Facility or
any delay in the delivery of title or possession thereof to Diamond Shamrock R
& M.
Section 4.02. Payments Final. Each payment of Basic Rent, Additional
Rent and any other amount due hereunder made by Diamond Shamrock R & M shall be
final, and Diamond Shamrock R & M, without waiving any other remedies it may
have, will not seek or have any right to recover all or any part of such
payment from Brazos or any Assignee for any reason whatsoever. The making of
payments under this Facilities Lease by Diamond Shamrock R & M (including
payments pursuant to Article X) shall not be deemed to be a waiver of any claim
or claims that Diamond Shamrock R & M may assert against Brazos or any other
person. Brazos agrees to repay Diamond Shamrock R & M amounts paid to Brazos to
the extent such payments were in error and are not required by the various
terms and provisions of this Facilities Lease.
Section 4.03. No Warranties or Representations.
Notwithstanding any other provision contained in this Facilities Lease, it is
specifically understood and agreed that neither Brazos nor any Assignee nor any
Affiliate of either, nor anyone acting on behalf of any of them makes any
warranties or representations or has any responsibility to disclose any
relevant information, or has any other responsibility or duty, nor, except as
set forth in Section 19.11 of this Facilities Lease, has Brazos or any Assignee
or any Affiliate of either, or anyone acting on behalf of any of
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them made any covenants or undertakings, as to the accounting treatment to be
accorded Diamond Shamrock R & M or as to the U.S. Federal or any state income
or any other tax consequences, if any, to Diamond Shamrock R & M as a result of
or by virtue of the transactions contemplated by this Facilities Lease.
Section 4.04. Quiet Enjoyment. During the Lease Term or Renewal
Term, if any, of any Facility hereunder and so long as no Event of Default,
Event of Facility Termination, Potential Default or Potential Facility
Termination shall have occurred and be continuing, Brazos covenants that as
between Brazos and Diamond Shamrock R & M, Diamond Shamrock R & M shall have
the right to quiet enjoyment of the Facility on the terms and conditions
provided in this Facilities Lease without any interference from Brazos.
Diamond Shamrock R & M agrees to attorn to any Assignee in the event such
Assignee succeeds to Brazos' interest in the Facility, and Diamond Shamrock R &
M will not hold the Assignee responsible for Brazos' obligations incurred in
the period prior to the succession of the Assignee to Brazos' interest.
ARTICLE V
LEASE TERM
Section 5.01. Lease Term. The "Lease Term" with respect to any
Facility leased hereunder shall commence on the Effective Date for such
Facility and shall end on December 19, 2003. The lease of any Facility may be
renewed for two (2) additional seven (7) year terms pursuant to, and in
accordance with, Section 11.03. The Lease Term or any Renewal Term may be
terminated earlier pursuant to Articles XI, XII, XIII, XIV or XV hereof or
otherwise pursuant to operation of any Legal Requirements.
Section 5.02. Insurable Interest. Notwithstanding anything contained
in this Article V and to the extent that Diamond Shamrock R & M or any
additional insureds named pursuant to Section 9.02 of this Facilities Lease
have an insurable interest therein, the provisions of Articles IX and X and
Section 13.01 hereof shall apply with respect to any Facility from the time
such Facility is acquired by Brazos.
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Section 5.03. Termination. Notwithstanding anything contained in
this Article V or Article XI, this Facilities Lease shall terminate on December
19, 2017, unless earlier terminated.
ARTICLE VI
RENT AND OTHER PAYMENTS
Section 6.01. Basic Rent. Diamond Shamrock R & M hereby agrees to
pay Brazos on each Basic Rent Payment Date, Basic Rent for the calendar month
in which such Basic Rent Payment Date falls with respect to each Facility
leased prior to the last two (2) Business Days of the preceding calendar month.
Brazos shall notify Diamond Shamrock R & M at least two Business Days prior to
each Basic Rent Payment Date of the amount of the Basic Rent due with respect
to each Facility on such Basic Rent Payment Date.
Section 6.02. Other Amounts. Diamond Shamrock R & M hereby agrees to
pay on demand all amounts (other than Basic Rent) due hereunder, including,
without limitation, all amounts payable to any Indemnified Person pursuant to
Article X hereof.
Section 6.03. Additional Rent. Diamond Shamrock R & M shall pay to
Brazos from time to time, on demand, as additional rent ("Additional Rent") (i)
amounts required to reimburse Brazos for its obligations, costs and expenses
(not previously included in the formula for Basic Rent) incurred in acquiring,
financing and leasing the Facility, and (ii) to the extent legally enforceable,
interest on each overdue amount not paid by Diamond Shamrock R & M to Brazos as
provided in this Facilities Lease from the date such overdue amount was due
until paid at the per annum rate of interest equal to the most recent rate of
interest calculated pursuant to paragraph (iii) of the definition "Basic Rent"
plus two percent (2%). Diamond Shamrock R & M shall also pay to Brazos on
demand an amount equal to any reasonable expenses and attorneys' fees incurred
by Brazos in collecting such unpaid sums and enforcing the obligations for such
unpaid sums.
Section 6.04. Payment in Advance. Basic Rent and Additional Rent and
any other amount payable by Diamond Shamrock R & M to Brazos shall be paid
sufficiently in advance of the date due to
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assure that immediately available funds in the full amount due are available on
the date due, to such account of Brazos at such bank, or to such account of
such other person at such bank, or otherwise as Brazos may from time to time
designate.
Section 6.05. Credit Agreement Losses. In addition to all other
payment obligations hereunder, if the lease for any Facility is terminated for
any reason prior to the end of the Lease Term or, if applicable, Renewal Term,
then Diamond Shamrock R & M shall pay to Brazos within three Business Days
after receipt of the billing statement referred to below an additional amount
compensating Brazos for all penalties, costs and expenses (including
out-of-pocket costs and expenses) as are incurred by Brazos under any Credit
Agreement in connection with such termination and as are set forth in a billing
statement sent by Brazos to Diamond Shamrock R & M containing the calculation
thereof in reasonable detail.
ARTICLE VII
RESTRICTED USE; COMPLIANCE WITH LAWS
Section 7.01. Insurance Requirement and Legal Requirement. So long
as no Event of Default or Event of Facility Termination shall have occurred and
be continuing, Diamond Shamrock R & M may use the Facilities in the regular
course of its business for any lawful purpose. Diamond Shamrock R & M will not
do or permit any act or thing which is contrary in any material respect to any
Insurance Requirement or which is contrary to any Legal Requirement or which
might impair, other than in the normal use thereof, the value or usefulness of
any Facility; provided, that Diamond Shamrock R & M shall not be required to
comply with any Legal Requirements if, (a) in the case of Legal Requirements
with respect to laws affecting the environment, such non-compliance was not the
result of willful action by Diamond Shamrock R & M and Diamond Shamrock R & M
acts diligently to cure such non-compliance upon becoming aware of it; or (b)
unless any criminal liability could result from a failure to comply therewith,
such non-compliance, individually or in the aggregate, (i) could not reasonably
be expected to cause either Brazos or any Assignee to incur civil liability
which, in the sole judgment of Brazos or any Assignee, is not adequately
indemnified (Diamond Shamrock R & M's obligations under Article X of this
Facilities Lease shall be deemed to be
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adequate indemnification if no Event of Default, Event of Facility Termination,
Potential Default or Potential Facility Termination exists and if such civil
liability is reasonably likely to be less than $500,000 per Facility and
$1,000,000 in the aggregate for all Facilities), (ii) will not result in a
material diminution in the value of any Facility, (iii) is consistent with
business practices normal in the industry of Diamond Shamrock R & M, (iv) shall
not involve any material danger that any Facility would be subject to sale,
forfeiture or loss, as a result of failure to comply therewith, and (v) is
permitted under the provisions of the Acquired Facilities Lease, if any, on
such Facility.
Section 7.02. Filings. Diamond Shamrock R & M shall promptly and
duly execute, deliver, file and record, at Diamond Shamrock R & M's expense,
all such documents, statements, filings and registrations, and take such
further action as Brazos or any Assignee shall from time to time reasonably
request in order to establish, perfect and maintain Brazos' or such Assignee's
title to and interest in the Facilities and any Assignee's interest in this
Facilities Lease or any Facility as against Diamond Shamrock R & M or any third
party in any applicable jurisdiction. As fixtures, furniture and equipment are
substituted pursuant to Section 8.05 hereof for Store FF&E subject to this
Facilities Lease, title to such substitute fixtures, furniture and equipment
shall automatically be transferred to Brazos and such fixtures, furniture and
equipment shall be subject to this Facilities Lease and title to the existing
Store FF&E for which such fixtures, furniture and equipment is being
substituted shall be released by Brazos. Diamond Shamrock R & M may, after
thirty (30) days' written notice in writing to Brazos and each Assignee and at
Diamond Shamrock R & M's own cost and expense, change the place of principal
location of any Store FF&E, provided that prior notice shall not be required in
the case of Store FF&E used for transportation (such as, without limitation,
automobiles and trucks), but in such event Diamond Shamrock R & M shall notify
Brazos in writing of the change of the principal location of such
transportation Store FF&E not later than thirty (30) days after such change is
made. Notwithstanding the foregoing, no change of location shall be undertaken
unless and until all Legal Requirements shall have been met; provided, that
Diamond Shamrock R & M shall not be required to comply with any Legal
Requirements the noncompliance with which, individually or in the aggregate,
(i) unless any criminal liability could result from a failure to comply
therewith, could not reasonably be expected to
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cause either Brazos or any Assignee to incur civil liability which, in the sole
judgment of Brazos or any Assignee, is not adequately indemnified (Diamond
Shamrock R & M's obligations under Article X of this Facilities Lease shall be
deemed to be adequate indemnification if no Event of Default, Event of Facility
Termination, Potential Default or Potential Facility Termination exists and if
such civil liability is reasonably likely to be less than $500,000 per Facility
and $1,000,000 in the aggregate for all Facilities), (ii) will not result in a
material diminution in the value of the Facility, (iii) is consistent with
business practices normal in the industry of Diamond Shamrock R & M, (iv) shall
not involve any material danger that any Facility would be subject to sale,
forfeiture or loss, as a result of failure to comply therewith, and (v) is
permitted under the provisions of the Acquired Facilities Lease, if any, on
such Facility. At least once each year prior to the anniversary of the date of
this Facilities Lease, and more frequently at the reasonable request of Brazos
or Assignee, Diamond Shamrock R & M shall advise Brazos in writing where all
Store FF&E leased hereunder as of such date is principally located.
Section 7.03. Compliance with Other Requirements. Diamond Shamrock R
& M shall use every precaution which is commercially reasonable and which is
usually employed by corporations engaged in a business which involves owning or
operating similar property or equipment to prevent loss or damage to Facilities
and to prevent injury to third persons or property of third persons. Diamond
Shamrock R & M shall cooperate fully with Brazos and all insurance companies
providing insurance pursuant to Article IX hereof in the investigation and
defense of any claims or suits arising from the ownership or operation of Store
FF&E or ownership, use, or occupancy of the Store, provided that nothing
contained in this Section 7.03 shall be construed as imposing on Brazos any
duty to investigate or defend any such claims or suits. Diamond Shamrock R & M
shall comply and shall use its commercially reasonable best efforts to cause
all persons using or operating Store FF&E or using or occupying Stores to
comply with all Insurance Requirements and Legal Requirements regarding
acquiring, titling, registering, leasing, insuring, using, occupying, operating
and disposing of Facilities, and, if applicable, the licensing of operators
thereof; provided, that Diamond Shamrock R & M shall not be required to comply
with any Legal Requirements (a) in the case of Legal Requirements with respect
to laws affecting the environment, such
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non-compliance was not the result of willful action by Diamond Shamrock R & M
and Diamond Shamrock R & M acts diligently to cure such non-compliance upon
becoming aware of it, or (b) unless any criminal liability could result from a
failure to comply therewith, such non-compliance, individually or in the
aggregate, (i) could not reasonably be expected to cause either Brazos or any
Assignee in any danger of civil liability which, in the sole judgment of Brazos
or any Assignee, is not adequately indemnified (Diamond Shamrock R & M's
obligations under Article X of this Facilities Lease shall be deemed to be
adequate indemnification if no Event of Default, Event of Facility Termination,
Potential Default or Potential Facility Termination exists and if such civil
liability is reasonably likely to be less than $500,000 per Facility and
$1,000,000 in the aggregate for all Facilities), (ii) will not result in a
material diminution in the value of the Facilities, (iii) is consistent with
business practices normal in the industry of Diamond Shamrock R & M, (iv) shall
not involve any material danger that any Facility would be subject to sale,
forfeiture or loss, as a result of failure to comply therewith, and (v) is
permitted under the provisions of the Acquired Facilities Lease, if any, on
such Facility.
Section 7.04. Inspection. Brazos or any Assignee or any authorized
representative of either may during reasonable business hours from time to time
inspect Facilities and deeds, registration certificates, certificates of title
and related documents covering Facilities wherever the same may be located, but
neither Brazos nor any Assignee shall have any duty to make any such
inspection.
Section 7.05. No Liens. Diamond Shamrock R & M shall not permit or
suffer to exist on any Facility any Lien, other than Liens which are the
subject of a Permitted Contest, Permitted Encumbrances and Liens placed thereon
by, or arising from, Brazos' own actions or those of any Assignee or Affiliate
of Brazos (provided, that any Liens of Record, other than Liens placed thereon
by, or arising from, Brazos' own actions or those of any Assignee or Affiliate
of Brazos, may not exceed an aggregate amount of $1,000,000 with respect to the
aggregate of the Facilities and Property, and an aggregate amount of $100,000
with respect to each Facility and related Property), nor may it assign any
right or interest herein or in any Facility. Diamond Shamrock R & M shall not
without the prior written consent of Brazos and Assignee sublease or otherwise
relinquish possession of any Facility, except
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that Diamond Shamrock R & M may otherwise relinquish possession of Facility to
any contractor for use in performing work for Diamond Shamrock R & M, provided
that such relinquishment of possession shall in no way affect the obligations
of Diamond Shamrock R & M or the rights of Brazos hereunder and with respect to
the Facility. Brazos shall have the present and continuing right to collect
and enjoy all rents and other sums of money payable under any such sublease,
and Diamond Shamrock R & M hereby irrevocably assigns such rents and other sums
to Brazos for the benefit and protection of Brazos, provided that unless an
Event of Default or Event of Facility Termination shall have occurred and be
continuing hereunder, Diamond Shamrock R & M shall be entitled to collect and
enjoy such rents and other sums. Diamond Shamrock R & M shall, within thirty
(30) days after the execution of any such sublease, deliver a conformed copy
thereof to Brazos. Nothing contained in this Facilities Lease shall be
construed as constituting the consent or request of Brazos, express or implied,
to or for the performance by any contractor, laborer, materialman or vendor of
any labor or services or for the furnishing of any materials for any
construction, alteration, addition, repair or demolition of or to any Facility
or any part thereof. Notice is hereby given that Brazos will not be liable for
any labor, services or materials furnished or to be furnished to Diamond
Shamrock R & M, or to anyone holding any Facility or any part thereof through
or under Diamond Shamrock R & M.
Section 7.06. Interference. If any Lien or charge of any kind or any
judgment, decree or order of any court or other governmental authority
(including, without limitation, any state or local tax lien affecting the
Facility), whether or not valid, shall be asserted or entered which is
reasonably likely to interfere with the due and timely payment of any sum
payable or the exercise of any of the rights or the performance of any of the
duties or responsibilities under this Facilities Lease, Diamond Shamrock R & M
shall, upon obtaining knowledge thereof or upon receipt of notice to that
effect from Brazos, promptly take such action as may be necessary to prevent or
terminate such interference.
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ARTICLE VIII
MAINTENANCE, IMPROVEMENT AND REPAIR
OF FACILITIES
Section 8.01. Warranties. Brazos, so long as no Event of Default or
Event of Facility Termination shall have occurred and be continuing, hereby
assigns and agrees to make available to Diamond Shamrock R & M any and all
rights Brazos may have under any vendor's or manufacturer's warranties or
undertakings with respect to any Facility. If any Event of Default or Event of
Facility Termination shall have occurred and be continuing, the assignment of
such rights from Brazos to Diamond Shamrock R & M shall be deemed to be
terminated.
Section 8.02. Costs and Expenses. Diamond Shamrock R & M shall pay
all costs, expenses, fees and charges incurred in connection with the
ownership, use or occupancy of any Store or ownership, use and operation of any
Store FF&E during the Lease Term and Renewal Term, if any, thereof, including,
without limitation, any rent under an Acquired Facilities Lease. Except as
otherwise provided in Article XII hereof, Diamond Shamrock R & M shall at all
times, at its own expense, and subject to reasonable wear and tear, keep the
Facility in good operating order, repair, condition and appearance. The
foregoing undertaking to maintain the Facility in good repair shall apply
regardless of the cause necessitating repair, regardless of the availability or
adequacy of insurance or condemnation proceeds and regardless of whether
Diamond Shamrock R & M has possession of the Facility, and as between Brazos
and Diamond Shamrock R & M all risks of damage to the Facility are assumed by
Diamond Shamrock R & M. With respect to any Facility, the undertaking to
maintain in good repair shall include, without limitation, all interior and
exterior repairs, whether structural or nonstructural, foreseen or unforeseen,
ordinary or extraordinary and all common area maintenance including, without
limitation, removal of dirt, snow, ice, rubbish and other obstructions and
maintenance of sidewalks and landscaping. Diamond Shamrock R & M hereby agrees
to indemnify and hold Brazos and any Assignee harmless from and against all
costs, expenses, claims, losses, damages, fines or penalties, including
reasonable counsel fees, arising out of or due to Diamond Shamrock R & M's
failure to fulfill its obligations under this Section 8.02.
Section 8.03. Payment of Taxes. With respect to any Facility,
Diamond Shamrock R & M shall make all required reports to the appropriate
taxing authorities and shall pay: (i) all taxes, assessments, levies, fees,
water and sewer rents and charges, and all other governmental,
quasi-governmental and non-governmental
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charges, general and special, ordinary and extraordinary, foreseen and
unforeseen, which are, at any time during the Lease Term or any Renewal Term
hereof, imposed or levied upon or assessed against (A) any Facility, (B) any
Basic Rent, any Additional Rent or other sum payable hereunder or (C) this
Facilities Lease, the leasehold estate hereby created, or which arises in
respect of the ownership, operation, occupancy, possession or use of any
Facility, (ii) all gross receipts or similar taxes (i.e., taxes based upon
gross income which fail to take into account all customary deductions (e.g.,
depreciation and interest) relating to any Facility) imposed or levied upon,
assessed against or measured by any Basic Rent, or any Additional Rent or other
sum payable hereunder, (iii) all sales, value added, use and similar taxes at
any time levied, assessed or payable on account of the acquisition, leasing or
use of any Facility, and (iv) all charges of utilities and communications
services serving the Facility. Diamond Shamrock R & M shall not be required to
pay any franchise, estate, inheritance, transfer, federal income or similar tax
of Brazos (other than any tax referred to in clause (ii) above) unless such tax
is imposed, levied or assessed in substitution for any other tax, assessment,
charge or levy which Diamond Shamrock R & M is required to pay pursuant to this
Section 8.03; provided, however, that if at any time during the term of this
Facilities Lease, the method of taxation shall be such that there shall be
levied, assessed or imposed on Brazos a capital levy or other tax directly on
the rents received therefrom, or upon the value of any Facility or any present
or any future improvement or improvements on any Facility, then all such taxes,
assessments, levies, or charges, or the part thereof so measured or based,
shall be payable by Diamond Shamrock R & M, but only to the extent that such
taxes would be payable if the Facility affected were the only property of
Brazos, and Diamond Shamrock R & M shall pay and discharge the same as herein
provided. Diamond Shamrock R & M will furnish to Brazos, promptly after demand
therefor, proof of payment of all items referred to above, the payment of which
is the responsibility of Diamond Shamrock R & M. If any such assessments may
legally be paid in installments, Diamond Shamrock R & M may pay such assessment
in installments. So long as, in the reasonable opinion of Diamond Shamrock R &
M's counsel, Diamond Shamrock R & M shall have reasonable grounds to contest
the existence, amount, applicability or validity of any tax Diamond Shamrock R
& M is required to pay pursuant to this Facilities Lease, Diamond Shamrock R &
M may contest such tax pursuant to the provisions of Article
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XVIII of this Facilities Lease so long as adequate reserves therefor are
maintained by Diamond Shamrock R & M.
Section 8.04. No Material Alterations. Diamond Shamrock R & M shall
not make any material alterations to any Facility without the prior written
consent of Brazos. Any improvements or additions paid for by Brazos in
accordance with the Agreement for Facilities Lease shall become part of the
Facility and shall be evidenced by a Revised Facility Leasing Record. Any
improvements or additions to any Facility not paid for by Brazos shall become
and remain the property of Diamond Shamrock R & M if it can be removed from
such Facility without impairing the functioning of such Facility or its resale
value, excluding such addition.
Section 8.05. Maintenance. The Store FF&E shall be maintained,
repaired, refurbished or replaced by Diamond Shamrock R & M when necessary in
order to ensure that all the Store FF&E located at each Facility will include
the Store FF&E listed on the Facility Leasing Record with respect to such
Facility or replacements for such Store FF&E of the kind, quality and in the
quantities included in the Facility Leasing Record with respect to such
Facility (provided that Diamond Shamrock R & M may replace Store FF&E with
equipment of different kind, quality and in different quantities if such
replacement equipment is of equal or greater value in Brazos' good faith
judgment and is included in the FF&E Specifications) and will be in such
condition and sufficient to allow such Facility to be operated in accordance
with industry standards as a gasoline/convenience store and in a manner and to
standards at least substantially equivalent to the operation of
gasoline/convenience stores owned and operated by Diamond Shamrock R & M. As
equipment is substituted for Store FF&E subject to this Facilities Lease, title
to such substitute equipment shall automatically be transferred to Brazos and
such equipment shall be subject to this Facilities Lease and title to the
existing Store FF&E for which such equipment is being substituted shall be
released by Brazos.
Section 8.06. Additions and Alterations. So long as no Event of
Default or Event of Facility Termination shall have occurred and be continuing,
Diamond Shamrock R & M may, at its expense, make additions to and alterations
to any Facility, provided that upon completion of such additions or alterations
(i) neither the fair market value of the Facility shall be lessened thereby nor
the
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condition of such Facility impaired, below the value, utility or condition
thereof immediately prior to such action (assuming such Facility was then of a
condition and repair required to be maintained pursuant to Section 8.02), (ii)
such additions or alterations shall not result in a change of use of such
Facility, (iii) such work shall be completed in a good and workmanlike manner
and in compliance with all applicable Legal Requirements and Insurance
Requirements and upon completion of the work the Facility shall comply in all
respects with the requirements of this Facilities Lease and any Ground Lease
and (iv) no exterior walls of any building or other improvement constituting a
part of a Facility shall be demolished unless Diamond Shamrock R & M has made
adequate provision according to nationally recognized sound and prudent
engineering and architectural standards to preserve and maintain the structural
integrity of the Facility and for the restoration of such Facility to a
structurally sound architectural whole; provided, that Diamond Shamrock R & M
shall notify Brazos of such costs that are in excess of $200,000 for a Facility
and shall not make such additions or alterations that cost more than $200,000
for each Facility for more than ten (10) such Facilities at any one time and
that such additions or alterations shall not result in any Lien (except
Permitted Encumbrances) upon such Facility. Any and all such additions and
alterations shall be and remain part of the Facility and shall be subject to
this Facilities Lease.
Section 8.07. Environmental Reports. At any reasonable time and from
time-to-time, upon reasonable notice, Diamond Shamrock R & M shall furnish
Brazos a report prepared by a qualified independent consultant, at the expense
of Diamond Shamrock R & M, concerning the condition and status of a Facility in
respect of any Environmental Laws, provided that the party requesting such
report has demonstrable evidence that such Facility may be affected by a
hazardous substance, a hazardous waste or an Environmental Claim not adequately
addressed in any environmental assessment previously delivered to Brazos or any
Assignee in connection with such Facility.
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ARTICLE IX
INSURANCE
Section 9.01. Liability and Property Damage. Diamond Shamrock R & M
shall, at its sole cost and expense, maintain such liability and property
damage insurance with respect to all Facilities and insurance against loss or
damage to all Facilities of the types usually carried by corporations engaged
in the same or a similar business, of similar size as Diamond Shamrock R & M,
and owning or operating similar equipment and property and which cover risks of
the kind customarily insured against by such corporations and such other
insurance as may be required by law or as may be reasonably requested by Brazos
for purposes of assuring compliance with this Article IX, including, without
limitation, the insurance described on the Schedule of Insurance attached
hereto as Exhibit A. Such insurance shall be written by financially sound and
reputable companies which are legally qualified to issue such insurance.
Diamond Shamrock R & M may, at its cost and expense, prosecute any claim
against any insurer or contest any settlement proposed by any insurer, and
Diamond Shamrock R & M may bring any such prosecution or contest in the name of
Brazos, Diamond Shamrock R & M, or both, and Brazos will join therein at
Diamond Shamrock R & M's request, provided that Diamond Shamrock R & M shall
indemnify Brazos against any losses, costs or expenses (including reasonable
attorneys' fees) which Brazos may incur in connection with such prosecution or
contest.
Section 9.02. Additional Insureds; Notice. Any policies of insurance
carried in accordance with this Article IX and any policies taken out in
substitution or replacement for any such policies (i) shall name Brazos and
Assignee as additional insureds, as their respective interests may appear (but
without imposing upon any such person any obligation imposed on the insured,
including, without limitation, the liability to pay the premium for any such
policy), (ii) shall have attached thereto a lender's loss payable endorsement
for the benefit of Brazos and Assignee as loss payees and (iii) shall provide
that as against Brazos and Assignee the insurers shall waive any rights of
subrogation. Diamond Shamrock R & M shall request the insurers to give thirty
(30) days advance written notice to Brazos and its assigns of any cancellation
of any insurance to be maintained under this Article. Diamond Shamrock R & M
shall give a copy to Brazos and any Assignee of any notice received by Diamond
Shamrock R & M regarding the cancellation or other termination of the insurance
included in the Schedule of Insurance attached hereto as Exhibit A. Each
liability policy (A) shall be primary without right of contribution from any
other
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insurance which is carried by Brazos with respect to its interest as such in
the Facility and (B) shall expressly provide that all of the provisions
thereof, except the limits of liability, shall operate in the same manner as if
there were a separate policy covering each insured.
Section 9.03. Application of Proceeds of Loss or Substantial Taking.
Any insurance or condemnation proceeds received as the result of the occurrence
of (i) any event of loss described in Section 14.03 hereof or (ii) any event of
substantial Taking described in Section 15.01 shall be paid to Brazos, and
disposed of as contemplated by Section 14.03 hereof.
Section 9.04. Application of Proceeds of other than Loss or
Substantial Taking. As between Diamond Shamrock R & M and Brazos, if any
insurance or condemnation proceeds received as a result of any loss or Taking,
other than a loss described in Section 14.03 or an event of substantial Taking
described in Section 15.01, is less than $100,000, it is agreed that such
proceeds will be paid to Diamond Shamrock R & M to be used for repairs,
replacement, reconstruction or restoration in accordance with the terms of
Sections 14.02 and 15.02 hereof. If the proceeds equal or exceed $100,000,
then the proceeds shall be deposited in a special purpose account held by
Assignee, to be used only for the purpose set forth in this paragraph, and
Diamond Shamrock R & M shall be entitled (i) to receive the amounts so
deposited against certificates, invoices or bills in form satisfactory to
Brazos and Assignee, delivered to Brazos and Assignee from time to time as such
work or repair progresses, and (ii) to direct the investment of the amounts so
deposited as provided in Section 9.05. Any moneys remaining in the aforesaid
account after final payment for repairs has been made shall be paid to Diamond
Shamrock R & M.
Section 9.05. Investment. Assignee, at Diamond Shamrock R & M's
instruction, shall invest the amounts deposited with Assignee pursuant to
Section 9.04 in the following:
(i) direct obligations of the United States Government;
(ii) interest-bearing time deposits at, or obligations of, any
Assignee; or
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(iii) commercial paper supported by a letter of credit issued by
any Assignee.
Such investments shall mature in such amounts and on such dates so as to
provide that amounts shall be available on the draw dates sufficient to pay the
amounts requested by and due to Diamond Shamrock R & M. Any interest earned on
investments of such funds shall be paid to Diamond Shamrock R & M. Brazos and
Assignee shall not be liable for any loss resulting from the liquidation of
each and every such investment and Diamond Shamrock R & M shall be liable for
such loss, if any.
Section 9.06. Application in Default. Any amount referred to in
Sections 9.03 or 9.04 which is payable to Diamond Shamrock R & M shall not be
paid to Diamond Shamrock R & M or, if it has been previously paid to Diamond
Shamrock R & M and not applied by Diamond Shamrock R & M as provided in
Sections 9.03 or 9.04, shall not be retained by Diamond Shamrock R & M, if at
the time of such payment an Event of Default or Event of Facility Termination
shall have occurred and be continuing. In such event, all such amounts shall
be paid to and held by Brazos as security for the obligations of Diamond
Shamrock R & M hereunder or, at Brazos' option, applied by Brazos toward
payment of any of such obligations of Diamond Shamrock R & M at the time due
hereunder as Brazos may elect. At such time as there shall not be continuing
any Event of Default or Event of Facility Termination, all such amounts at the
time held by Brazos in excess of the amount, if any, which Brazos shall have
elected to apply as above provided shall be applied as provided in Sections
9.03 or 9.04.
Section 9.07. Certificates. On or before the execution of this
Facilities Lease, and annually on or before the anniversary of the date of this
Facilities Lease, Diamond Shamrock R & M will furnish to Brazos and Assignee
certificates or other evidence reasonably acceptable to Brazos and Assignee
certifying that the insurance then carried and maintained on each Facility
complies with the terms hereof.
Section 9.08. Covenant to Keep Insurance in Force. Diamond Shamrock
R & M covenants that it will not use, occupy or operate any Facility or permit
the use, occupancy or operation of any Facility at a time when the insurance
required by this Article IX is not in force with respect to such Facility.
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ARTICLE X
INDEMNITIES
Section 10.01. Indemnified Persons. Diamond Shamrock R & M shall
indemnify and hold harmless Brazos, each general and limited partner of Brazos,
any Assignee, any successor or successors, and any Affiliate of each of them,
and their respective officers, directors, incorporators, shareholders, partners
(general and limited, including without limitation, the general and limited
partners of Brazos), employees, agents and servants (each of the foregoing an
"Indemnified Person") from and against all liabilities, taxes, losses,
obligations, claims, damages, penalties, causes of action, suits, costs and
expenses (including, without limitation, reasonable attorneys' and accountants'
fees and expenses) or judgments of any nature relating to or in any way arising
out of:
(a) The ordering, delivery, acquisition, construction, title on
acquisition, rejection, installation, possession, titling, retitling,
registration, reregistration, custody by Diamond Shamrock R & M of title and
registration documents, ownership, use, non-use, misuse, lease, operation,
transportation, repair, control or disposition of any Facility leased or
subleased or to be leased or subleased hereunder, (i) except to the extent that
such costs are included in the Acquisition Cost of such Facility and (ii)
except for any general administrative expenses of Brazos;
(b) The assertion of any claim or demand based upon any
infringement or alleged infringement of any patent or other right, by or in
respect of any Facility; provided, however, that upon request of Diamond
Shamrock R & M, Brazos will make available to Diamond Shamrock R & M Brazos'
rights under any similar indemnification arising from any manufacturer's or
vendor's warranties or undertakings with respect to Facility;
(c) All U.S. Federal, state, county, municipal, foreign or other
fees and taxes of whatsoever nature arising from or relating to ownership of
the Facility, including but not limited to license, qualification, franchise,
sales, use, gross income, gross receipts, ad valorem, business, personal
property, real estate, value added, excise, motor vehicle, occupation fees and
stamp or other taxes or
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tolls of any nature whatsoever, and penalties and interest thereon, whether
assessed, levied against or payable by Brazos or otherwise, with respect to any
Facility or the acquisition, purchase, sale, rental, use, operation, control,
ownership or disposition of any Facility (including without limitation any
claim by any governmental authority for transfer tax, transfer gains tax,
mortgage recording tax, filing or other similar taxes or fees in connection
with the acquisition of any Facility by Brazos or otherwise in connection with
this Facilities Lease) or measured in any way by the value thereof or by the
business of, investment in, or ownership by Brazos with respect thereto,
provided that this indemnity shall not apply to (i) net income taxes imposed by
any state or local taxing authority utilizing the Unitary Method of Taxation,
(ii) U.S. Federal net income or capital gains taxes or (iii) state and local
net income or capital gains taxes which are imposed by a state or locality
because of a relationship between Brazos and such state or locality unrelated
to ownership of the Facility or to this Facilities Lease; and provided further,
that to the extent Diamond Shamrock R & M's obligations hereunder include
indemnifying Brazos for net income taxes imposed by a state or local taxing
authority, such obligations shall be limited to indemnifying Brazos for the
inability, disallowance or other loss of deductions relating to ownership of
the Facilities customarily allowed in computing net income (e.g., interest
expense, depreciation, financing, administrative and other fees and expenses);
(d) Any violation or alleged violation (other than an alleged
violation alleged by Brazos) by Diamond Shamrock R & M of this Facilities Lease
or of any contracts or agreements to which Diamond Shamrock R & M is a party or
by which it is bound or any laws, rules, regulations, orders, writs,
injunctions, decrees, consents, approvals, exemptions, authorizations, licenses
and withholdings of objection, of any governmental or public body or authority
and all other Legal Requirements, including, without limitation, any Legal
Requirements with respect to the environment or the regulation of hazardous
materials or substances, or any breach of a representation or warranty by
Diamond Shamrock R & M under this Facilities Lease;
(e) Any Environmental Claim or requirement of Environmental Law
concerning or relating to any Facility, or the operations or business in
respect of any Facility; or
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(f) Any claim against Brazos' title or Assignee's interest in any
Facility to the extent such claim is not fully paid by title insurance.
Section 10.02. Payments. Diamond Shamrock R & M shall forthwith upon
demand reimburse any Indemnified Person for any sum or sums expended with
respect to any of the items set forth in Section 10.01 or, upon request from
any Indemnified Person, shall pay such amounts directly. Any payment made to
or on behalf of any Indemnified Person pursuant to this Article X shall be
increased to such amount as will, after taking into account all taxes imposed
with respect to the accrual or receipt of such payment (as the same may be
increased pursuant to this sentence), equal the amount of the payment, reduced
by the amount of any savings in such taxes actually realized by the Indemnified
Person as a result of the payment or accrual of the amounts in respect of which
the payment to or on behalf of the Indemnified Person hereunder is made. Any
Indemnified Person seeking indemnification under this Article X shall give
Diamond Shamrock R & M written evidence supporting the amount demanded, and
such written evidence shall be deemed to be conclusive, absent manifest error.
To the extent that Diamond Shamrock R & M in fact indemnifies any Indemnified
Person under the indemnity provisions of this Facilities Lease, Diamond
Shamrock R & M shall be subrogated to such Indemnified Person's rights in the
affected transaction and shall have a right to determine the settlement of
claims therein.
Section 10.03. Continuing Indemnification. The indemnities contained
in this Article X shall not be affected by and shall survive any termination of
this Facilities Lease as a whole or in respect of any Facility leased hereunder
or any failure or refusal of Diamond Shamrock R & M to accept any Facility
constructed, acquired or ordered pursuant to the Agreement for Facilities
Lease.
Section 10.04. Limitations.
(a) Notwithstanding any provisions of this Article X to the contrary
(except as further limited solely with respect to any Facility located in the
State of New Mexico in Section 10.04(b) below), Diamond Shamrock R & M shall
not indemnify and hold harmless any Indemnified Person against any claims and
liabilities arising solely from the gross negligence (as between such
Indemnified Person or an Affiliate of such Indemnified Person and
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Diamond Shamrock R & M) or willful misconduct (as between such Indemnified
Person or an Affiliate of such Indemnified Person and Diamond Shamrock R & M)
of such Indemnified Person, but shall otherwise indemnify any Indemnified
Person against its own negligence.
(b) With respect to any Facility located in the State of New Mexico,
no agreement to indemnify contained in this Agreement shall extend to
liability, claims, damages, losses, or expenses, including attorney fees,
arising out of the preparation or approval of maps, drawings, opinions,
reports, surveys, change orders, designs, or specifications by the Indemnified
Person, or the agents or employees of the Indemnified Person, or the giving of
or the failure to give directions or instructions by the Indemnified Person, or
the agents or employees of the Indemnified Person, where such giving or failure
to give directions or instructions is the primary cause of bodily injury to
persons or damage to property.
(c) Brazos and Diamond Shamrock R & M agree that the provisions of
Section 10.04(b) shall apply only with respect to any Facility located in the
State of New Mexico. The provisions of Section 10.04(b) are included in this
Facilities Lease for the sole purpose of complying with the provisions of
Section 56-7-1 of the New Mexico Statutes Annotated (1978) and shall have no
force or effect with respect to any Facility located other than in the State of
New Mexico.
(d) Brazos and Diamond Shamrock R & M agree that the activities of
Diamond Shamrock R & M under this Facilities Lease relating to the preparation
or approval of any maps, drawings, opinions, reports, surveys, change orders,
designs, or specifications relating to any Facility is being done by Diamond
Shamrock R & M in its capacity as the lessee of the Facility and not as the
agent or employee of Brazos. Diamond Shamrock R & M and Brazos agree that to
the greatest extent possible without causing any indemnification provision of
this Facilities Lease to be void and unenforceable under Section 56-7-1 of the
New Mexico Statutes Annotated (1978), it is the intention of the parties to
this Facilities Lease Agreement for Diamond Shamrock R & M to bear all
responsibility for and to indemnify Brazos against any liability, claims,
damages, losses or expenses, including attorneys fees, arising out of the
preparation or approval of any maps, drawings,
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opinions, reports, surveys, change orders, designs, or specifications relating
to the Facility.
Section 10.05. Litigation. If any claim, action, proceeding or suit
is brought against an Indemnified Person with respect to which Diamond Shamrock
R & M would be required to indemnify such Indemnified Person, Diamond Shamrock
R & M shall have the right to assume the defense thereof, including the
employment at its expense of counsel; provided that Diamond Shamrock R & M
shall not have such right, to the extent that such Indemnified Person shall
deliver to Diamond Shamrock R & M a written notice waiving the benefits of the
indemnification of such Indemnified Person provided by this Article X in
connection with such claim, action, proceeding or suit. Notwithstanding the
foregoing, if (i) any claim, action, proceeding or suit is brought against an
Indemnified Person who is an individual, (ii) the action threatens to restrain
or adversely affect the conduct of the business of the Indemnified Person, but
not the business of Brazos' ownership of the Facility under this Facilities
Lease, (iii) the claim, action, proceeding or suit seeks damages of more than
$10,000,000, or (iv) independent counsel to an Indemnified Person shall
conclude that there may be defenses available to the Indemnified Person which
are different from, or additional to, and may conflict with those available to
Diamond Shamrock R & M, Diamond Shamrock R & M shall not have the right to
assume the defense of any such action on behalf of the Indemnified Person if
such Indemnified Person chooses to defend such action, and all reasonable
costs, expenses and attorneys' fees incurred by the Indemnified Person in
defending such action shall be borne by Diamond Shamrock R & M.
Notwithstanding the assumption of its defense by Diamond Shamrock R & M
pursuant to this paragraph, any Indemnified Person shall have the right to
employ separate counsel and to participate in its defense, but the fees and
expenses of such counsel shall be borne by the Indemnified Person. In
addition, Diamond Shamrock R & M will not be liable for any settlement of any
claim, action, proceeding or suit unless Diamond Shamrock R & M has consented
thereto in writing. Any decision by an Indemnified Person to employ its own
counsel rather than counsel selected by Diamond Shamrock R & M (whether or not
at Diamond Shamrock R & M's expense) shall in no way affect any rights of such
Indemnified Person otherwise arising under this Article X.
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ARTICLE XI
RENEWAL AND TERMINATION
Section 11.01. Diamond Shamrock R & M's Right to Terminate. So long
as no Event of Default or Event of Facility Termination has occurred and is
continuing and, with respect to any Facility, so long as such Facility is not
undergoing any additions or alterations subject to Section 8.06 hereof, Diamond
Shamrock R & M shall have the right, at any time during the Lease Term or any
Renewal Term, upon not less than thirty (30) days' written notice to Brazos and
Assignee, to terminate on the Basic Rent Payment Date specified in such notice
this Facilities Lease with respect to any Facility, if (a) indemnity payments
to Brazos pursuant to Section 10.01(c) shall have been required and can be
reasonably expected to occur subsequently and such payments are or would be in
the aggregate (taking into account the recurring nature of the payments)
sufficient in the reasonable judgment of Diamond Shamrock R & M to render this
Facilities Lease uneconomic with respect to that Facility, (b) due to a change
in accounting rules or treatment, this Facilities Lease is no longer treated as
an operating lease for accounting purposes or (c) there exists an event of
default under any Credit Agreement and the payment obligations of Brazos
thereunder are declared to be immediately due and payable. Upon exercising its
rights under this Section 11.01, Diamond Shamrock R & M shall either (i)
purchase such Facility for cash at its Acquisition Cost or (ii) with the
consent of Brazos, arrange, at its own cost and expense, for such Facility to
be sold for cash pursuant to Section 11.04 and with the consequences therein
provided, except that such sale must occur on the Basic Rent Payment Date
stipulated in the written notice contemplated by this Section 11.01.
Section 11.02. Brazos' Right to Terminate. Brazos shall have the
right upon written notice to Diamond Shamrock R & M, to terminate the lease of
any or all Facilities as of a Basic Rent Payment Date stipulated in such notice
if at any time: (1) by reason of a nexus between a state or local taxing
jurisdiction and the Facility or the activities of any user (other than Brazos)
of the Facility, Brazos incurs, or, in its reasonable judgment, in the future
would incur, a state or local tax based upon the Unitary Method of Taxation
which, in its sole judgment, renders the
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Facilities Lease uneconomic; or (2) the Agreement for Facilities Lease or any
other instrument relating to this Facilities Lease, shall be deemed to require
the payment or deemed to permit the collection of interest in excess of the
Maximum Rate and any such interest in excess of such Maximum Rate cannot be
spread and allocated either to the preceding or subsequent periods in which
such excess interest is to be paid or collected pursuant to Section 19.08 of
this Facilities Lease. In the event of a termination of this Facilities Lease
with respect to any or all Facilities pursuant to this Section 11.02, Diamond
Shamrock R & M shall either (i) purchase, on the Basic Rent Payment Date
stipulated in the written notice contemplated by this Section 11.02, such
Facility for cash at its Acquisition Cost or (ii) with the consent of Brazos,
arrange, at its own cost and expense, for such Facility to be sold for cash
pursuant to Section 11.04 and with the consequences therein provided, except
that such sale must occur on the Basic Rent Payment Date stipulated in the
written notice contemplated by this Section 11.02.
Section 11.03. Renewal.
(a) Not later than twelve months prior to the end of the Lease
Term or the first Renewal Term, if any, as applicable, Brazos shall give notice
to Diamond Shamrock R & M as to whether it desires to renew the lease with
respect to each Facility and the terms and conditions (including the rental
amounts) of any such renewal. Not later than nine months prior to the end of
the Lease Term or Renewal Term, as applicable, Diamond Shamrock R & M shall
give notice to Brazos as to whether it will renew or not renew the lease for
each Facility for which Brazos has offered to renew the lease. Failure of
Diamond Shamrock R & M to give such notice with respect to any Facility shall
be deemed an election not to renew the lease for such Facility. So long as (i)
no Event of Default or Event of Facility Termination has occurred and is
continuing, with respect to each Facility for which the parties agree to renew
the lease and (ii) Brazos shall have received a commitment for financing for
each such Facility through the last day of the Renewal Term (as defined below)
from the lender(s) under a then-existing Credit Agreement or from a third
party, the lease shall be renewed for a term (the "Renewal Term") equal to five
years commencing on the first day of the calendar month following the last day
of the Lease Term or Renewal Term, as applicable, thereof; provided, however,
the Lease Term or Renewal Term, as applicable,
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shall not be renewed if on the first day of the new Renewal Term (a) the
lender(s) under a then-existing Credit Agreement fails to fund under its
commitment pursuant to the terms of such commitment or (b) a third party fails
to fund under its commitment for any reason.
(b) With respect to each Facility for which the lease is not being
renewed, Diamond Shamrock R & M shall, at its option, either (i) purchase such
Facility for cash at its Acquisition Cost during the period from one (1) month
before the end of the Lease Term or Renewal Term, as applicable, to five (5)
Business Days before the end of the Lease Term or Renewal Term, as applicable
or (ii) arrange, at its own cost and expense, for such Facility to be sold for
cash pursuant to Section 11.04 and with the consequences therein provided
during the period from six (6) months before the end of the Lease Term or
Renewal Term, as applicable, to one (1) month before the end of the Lease Term
or Renewal Term, as applicable. With respect to each Facility for which the
lease is not being renewed, not later than eight months prior to the end of the
Lease Term or Renewal Term, as applicable, Diamond Shamrock R & M shall give
notice to Brazos of which Facilities it elects to purchase and which Facilities
will be sold to third parties. Any notice given by Diamond Shamrock R & M
pursuant to the preceding sentence shall be irrevocable, except that Diamond
Shamrock R & M may revoke the election to have a Facility sold to a third party
if Diamond Shamrock R & M purchases such Facility.
Section 11.04. Sales to Third Parties. (a) If Diamond Shamrock R & M
exercises its right to arrange for a sale of a Facility to a third party
pursuant to Sections 11.01, 11.02 or 11.03, Brazos shall receive the proceeds
of sale and:
(i) if the proceeds of sale are greater than the Acquisition Cost
of the Facility sold, Brazos shall pay to Diamond Shamrock R &
M the amount by which such proceeds exceed such Acquisition
Cost;
(ii) if the proceeds of sale are equal to or less than the
Acquisition Cost of the Facility sold, but greater than or
equal to 25% of the Acquisition Cost of such Facility, Diamond
Shamrock R & M shall pay to Brazos an amount equal to (A) such
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Acquisition Cost less (B) the proceeds of such sale; and
(iii) if the proceeds of sale are less than 25% of the Acquisition
Cost of the Facility sold, Diamond Shamrock R & M shall pay to
Brazos an amount equal to the sum of (A) 75% of such
Acquisition Cost and (B) the amount by which the residual value
of such Facility has been reduced by wear and tear in excess of
that attributable to normal use, plus the amount by which, in
the good faith judgment of Brazos, the proceeds of sale for
such Facility has been reduced due to Liens attaching to
such Facility at the time of sale.
For purposes of this Section 11.04, in connection with the sale of a Facility
"proceeds of sale" shall mean the aggregate proceeds from the sale of such
Facility without reduction for any amounts paid by Diamond Shamrock R & M.
(b) All payments and credits referred to in paragraph (a) above
shall be made on the date of the sale of such Facility, and the parties shall
account to each other for such payments and credits. In consideration for the
receipt by Brazos of the proceeds of sale and all other amounts then due and
owing hereunder, Brazos shall transfer title to such Facility to the purchaser
at the sale designated by Diamond Shamrock R & M. In the event of a sale
pursuant to this Section 11.04, neither Diamond Shamrock R & M nor any
Affiliate of Diamond Shamrock R & M shall purchase the Facility. Any Facility
sold to a third party pursuant to this paragraph (b) shall be free of any Liens
at the time of sale, including Liens which would otherwise be Permitted
Encumbrances if such Liens would reduce the value to the purchaser of such
Facility.
(c) If a Facility and the related Property are sold to the same third
party, the proceeds of sale shall be allocated prorata between such Facility
and Property based on the Acquisition Cost of such Facility and the Acquisition
Cost (as defined in the Ground Lease) of such Property.
Section 11.05. Advisement. At least thirty (30) days prior to any
sale of a Facility pursuant to Section 11.04, Diamond
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Shamrock R & M shall deliver to Brazos a copy of the purchase contract for such
Facility. If such sale will result in the applicability of Section
11.04(a)(iii), Brazos shall (i) arrange for a sale of such Facility to be made
to a purchaser designated by Brazos, if such purchaser will pay an amount
sufficient to render Section 11.04(a)(iii) inapplicable, or (ii) send Diamond
Shamrock R & M a bill for the amount by which the residual value of such
Facility has been reduced by wear and tear in excess of that attributable to
normal use and the amount by which, in the good faith judgment of Brazos, the
proceeds of sale for such Facility has been reduced due to Liens attaching to
such Facility at the time of sale, and such amount shall be due and payable
within ten (10) days after receipt of such bill. Unless Brazos shall arrange
for the sale of such Facility and shall give Diamond Shamrock R & M notice
thereof within thirty (30) days of Brazos' receipt of the purchase contract,
Diamond Shamrock R & M may proceed with the sale to a purchaser designated by
it, provided that on or before the date of such sale Diamond Shamrock R & M
shall pay to Brazos the amount set forth in the bill for excess wear and tear
and the amount by which, in the good faith judgment of Brazos, the proceeds of
sale for such Facility has been reduced due to Liens attaching to such Facility
at the time of sale. Within thirty (30) days of Diamond Shamrock R & M's
receipt of Brazos' notice provided for in the preceding sentence, Diamond
Shamrock R & M may arrange for such sale to be made to another purchaser
designated by it, if such purchaser shall pay an amount sufficient to render
Section 11.04(a)(iii) inapplicable.
Section 11.06. Additional Payments. In connection with any purchase
or sale of a Facility under this Article XI, on or before the date such
purchase or sale occurs, Diamond Shamrock R & M shall pay to Brazos, in
addition to any purchase price payable, all Basic Rent payable, any Additional
Rent, all amounts owing under Section 11.04, and other amounts owing hereunder.
Section 11.07. Termination of Facilities Lease. Upon receipt by
Brazos of the purchase price, payable in connection with any sale or purchase
of any Facility under this Article XI, together with all additional payments
required under Section 11.06 with respect to such Facility, this Facility Lease
shall terminate with respect to such Facility.
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Section 11.08. Surrender of Facility. Subject to the provisions of
this Article XI and Articles XII, XIII, XIV and XV hereof, upon termination of
the lease of any Facility hereunder, Diamond Shamrock R & M shall surrender
such Facility to Brazos. Each Facility shall be surrendered in the condition
required by Section 8.02. Any cost of removal and delivery of Store FF&E to
Brazos shall be paid by Diamond Shamrock R & M.
ARTICLE XII
ECONOMIC DISCONTINUANCE
Section 12.01. Uneconomic Facility. If, at any time after the end of
its Lease Term, in the good faith judgment of Diamond Shamrock R & M, any
Facility shall have become uneconomic for continued use and occupancy by
Diamond Shamrock R & M as a gasoline/convenience store (such Facility used or
to be used at such store are hereinafter sometimes called an "Uneconomic
Facility"), then Diamond Shamrock R & M shall deliver to Brazos and Assignee a
written notice (an "Uneconomic Notice") containing (i) notice of Diamond
Shamrock R & M's intention to terminate the Facilities Lease as to such
Uneconomic Facility as of a Basic Rent Payment Date specified in such notice,
which Basic Rent Payment Date shall be within sixty (60) days of such notice,
and (ii) a certificate of an officer of Diamond Shamrock R & M stating that
Diamond Shamrock R & M has determined that such Facility has become uneconomic
for continued use and occupancy by Diamond Shamrock R & M as a
gasoline/convenience store. Diamond Shamrock R & M shall terminate this
Facilities Lease with respect to such Uneconomic Facility and shall either
purchase the Uneconomic Facility for cash at its Acquisition Cost on the Basic
Rent Payment Date specified in such notice or sell such Uneconomic Facility on
such date; provided, that if the proceeds of the sale of the Uneconomic
Facility are less than the Acquisition Cost of such Uneconomic Facility, then
in addition to the purchase price Diamond Shamrock R & M shall pay to Brazos an
amount equal to such Acquisition Cost less the proceeds of such sale.
Section 12.02. Uneconomic Notice. If, at any time during its Lease
Term, in the good faith judgment of Diamond Shamrock R & M, any Facility shall
have become an Uneconomic Facility, then Diamond Shamrock R & M shall deliver
to Brazos and Assignee an Uneconomic
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Notice containing (i) notice of Diamond Shamrock R & M's intention to terminate
the Facilities Lease as to such Uneconomic Facility as of a Basic Rent Payment
Date specified in such notice, which Basic Rent Payment Date shall be within
sixty (60) days of such notice, and (ii) a certificate of an officer of Diamond
Shamrock R & M stating that Diamond Shamrock R & M has determined that such
Facility has become uneconomic for continued use and occupancy by Diamond
Shamrock R & M as a gasoline/convenience store; provided, that Diamond Shamrock
R & M may not deliver an Uneconomic Notice to Brazos under the terms of this
Section 12.02 for more than an aggregate of the greater of (A) ten percent
(10%) of the Facilities then subject to this Facilities Lease or (B) ten (10)
Facilities. Simultaneously with the delivery of an Uneconomic Notice, Diamond
Shamrock R & M shall deliver to Brazos notice of Diamond Shamrock R & M's
intent to terminate this Facilities Lease with respect to such Uneconomic
Facility and either to purchase the Uneconomic Facility at its Acquisition Cost
on the Basic Rent Payment Date specified in such notice or to sell such
Uneconomic Facility on such date; provided, that if the proceeds of the sale of
the Uneconomic Facility are less than the Acquisition Cost of such Uneconomic
Facility, then in addition to the purchase price Diamond Shamrock R & M shall
pay to Brazos an amount equal to such Acquisition Cost less the proceeds of
such sale.
Section 12.03. Payment. In connection with any purchase or sale
pursuant to this Article XII, on the Basic Rent Payment Date upon which such
purchase or sale occurs, Diamond Shamrock R & M shall pay or cause the
purchaser to pay to Brazos the purchase price, and Diamond Shamrock R & M shall
pay all Basic Rent payable and any Additional Rent and other amounts owing
hereunder.
Section 12.04. No Right to Use. If Diamond Shamrock R & M terminates
this Facilities Lease with respect to any Facility pursuant to this Article
XII, neither Diamond Shamrock R & M nor any Affiliate of Diamond Shamrock R & M
shall have the right for one year following the date of such termination to
use, and shall not use, such Facility as a gasoline/ convenience store.
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ARTICLE XIII
EVENTS OF DEFAULT
Section 13.01. Events of Default. Any of the following events of
default shall constitute an "Event of Default" and shall give rise to the
rights on the part of Brazos described in Section 13.02 hereof:
(a) Failure to Make Payments. Failure of Diamond Shamrock R & M
to pay amounts due to Brazos at the time of any scheduled sale of a Facility
hereunder, failure of Diamond Shamrock R & M to pay Basic Rent or Additional
Rent for more than five (5) days after such payment is due pursuant to Article
VI hereof, or failure of Diamond Shamrock R & M to pay any other amount payable
by Diamond Shamrock R & M hereunder within ten (10) days after demand for such
payment.
(b) Failure to Maintain Insurance. Failure of Diamond Shamrock R
& M to maintain the insurance required by Article IX hereof, or default in the
performance of the covenant contained in Section 9.04 hereof.
(c) Other Defaults. Diamond Shamrock R & M shall default in the
performance or observance of any other term, covenant, condition or obligation
contained in this Facilities Lease or any Consent and such default shall (i)
continue for thirty (30) days after notice shall have been given to Diamond
Shamrock R & M by Brazos or any Assignee specifying such default and requiring
such default to be remedied or (ii) if such default is of a nature that it is
not capable of being cured within such 30-day period, Diamond Shamrock R & M
shall not have diligently commenced curing such default, proceeded diligently
and in good faith thereafter to complete curing such default, or cured such
default within ninety (90) days.
(d) Bankruptcy. (i) The entry of a decree or order for relief in
respect of Diamond Shamrock R & M or Guarantor by a court having jurisdiction
in the premises in an involuntary case under the Federal bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal or state
bankruptcy, insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
Diamond Shamrock R & M or Guarantor or of any substantial part of Diamond
Shamrock R & M's or the Guarantor's property, or ordering the winding up or
liquidation of Diamond Shamrock R & M's or the Guarantor's affairs, and the
continuance of any such decree or
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order unstayed and in effect for a period of thirty (30) consecutive days; or
(ii) the general suspension or discontinuance of Diamond Shamrock R & M's or
Guarantor's business operations, its insolvency (however evidenced) or its
admission of insolvency or bankruptcy, or the commencement by Diamond Shamrock
R & M or Guarantor of a voluntary case under the Federal bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal or state
bankruptcy, insolvency or other similar law, or the consent by it to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of Diamond
Shamrock R & M or of Guarantor of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the failure of
Diamond Shamrock R & M or Guarantor generally to pay its debts as such debts
become due, or the taking of corporate action by Diamond Shamrock R & M or
Guarantor in furtherance of any such action.
(e) Payment of Obligations. A default or event of default, the
effect of which is to permit the holder or holders of any Indebtedness of
Diamond Shamrock R & M or Guarantor, or a trustee or agent on behalf of such
holder or holders, to cause such Indebtedness to become due prior to its stated
maturity shall occur under the provisions of any instrument evidencing
Indebtedness in excess of $15,000,000 of Diamond Shamrock R & M or Guarantor
(or under the provisions of any agreement pursuant to which such instrument was
issued).
(f) Misrepresentations. Any representation or warranty made by
Diamond Shamrock R & M in this Facilities Lease or any Consent or which is
contained in any certificate, document or financial or other statement
furnished under or in connection with this Facilities Lease proves to be false
or inaccurate in any material respect when made or deemed made.
(g) Guaranty and Residual Guaranty Payment Support. Any
representation or warranty made by Guarantor in the Guaranty, Residual Guaranty
Payment Support any Consent or any document contemplated hereby or thereby
proves to be false or inaccurate in any material respect when made or deemed
made, or Guarantor defaults in the performance of any term, condition, covenant
or obligation contained in the Guaranty, Residual Guaranty Payment Support or
any Consent, and such default shall not have been cured within any applicable
grace or cure period.
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(h) Default Under Agreement for Facilities Lease. An Event of
Default (as defined in the Agreement for Facilities Lease) shall occur under
the Agreement for Facilities Lease.
(i) Other Agreements. Diamond Shamrock R & M shall default in any
material respect in the performance or observance of any term, covenant,
condition or obligation contained in any other written agreement between
Diamond Shamrock R & M and Brazos and such default shall not have been cured
within any applicable grace or cure period.
(j) Unauthorized Assignment. Any assignment by Diamond Shamrock R
& M of any interest in this Agreement (except for any sublease of its interest
in any Facility).
Section 13.02. Rights Upon Default. Upon the occurrence and
continuation of any Event of Default Brazos or any Assignee may in its
discretion declare this Facilities Lease to be in default and do any one or
more of the following:
(a) Terminate the lease of any or all Facility leased hereunder;
(b) Whether or not the lease of any Facility is terminated, take
immediate possession of and remove any or all Store FF&E and other equipment or
property of Brazos in the possession of Diamond Shamrock R & M, wherever
situated, and for such purpose, enter upon any premises without liability to
Diamond Shamrock R & M for so doing;
(c) Whether or not any action has been taken under (a) or (b)
above, sell any Facility or Brazos' interest in any Acquired Facilities Lease
(with or without the concurrence or request of Diamond Shamrock R & M);
(d) Hold, use, occupy, operate, remove, lease or keep idle any or
all Facility as Brazos in its sole discretion may determine, without any duty
to account to Diamond Shamrock R & M with respect to any such action or
inaction or for any proceeds thereof; and
(e) Exercise any other right or remedy which may be available
under applicable law and in general proceed by appropriate judicial
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proceedings, either at law or in equity, to enforce the terms hereof or to
recover damages for the breach hereof.
Suit or suits for the recovery of any default in the payment of any
sum due hereunder or for damages may be brought by Brazos from time to time at
Brazos' election, and nothing herein contained shall be deemed to require
Brazos to await the date whereon this Facilities Lease or the term hereof would
have expired by limitation had there been no such default by Diamond Shamrock R
& M or no such termination or cancellation.
The receipt of any payments under this Facilities Lease by Brazos with
knowledge of any breach of this Facilities Lease by Diamond Shamrock R & M or
of any default by Diamond Shamrock R & M in the performance of any of the
terms, covenants or conditions of this Facilities Lease, shall not be deemed to
be a waiver of any provision of this Facilities Lease.
No receipt of moneys by Brazos from Diamond Shamrock R & M after the
termination or cancellation hereof in any lawful manner shall reinstate,
continue or extend the Lease Term or any Renewal Term, or affect any notice
theretofore given to Diamond Shamrock R & M, or operate as a waiver of the
right of Brazos to enforce the payment of Basic Rent or Additional Rent or
other charges payable hereunder, or operate as a waiver of the right of Brazos
to recover possession of any Property by proper suit, action, proceedings or
remedy; it being agreed that, after the service of notice to terminate or
cancel this Facilities Lease, and the expiration of the time therein specified,
if the default has not been cured in the meantime, or after the commencement of
suit, action or summary proceedings or of any other remedy, or after a final
order, warrant or judgment for the possession of the Facility, Brazos may
demand, receive and collect any moneys payable hereunder, without in any manner
affecting such notice, proceedings, suit, action, order, warrant or judgment;
and any and all such moneys so collected shall be deemed to be payments on
account for the use, operation and occupation of the Facility, or at the
election of Brazos, on account of Diamond Shamrock R & M's liability hereunder.
Acceptance of the keys to any Facility, or any similar act, by Brazos, or any
agent or employee, during the term hereof, shall not be deemed to be an
acceptance of a surrender of any Facility unless Brazos shall consent thereto
in writing.
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If, after an Event of Default shall have occurred, Diamond Shamrock R
& M fails to surrender promptly after written request by Brazos or converts or
destroys any Facility, Diamond Shamrock R & M shall be liable to Brazos for all
Basic Rent and Additional Rent then due and payable with respect to such
Facility, all other amounts payable under this Facilities Lease, the
Acquisition Cost of such Facility as of the date of such request, conversion or
destruction and all losses, damages and expenses (including, without
limitation, attorneys' fees and expenses) sustained by Brazos by reason of such
Event of Default and the exercise of Brazos' remedies with respect thereto.
If, after an Event of Default Brazos repossesses any Facility,
notwithstanding any termination of this Facilities Lease, Diamond Shamrock R &
M shall be liable for and Brazos may recover from Diamond Shamrock R & M all
Basic Rent accrued and any Additional Rent owing with respect to such Facility
to the date of such repossession, all other amounts payable under this
Facilities Lease, and all losses, damages and expenses (including, without
limitation, reasonable attorneys' fees and expenses) sustained by Brazos by
reason of such Event of Default and the exercise of Brazos' remedies with
respect thereto. In addition, Brazos may sell Brazos' interest in any Facility
upon any terms that Brazos deems satisfactory, free of any rights of Diamond
Shamrock R & M or any person claiming through or under Diamond Shamrock R & M.
In the event of such sale, in addition to the amounts payable under the first
sentence of this paragraph, Brazos shall be entitled to recover from Diamond
Shamrock R & M, as liquidated damages, and not as a penalty, an amount equal to
the Acquisition Cost of any Facility so sold, minus the net proceeds of such
sale (deducting from the gross proceeds of such sale any reasonable legal
expenses, commissions, sales taxes or other costs or expenses associated with
such sale) received by Brazos; provided however, if the proceeds of such sale
are in excess of the amount payable to Brazos pursuant hereto, such excess
shall be the property of Diamond Shamrock R & M. In lieu of such sale, in
addition to the amounts payable under the first sentence of this paragraph,
Brazos may cause Diamond Shamrock R & M to pay to Brazos, and Diamond Shamrock
R & M shall pay to Brazos, as liquidated damages, and not as a penalty, an
amount equal to the Acquisition Cost of any or all of the Facilities, and upon
payment in full of all such amounts Brazos shall transfer all of Brazos' right,
title and interest in and to the Facility to Diamond Shamrock R & M.
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To the extent deemed necessary or advisable by counsel for Brazos,
Brazos shall have the right, and is hereby granted the power by Diamond
Shamrock R & M, to sell all or any part of any Facility at public venue
pursuant to power of sale in accordance with the laws of the State in which the
Facility is located.
Sales pursuant to this Section 13.02, by Brazos of any part of the
Facility, may be by private or public sale, in such order or otherwise in such
manner as Brazos may elect in its sole discretion. Brazos shall have, with
respect to the Store FF&E, in addition to any other rights and remedies which
may be available to it at law or in equity or pursuant to this Facilities Lease
or any other contract or agreement, all rights and remedies of a secured party
under any applicable version of the Uniform Commercial Code of the relevant
jurisdictions relating to the Store FF&E, and it is expressly agreed that if
Brazos should proceed to dispose of or utilize the Store FF&E, or any part
thereof, in accordance with the provisions of said Uniform Commercial Code, ten
(10) days' notice by Brazos to Diamond Shamrock R & M shall be deemed to be
reasonable notice of any such provision requiring such notice. Any sale of
Store FF&E by Brazos may be made on such terms as it may choose, without
assuming any credit risk and without any obligation to advertise or give notice
of any kind other than that necessary under applicable law. Brazos shall incur
no liability as a result of the sale of the Store FF&E, or any part thereof, at
any private or public sale. Diamond Shamrock R & M hereby waives, to the
extent permitted by law, any claims against Brazos arising by reason of the
fact that the price at which the Store FF&E may have been sold at such private
sale was less than the price which may have been obtained at a public sale or
was less than the aggregate account of the amounts due from Diamond Shamrock R
& M to Brazos hereunder, even if Brazos accepts the first offer received and
does not offer the Store FF&E to more than one possible purchaser.
No remedy referred to in this Section 13.02 is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Brazos at law or in equity, and the
exercise in whole or in part by Brazos of any one or more of such remedies
shall not preclude the simultaneous or later exercise by Brazos of any or all
such other remedies. No waiver by Brazos of any Event of Default hereunder
shall in any way be, or be construed to be, a waiver of any future or
subsequent Event of Default.
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With respect to the termination of this Facilities Lease as to any
Facility as a result of an Event of Default, Diamond Shamrock R & M hereby
waives service of any notice of intention to re-enter. Diamond Shamrock R & M
hereby waives any and all rights to recover or regain possession of any
Facility or to reinstate this Facilities Lease as permitted or provided by or
under any statute, law or decision now or hereafter in force and effect.
Section 13.03. Events of Facility Termination. The occurrence of any
of the following shall constitute an Event of Facility Termination with respect
to a Facility:
(a) Unsatisfactory Title. If at any time title to any
Facility is not satisfactory to Brazos or Assignee by reason of any
Lien or other defect not disclosed in writing at the time of any
advance (even though the same may have existed at the time of any such
advance), except the Permitted Exceptions, and such Lien, encumbrance
or other defect is not corrected within thirty (30) days after notice
to Diamond Shamrock R & M.
(b) Nonconforming Work. If Diamond Shamrock R & M shall
fail to promptly correct any structural defect in a Store or replace
any Store FF&E which does not conform to the FF&E Specifications upon
demand of Shamrock Holdings.
(c) Non-Compliance with Governmental Requirements. If
Diamond Shamrock R & M fails to comply with any requirement of any
Governmental Authority with respect to such Facility or to contest
such requirement by means of a Permitted Contest under Article XVIII
(i) within thirty (30) days after notice in writing of such
requirement shall have been given to Diamond Shamrock R & M by such
Governmental Authority or by Brazos or Assignee, or (ii) if such
requirement is of a nature that it cannot be completely complied with
within such 30-day period, if Diamond Shamrock R & M shall fail after
such notice either diligently to commence complying with such
requirement or to proceed thereafter with reasonable diligence and in
good faith to comply with such requirement; provided, however, that
Diamond Shamrock R & M shall in any event comply with such requirement
prior to the date on which such Facility may be seized or sold as a
result of such non-compliance.
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(d) Permits. If Diamond Shamrock R & M shall fail to
obtain or be unable to obtain any Permit, or if any Permit shall be
revoked or otherwise cease to be in full force and effect unless, if
such revocation or cessation shall not be due to Diamond Shamrock R &
M's negligence or willful misconduct, Diamond Shamrock R & M shall
have obtained reinstatement or reissuance of such Permit within thirty
(30) days after the revocation or expiration thereof, or if such
reinstatement or reissuance is of a nature that it cannot be
completely effected within thirty (30) days, Diamond Shamrock R & M
shall have diligently commenced application for such reinstatement or
reissuance and shall thereafter be diligently proceeding to complete
said reinstatement or reissuance.
(e) Default under Acquired Facilities Lease. Diamond
Shamrock R & M shall default in the observance or performance of any
term, covenant or condition of the Acquired Facilities Lease relating
to such Facility on the part of Brazos, as tenant thereunder, to be
observed or performed, unless any such observance or performance shall
have been waived or not required by the landlord under the Acquired
Facilities Lease, or if any one or more of the events referred to in
the Acquired Facilities Lease shall occur which would cause the
Acquired Facilities Lease to terminate without notice or action by the
landlord thereunder or which would entitle the landlord under the
Acquired Facilities Lease to terminate the Acquired Facilities Lease
and the term thereof by the giving of notice to Brazos, as tenant
thereunder, or if the Acquired Facilities Lease shall be terminated or
canceled for any reason or under any circumstance whatsoever, or if
any of the terms, covenants or conditions of the Acquired Facilities
Lease shall in any manner be modified, changed, supplemented, altered
or amended in any material respect without the consent of Brazos.
(f) Completion of Construction. Diamond Shamrock R & M shall
fail to complete construction of a Facility on a Property within the
time period set forth in Section 5.01 of the Agreement for Facilities
Lease.
Section 13.04. Brazos' Right upon Event of Facility Termination. If
any Event of Facility Termination with respect to a Facility shall occur,
Brazos may, as liquidated damages and not
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as a penalty, require Diamond Shamrock R & M to purchase such Facility on the
next Basic Rent Payment Date at a price equal to the Acquisition Cost for such
Facility by giving notice of such required purchase. In connection with any
such purchase under this Section 13.04, on the Basic Rent Payment Date upon
which such purchase shall occur, Diamond Shamrock R & M shall pay to Brazos, in
addition to any purchase price payable, all Basic Rent payable and any
Additional Rent and other amounts owing hereunder with respect to such
Facility. At the time of such sale, Diamond Shamrock R & M shall be required
to pay to Brazos the obligations, costs, losses, damages, and expenses
(including, without limitation, reasonable attorneys' fees and expenses)
sustained by Brazos by reason of such Event of Facility Termination and
exercise of Brazos' rights under this Section 13.04.
ARTICLE XIV
LOSS OF OR DAMAGE TO FACILITIES
Section 14.01. Diamond Shamrock R & M's Risk. Diamond Shamrock R & M
hereby assumes all risk of loss of or damage to Facilities, however caused. No
loss of or damage to any Facility shall impair any obligation of Diamond
Shamrock R & M under this Facilities Lease, which shall continue in full force
and effect with respect to any lost or damaged Facility.
Section 14.02. Repair. In the event of damage of any kind whatsoever
to any Facility (unless the same is determined by Diamond Shamrock R & M to be
damaged beyond repair) Diamond Shamrock R & M, at its own cost and expense,
shall place the same in good operating order, repair, condition and appearance.
Section 14.03. Facility Damaged Beyond Repair. If any Facility is
destroyed, lost, stolen, seized, confiscated, rendered unfit for use or damaged
beyond repair (in the reasonable judgment of Diamond Shamrock R & M), or if the
use of any Facility by Diamond Shamrock R & M in the ordinary course of
business is prevented by the act of any third person or persons or governmental
instrumentality for a period exceeding ninety (90) days (other than an act
which is a Taking which is substantial as described in Section 15.01 of this
Facilities Lease), or if the Acquired Facilities Lease applicable to such
Facility is terminated due to
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casualty, or if such Facility is attached (other than on a claim against Brazos
as to which Diamond Shamrock R & M is not obligated to indemnify Brazos) and
the attachment is not removed within ninety (90) days, or if a Taking which is
substantial as described in Section 15.01 shall occur, then in any such event,
(i) Diamond Shamrock R & M shall promptly notify Brazos and Assignee in writing
of such event, (ii) on the Basic Rent Payment Date following such event, unless
such Basic Rent Payment Date occurs within ten (10) days of such event, in
which case on the next Basic Rent Payment Date, Diamond Shamrock R & M shall
pay to Brazos an amount equal to the Acquisition Cost of such Facility (after
deducting any insurance proceeds received by Brazos in respect of such event or
the net amount after Brazos' expenses of proceeds to Brazos from any award or
sale made in connection with a Taking), provided that insurance or net Taking
proceeds, if any, received by Brazos in excess of the Acquisition Cost of the
affected Facility shall be paid by Brazos to Diamond Shamrock R & M, (iii) the
Lease Term or Renewal Term of such Facility shall continue until the Basic Rent
Payment Date on which Brazos receives payment from Diamond Shamrock R & M of
the amount payable pursuant to this Section 14.03 and the Basic Rent and any
Additional Rent and other amounts owing hereunder, and shall thereupon
terminate and (iv) Brazos shall on such Basic Rent Payment Date transfer title
to such Facility to Diamond Shamrock R & M, and Diamond Shamrock R & M shall be
subrogated to Brazos' rights in the affected transaction.
ARTICLE XV
CONDEMNATION OF FACILITY
Section 15.01. Taking of Substantially all of a Facility. If Diamond
Shamrock R & M or Brazos shall receive notice that the use, occupancy or title
to all or substantially all of a Facility is to be taken, requisitioned or sold
in, by or on account of eminent domain proceedings or other action by any
person or authority having the power of eminent domain (such events
collectively referred to as a "Taking"), and such Taking is substantial, then
the Lease Term or Renewal Term shall terminate as provided in Section 14.03. A
Taking shall be deemed substantial if the Facility or the remainder of the
Property on which it is located is unusable for Diamond Shamrock R & M's
ordinary business purposes or
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the Acquired Facilities Lease applicable to such Facility is terminated as a
result of such Taking.
Section 15.02. Taking of Less than Substantially all of a Facility.
If less than substantially all of a Facility or the Property on which it is
located is subject to a Taking, then this Facilities Lease shall continue in
effect as to such Facility not taken and Diamond Shamrock R & M, at its own
cost and expense, shall place the same in good operating order, repair,
condition and appearance. Brazos and Diamond Shamrock R & M each hereby waives
any statutory or common law right allowing either of them to petition any court
to terminate this Facilities Lease in the event of a Taking of less than
substantially all of the Facility or the Property on which it is located.
Section 15.03. Grant of Minor Easements. So long as no Event of
Default or Event of Facility Termination hereunder has occurred and is
continuing, Diamond Shamrock R & M shall have the right to grant minor
easements for the benefit of any Facility or which are deemed reasonably
necessary for Diamond Shamrock R & M's use of the Facility. If Diamond
Shamrock R & M receives any monetary consideration for such easement or
dedication, Diamond Shamrock R & M shall promptly deliver such consideration to
Brazos. Diamond Shamrock R & M shall exercise the above power to grant without
the joinder of Brazos, except that Brazos will cooperate, at Diamond Shamrock R
& M's expense, as necessary and join in the execution of any appropriate
instrument. As a condition precedent to Diamond Shamrock R & M's exercise of
any of Diamond Shamrock R & M's powers under this Article, Diamond Shamrock R &
M shall give Brazos ten (10) days' prior written notice of the proposed action.
Upon the giving of such notice, Diamond Shamrock R & M shall be deemed to have
certified that such action will not materially adversely
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affect either the market value of such Facility or the use of such Facility for
its intended purpose, will not affect Brazos' or any Assignee's ability to
exercise its rights and remedies under this Facilities Lease and that Diamond
Shamrock R & M undertakes to remain obligated under this Facilities Lease to
the same extent as if Diamond Shamrock R & M had not exercised its powers under
this Article and Diamond Shamrock R & M will perform all obligations under such
instrument and shall prepare all required documents and provide all other
instruments and certificates as Brazos may reasonably request.
ARTICLE XVI
LEASEHOLD INTERESTS
The following provisions relate to each lease (an "Acquired Facilities
Lease") under which a leasehold interest in a Facility is being subleased to
Diamond Shamrock R & M hereunder:
(a) This Facilities Lease is subject and subordinate to all of the
terms, covenants, provisions, conditions and agreements contained in each
Acquired Facilities Lease and the matters to which the Acquired Facilities
Lease is subject and subordinate.
(b) Diamond Shamrock R & M hereunder covenants and agrees to
perform and to observe all of the terms, covenants, provisions, conditions and
agreements of the underlying Acquired Facilities Lease on Brazos' part as
lessee thereunder to be performed and observed including, without limitation,
payment of all rent, additional rent and other amounts payable by Brazos as
lessee under the Acquired Facilities Lease, to the end that all things shall be
done which are necessary to keep unimpaired the rights of Brazos as lessee
under the Acquired Facilities Lease.
(c) Diamond Shamrock R & M covenants and agrees that it will not
do or cause to be done or suffer or permit any act or thing to be done which
would or might cause such Acquired Facilities Lease or the rights of Brazos as
lessee thereunder to be canceled, terminated or forfeited or which would make
Diamond Shamrock R & M or Brazos liable for any losses, costs, liabilities,
damages, claims, penalties or other expenses.
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(d) Diamond Shamrock R & M covenants and agrees pursuant to
Article X hereof to indemnify and hold harmless Brazos and any Assignee from
and against any and all liability, loss, damage, suits, penalties, claims and
demands of every kind and nature (including, without limitation, reasonable
attorneys' fees and expenses) by reason of Diamond Shamrock R & M's failure to
comply with any Acquired Facilities Lease or the provisions of this Article
XVI.
(e) Brazos and Diamond Shamrock R & M agree that any services
which are required to be provided or repairs or restorations which are required
to be made in accordance with the provisions of such Acquired Facilities Lease
by the lessor thereunder will be provided and made by such lessor, and Brazos
shall have no obligation to provide any such services or to make any such
repairs or restorations. Brazos shall in no event be liable to Diamond
Shamrock R & M nor shall the obligations of Diamond Shamrock R & M hereunder be
impaired or the performance thereof excused because of any failure or delay on
the part of the lessor under the Acquired Facilities Lease in providing such
services or making such restorations or repairs and such failure or delay shall
not constitute a basis for any claim against Brazos or any offset against any
amount payable to Brazos under this Facilities Lease.
(f) If Brazos' interest under any Acquired Facilities Lease shall
expire, terminate or otherwise be extinguished, the Facilities Lease of the
Facility to which such Acquired Facility Lease relates shall thereupon
terminate as provided in this paragraph. Upon such expiration, termination or
extinguishment (i) on the Basic Rent Payment Date next succeeding such event,
Diamond Shamrock R & M shall pay to Brazos an amount equal to the Acquisition
Cost of such Facility and (ii) the Lease Term or Renewal Term of such Facility
shall continue until the date on which Brazos receives payment from Diamond
Shamrock R & M of the amount payable pursuant to this paragraph (f) and of all
Basic Rent payable and any Additional Rent and other amounts owing hereunder,
and shall then terminate upon the payment of such amounts.
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ARTICLE XVII
STORE FF&E TO BE PERSONAL PROPERTY
It is the intention and understanding of Brazos and Diamond Shamrock R
& M that all Store FF&E shall be and at all times remain personal property.
Diamond Shamrock R & M shall obtain and record such instruments and take such
steps as may be necessary to prevent any person from acquiring any rights in
Store FF&E paramount to the rights of Brazos by reason of such Store FF&E being
deemed to be real property. If, notwithstanding the intention of the parties
and the provisions of this Article XVI, any person acquires or claims to have
acquired any rights in any Store FF&E superior to the rights of Brazos, by
reason of such Store FF&E being deemed to be real property, Diamond Shamrock R
& M shall promptly notify Brazos in writing of such fact and (unless the basis
for such claim is waived or eliminated to the satisfaction of Brazos within a
period of thirty (30) days from the date it is asserted) Diamond Shamrock R & M
shall on the Basic Rent Payment Date following the expiration of the 30-day
period referred to above in this sentence pay to Brazos an amount equal to the
Acquisition Cost of such Store FF&E at the time of payment. On such Basic Rent
Payment Date, in addition to the payment of the Acquisition Cost, Diamond
Shamrock R & M shall pay to Brazos Basic Rent payable and any Additional Rent
and other amounts owing hereunder and the lease of such Store FF&E shall
thereupon terminate. Brazos shall at the end of such calendar month transfer
title to such Store FF&E to Diamond Shamrock R & M, and Diamond Shamrock R & M
shall be subrogated to Brazos' rights in the affected transaction.
ARTICLE XVIII
PERMITTED CONTESTS
(a) Diamond Shamrock R & M shall not be required, nor shall Brazos
have the right, to pay, discharge or remove any tax, assessment, levy, fee,
rent, charge, Lien or encumbrance, or to comply or cause any Facility to comply
with any Legal Requirements applicable to any Facility or the occupancy, use or
operation thereof, so long as no Event of Default, Event of Facility
Termination, Potential Default or Potential Facility Termination exists under
this Facilities Lease with respect to any Facility, and, in the opinion of
Diamond Shamrock R & M's counsel, Diamond Shamrock R & M shall have reasonable
grounds to contest, and shall be diligently contesting, the existence, amount,
applicability or validity thereof by appropriate proceedings, which proceedings
in
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the reasonable judgment of Brazos, (i) shall not involve any material danger
that any Facility or any Basic Rent or any Additional Rent would be subject to
sale, forfeiture or loss, as a result of failure to comply therewith, (ii)
shall not affect the payment of any Basic Rent or any Additional Rent or other
sums due and payable hereunder, (iii) unless any criminal liability could
result from a failure to comply therewith, could not reasonably be expected to
cause either Brazos or any Assignee to incur civil liability which, in the sole
judgment of Brazos or any Assignee, is not adequately indemnified (Diamond
Shamrock R & M's obligations under Article X of this Facilities Lease shall be
deemed to be adequate indemnification if no Event of Default, Event of Facility
Termination, Potential Default or Potential Facility Termination exists and if
such civil liability is reasonably likely to be less than $500,000 per Facility
and $1,000,000 in the aggregate for all Facilities), (iv) shall be permitted
under the provisions of the Acquired Facilities Lease, if any, on such
Facility, (v) if involving taxes, shall suspend the collection of taxes, and
(vi) shall be permitted under and be conducted in accordance with the
provisions of any other instrument to which Diamond Shamrock R & M or the
Facility is subject and shall not constitute a default thereunder. Diamond
Shamrock R & M shall conduct all such contests in good faith and with due
diligence and shall promptly after the final determination (including appeals)
of such contest, pay and discharge all amounts which shall be determined to be
payable therein. Notwithstanding anything in this paragraph (a) to the
contrary, Diamond Shamrock R & M shall not be obligated to actively contest any
mechanics' or materialmen's Lien or claim which does not exceed $100,000,
provided that the failure to so contest does not violate clauses (i)-(iv) or
(vi) above, provided further that such Lien is junior to any Lien of an
Assignee on such Facility, and provided further, that Diamond Shamrock R & M
shall in any event diligently contest and defend against the enforcement of any
such Lien or claim in good faith and with due diligence and shall promptly,
after the final determination (including appeals of such contest), pay and
discharge all amounts which shall be determined to be payable therein.
(b) At least ten (10) days prior to the commencement thereof,
Diamond Shamrock R & M shall notify Brazos in writing of any such proceeding in
which the amount in contest exceeds $100,000, and shall describe such
proceeding in reasonable detail. If a taxing authority or subdivision thereof
proposes an additional assessment
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or levy of any tax for which Diamond Shamrock R & M is obligated to reimburse
Brazos under this Facilities Lease, or if Brazos is notified of the
commencement of an audit or similar proceeding which could result in such an
additional assessment, then Brazos shall in a timely manner notify Diamond
Shamrock R & M in writing of such proposed levy or proceeding.
ARTICLE XIX
MISCELLANEOUS
Section 19.01. Survival. All agreements, indemnities,
representations and warranties, and the obligation to pay Additional Rent
contained in this Facilities Lease shall survive the expiration or other
termination hereof.
Section 19.02. Entire Agreement. This Facilities Lease and the
Facility Leasing Records covering Facilities leased pursuant hereto and the
instruments, documents or agreements referred to herein constitute the entire
agreement between the parties and no representations, warranties, promises,
guarantees or agreements, oral or written, express or implied, have been made
by any party hereto with respect to this Facilities Lease or the Facility,
except as provided herein or therein.
Section 19.03. Modifications. This Facilities Lease may not be
amended, modified or terminated, nor may any obligation hereunder be waived
orally, and no such amendment, modification, termination or waiver shall be
effective for any purpose unless it is in writing and is signed by the party
against whom enforcement thereof is sought. A waiver on one occasion shall not
be construed to be a waiver with respect to any other occasion.
Section 19.04. GOVERNING LAW. THIS FACILITIES LEASE SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF ARKANSAS WITH RESPECT TO FACILITIES LOCATED IN ARKANSAS,
THE LAWS OF THE STATE OF COLORADO WITH RESPECT TO FACILITIES LOCATED IN
COLORADO, THE LAWS OF THE STATE OF KANSAS WITH RESPECT TO FACILITIES LOCATED IN
KANSAS, THE LAWS OF THE STATE OF LOUISIANA WITH RESPECT TO FACILITIES LOCATED
IN LOUISIANA, THE LAWS OF THE STATE OF NEW MEXICO WITH RESPECT TO FACILITIES
LOCATED IN NEW MEXICO, THE LAWS OF THE STATE OF OKLAHOMA
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WITH RESPECT TO FACILITIES LOCATED IN OKLAHOMA, AND THE LAWS OF THE STATE OF
TEXAS WITH RESPECT TO FACILITIES LOCATED IN TEXAS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE. ANY PROVISION OF THIS FACILITIES LEASE
WHICH IS PROHIBITED BY LAW OR UNENFORCEABLE IN ANY JURISDICTION SHALL, AS TO
SUCH JURISDICTION, BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR
UNENFORCEABILITY WITHOUT INVALIDATING THE REMAINING PROVISIONS HEREOF, AND THE
PARTIES HERETO SHALL NEGOTIATE IN GOOD FAITH APPROPRIATE MODIFICATIONS TO
REFLECT SUCH CHANGES AS MAY BE REQUIRED BY LAW, AND, AS NEARLY AS POSSIBLE, TO
PRODUCE THE SAME ECONOMIC EFFECTS AS THE PROVISION WHICH IS PROHIBITED OR
UNENFORCEABLE; AND ANY SUCH PROHIBITION OR UNENFORCEABILITY IN ANY JURISDICTION
SHALL NOT INVALIDATE OR RENDER UNENFORCEABLE SUCH PROVISION IN ANY OTHER
JURISDICTION. TO THE EXTENT PERMITTED BY APPLICABLE LAW, DIAMOND SHAMROCK R &
M AND BRAZOS HEREBY WAIVE ANY PROVISION OF LAW WHICH RENDERS ANY PROVISION
HEREOF PROHIBITED OR UNENFORCEABLE IN ANY RESPECT.
Section 19.05. No Offsets. The obligations of Diamond Shamrock R & M
to pay all amounts payable pursuant to this Facilities Lease (including
specifically and without limitation amounts payable due under Articles VI and X
hereof) shall be absolute and unconditional under any and all circumstances of
any character, and such amounts shall be paid without notice, demand, defense,
setoff, deduction or counterclaim and without abatement, suspension, deferment,
diminution or reduction of any kind whatsoever, except as herein expressly
otherwise provided. The obligation of Diamond Shamrock R & M to lease and pay
Basic Rent, Additional Rent or any other amounts for any and all Facilities is
without any warranty or representation, express or implied, as to any matter
whatsoever on the part of Brazos or any Assignee or any Affiliate of either, or
anyone acting on behalf of any of them.
NEITHER BRAZOS NOR ANY ASSIGNEE NOR ANY AFFILIATE OF EITHER, NOR
ANYONE ACTING ON BEHALF OF ANY OF THEM, MAKES ANY REPRESENTATION OR WARRANTY OF
ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, AS TO
THE SAFETY, TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR USE,
MERCHANTABILITY, CONFORMITY TO SPECIFICATION, ENVIRONMENTAL CONDITION
(INCLUDING THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS), OR ANY OTHER
CHARACTERISTIC, OF ANY STORE OR STORE FF&E, OR AS TO WHETHER ANY STORE OR STORE
FF&E OR THE OWNERSHIP, USE, OCCUPANCY OR POSSESSION
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THEREOF COMPLIES WITH ANY LAWS, RULES, REGULATIONS OR REQUIREMENTS OF ANY KIND.
AS BETWEEN BRAZOS AND DIAMOND SHAMROCK R & M, ANY ASSIGNEE OR ANY
INDEMNIFIED PERSON, AND TO THE EXTENT ALLOWED BY LAW, DIAMOND SHAMROCK R & M
ASSUMES ALL RISKS AND WAIVES ANY AND ALL DEFENSES, SET-OFFS, DEDUCTIONS,
COUNTERCLAIMS (OR OTHER RIGHTS), EXISTING OR FUTURE, TO ITS OBLIGATION TO PAY
BASIC RENT, ADDITIONAL RENT AND ALL OTHER AMOUNTS PAYABLE HEREUNDER, INCLUDING,
WITHOUT LIMITATION, ANY RELATING TO:
(A) THE SAFETY, TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR
USE, MERCHANTABILITY, CONFORMITY TO SPECIFICATION, OR ANY OTHER QUALITY OR
CHARACTERISTIC OF ANY STORE OR STORE FF&E, LATENT OR NOT;
(B) ANY SET-OFF, COUNTERCLAIM, RECOUPMENT, ABATEMENT, DEFENSE OR
OTHER RIGHT WHICH DIAMOND SHAMROCK R & M MAY HAVE AGAINST BRAZOS, ANY ASSIGNEE,
OR ANY INDEMNIFIED PERSON FOR ANY REASON WHATSOEVER ARISING OUT OF THIS OR ANY
OTHER TRANSACTION OR MATTER;
(C) ANY DEFECT IN TITLE OR OWNERSHIP OF ANY STORE OR STORE FF&E OR
ANY TITLE ENCUMBRANCE NOW OR HEREAFTER EXISTING WITH RESPECT TO THE STORES OR
STORE FF&E;
(D) ANY FAILURE OR DELAY IN DELIVERY OR ANY LOSS, THEFT OR
DESTRUCTION OF, OR DAMAGE TO, ANY STORES OR STORE FF&E, IN WHOLE OR IN PART, OR
CESSATION OF THE USE OR POSSESSION OF ANY STORES OR STORE FF&E BY DIAMOND
SHAMROCK R & M FOR ANY REASON WHATSOEVER AND OF WHATEVER DURATION, OR ANY
CONDEMNATION, CONFISCATION, REQUISITION, SEIZURE, PURCHASE, TAKING OR
FORFEITURE OF ANY STORE OR STORE FF&E, IN WHOLE OR IN PART;
(E) ANY INABILITY OR ILLEGALITY WITH RESPECT TO THE USE,
OWNERSHIP, OCCUPANCY OR POSSESSION OF THE STORE OR STORE FF&E BY DIAMOND
SHAMROCK R & M;
(F) ANY INSOLVENCY, BANKRUPTCY, REORGANIZATION OR SIMILAR
PROCEEDING BY OR AGAINST DIAMOND SHAMROCK R & M OR BRAZOS OR ANY ASSIGNEE;
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(G) ANY FAILURE TO OBTAIN, OR EXPIRATION, SUSPENSION OR OTHER
TERMINATION OF, OR INTERRUPTION TO, ANY REQUIRED LICENSES, PERMITS, CONSENTS,
AUTHORIZATIONS, APPROVALS OR OTHER LEGAL REQUIREMENTS;
(H) THE INVALIDITY OR UNENFORCEABILITY OF THIS FACILITIES LEASE OR
ANY OTHER INFIRMITY HEREIN OR ANY LACK OF POWER OR AUTHORITY OF BRAZOS OR
DIAMOND SHAMROCK R & M TO ENTER INTO THIS FACILITIES LEASE; OR
(I) ANY OTHER CIRCUMSTANCES OR HAPPENING WHATSOEVER, WHETHER OR
NOT SIMILAR TO ANY OF THE FOREGOING.
DIAMOND SHAMROCK R & M HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHTS WHICH IT MAY NOW HAVE OR WHICH AT ANY TIME
HEREAFTER MAY BE CONFERRED UPON IT, BY STATUTE OR OTHERWISE, TO TERMINATE,
CANCEL, QUIT, RESCIND OR SURRENDER THIS FACILITIES LEASE EXCEPT IN ACCORDANCE
WITH THE EXPRESS TERMS HEREOF.
Section 19.06. Non-Recourse. Brazos' obligations hereunder are
intended to be the limited obligations of the limited partnership and of the
corporation which is the general partner thereof. Notwithstanding any other
provision of this Facilities Lease, Diamond Shamrock R & M agrees that the
personal liability of Brazos and the partners comprising Brazos shall be
strictly and absolutely limited to the Facility and no recourse for the payment
of any amount due under this Facilities Lease or any other agreement
contemplated hereby, or for any claim based thereon or otherwise in respect
thereof, shall be had against any other assets of the limited partnership or of
the general or of any limited partner of Brazos or any incorporator,
shareholder, officer, director or Affiliate (past, present or future) of such
general partner or limited partner, or of any Affiliate of either, or of any
successor corporation to any corporate general partner or any corporate limited
partner of Brazos, it being understood that Brazos is a limited partnership
entering into the transactions involved in and relating to this Facilities
Lease on the express understanding aforesaid.
Section 19.07. Notices.
(a) Any notice or request which by any provision of this
Facilities Lease is required or permitted to be given by either
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party to the other shall be deemed to have been given when delivered by hand
(including, delivery by courier), deposited in the mail, postage prepaid, by
certified or registered mail or, if promptly confirmed by mail or by
hand-delivery, as provided above, when sent by telex, or other written
telecommunication, addressed to the following specified addresses or to such
other addresses as Brazos or Diamond Shamrock R & M may specify by written
notice to the other party:
If to Brazos:
Brazos River Leasing L.P.
2911 Turtle Creek Blvd., Suite 1240
Dallas, Texas 75219
Attention: Gregory C. Greene
Telephone: (214) 522-7296
Telecopy: (214) 520-2009
If to Diamond Shamrock R & M:
(i) By Mail:
Diamond Shamrock Refining and Marketing Company
P.O. Box 696000
San Antonio, Texas 78269-6000
Attention: Treasurer
(ii) By Hand Delivery:
Diamond Shamrock Refining and Marketing Company
9830 Colonnade Boulevard
San Antonio, Texas 78230
Attention: Treasurer
Telephone: (210) 641-6800
Telex: 510-601-5725
Answerback: DIAMSHAM SNT UQ
Telecopy: (210) 641-8484
With a copy to any Assignee at such address as such Assignee may specify by
written notice to Brazos and Diamond Shamrock R & M.
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<PAGE> 73
(b) Brazos shall within five (5) Business Days give to Diamond
Shamrock R & M a copy of all notices received by Brazos pursuant to any Credit
Agreement and any other notices received with respect to any Facility.
Section 19.08. Usury. No provision of this Facilities Lease, the
Agreement for Facilities Lease or any other instrument relating to this
Facilities Lease, shall require the payment or permit the collection of
interest in excess of the maximum non-usurious interest rate under applicable
law (the "Maximum Rate"). If any excess interest in such respect is so
provided for, or shall be adjudicated to be so provided for, the provisions of
this Section 19.08 shall govern, and neither Diamond Shamrock R & M nor its
successors or assigns shall be obligated to pay the amount of such interest to
the extent it is in excess of the Maximum Rate. In determining the Maximum
Rate, any interest shall be spread over the term of the Facilities Lease to the
extent permitted by applicable U.S. Federal or state law, notwithstanding the
actual time for the payment of any rent or other amounts hereunder. It is
expressly stipulated and agreed to be the intent of Brazos and Diamond Shamrock
R & M at all times to comply with applicable state law governing the Maximum
Rate or the amount of interest payable pursuant to this Facilities Lease (or
applicable U.S. Federal law to the extent that it permits Brazos to contract
for, charge, take, reserve or receive a greater amount of interest than under
state law). If the applicable law is ever judicially interpreted so as to
render usurious any amount called for under the Facilities Lease, the Agreement
for Facilities Lease or any of the other documents relating to this Facilities
Lease or any amount contracted for, charged, taken, reserved or received with
respect to this Facilities Lease, or if Brazos' exercise of any option herein
or in any other document contained to accelerate the payment of amounts
required hereunder results in Diamond Shamrock R & M having paid any interest
in excess of that permitted by applicable law, then it is Brazos' and Diamond
Shamrock R & M's intent that all excess amounts theretofore collected by Brazos
be credited on the remaining balance of payments due hereunder (or, if all
amounts due hereunder have been or would thereby be paid in full, refunded to
Diamond Shamrock R & M) and the provisions of this Facilities Lease shall
immediately be deemed reformed in the amounts thereafter collectible hereunder
reduced, without the necessity of the execution of any new documents, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount
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<PAGE> 74
otherwise called for hereunder and under any other document relating hereto.
If at any time the amount of any interest for a year, would, but for this
Section 19.08, exceed the amount of interest that would have been accrued
during such year if the Maximum Rate had from time to time been in effect, the
total interest payable for such year shall be limited to the amount that would
have been accrued if the Maximum Rate had from time to time been in effect, and
to the fullest extent permitted by applicable law, such excess shall be (i)
spread and allocated to the preceding periods in which the interest paid was
less than the interest that would have been accrued at the Maximum Rate or (ii)
spread and allocated to subsequent periods in which the total payments on
account of interest are less than the interest that would have accrued at the
Maximum Rate.
Section 19.09. No Merger. There shall be no merger of this
Facilities Lease or of the leasehold estate hereby created with the fee estate
in any Facility by reason of the fact that the same person acquires or holds,
directly or indirectly, this Facilities Lease or the leasehold estate hereby
created or any interest herein or in such leasehold estate as well as the fee
estate in any Facility or any interest in such fee estate.
Section 19.10. Sale or Assignment by Brazos.
(a) Subject to Section 19.13(b), Brazos shall not sell or assign
its right, title, interest or obligations under this Facilities Lease, except
that Brazos shall have the right to finance the acquisition and ownership of
the Facility by selling, assigning or granting a security interest in its
right, title and interest in this Facilities Lease and any or all amounts due
from Diamond Shamrock R & M or any third party under this Facilities Lease,
provided that any such sale, assignment or grant of a security interest shall
be subject to the rights and interests of Diamond Shamrock R & M under this
Facilities Lease.
(b) Upon the occurrence of an event of default under the Credit
Agreement, any Assignee shall, except as otherwise agreed by Brazos and
Assignee, have all the rights, powers, privileges and remedies of Brazos
hereunder, and Diamond Shamrock R & M's obligations as between itself and such
Assignee hereunder shall not be subject to any claims or defense that Diamond
Shamrock R & M may have against Brazos. Upon written notice to Diamond
Shamrock R &
-67-
<PAGE> 75
M of any such assignment, Diamond Shamrock R & M shall attorn to any Assignee,
and Diamond Shamrock R & M shall thereafter make payments of Basic Rent,
Additional Rent and other sums due hereunder to Assignee, to the extent
specified in such notice, and such payments shall discharge the obligation of
Diamond Shamrock R & M to Brazos hereunder to the extent of such payments.
Anything contained herein to the contrary notwithstanding, no Assignee shall be
obligated to perform any duty, covenant or condition required to be performed
by Brazos hereunder, and any such duty, covenant or condition shall be and
remain the sole obligation of Brazos.
Section 19.11. Income Taxes. Brazos agrees that it will not file any
Federal, state or local income tax returns during the Lease Term or Renewal
Term, if any, with respect to any Facility that are inconsistent with the
treatment of Diamond Shamrock R & M as owner of such Facility for Federal,
state and local income tax purposes.
Section 19.12. Transfer on As-Is Basis. In connection with any sale
of Facility pursuant to this Facilities Lease, when Brazos transfers title,
such transfer shall be on an as-is, non-installment sale basis, without
warranty by, or recourse to, Brazos, but free of the Lien created by a Credit
Agreement.
Section 19.13. Right to Perform for Diamond Shamrock R & M.
(a) If Diamond Shamrock R & M fails to perform or comply with any
of its covenants or agreements contained in this Facilities Lease, Brazos may,
upon notice to Diamond Shamrock R & M but without waiving or releasing any
obligations or default, itself perform or comply with such covenant or
agreement, and the amount of the reasonable expenses of Brazos incurred in
connection with such performance or compliance, shall be payable by Diamond
Shamrock R & M, not later than ten (10) days after written notice by Brazos.
(b) Without in any way limiting the obligations of Diamond
Shamrock R & M hereunder, Diamond Shamrock R & M hereby irrevocably appoints
Brazos as its agent and attorney at the time at which Diamond Shamrock R & M is
obligated to deliver possession of any Facility to Brazos, to demand and take
possession of such Facility in the name and on behalf of Diamond Shamrock R & M
from whomsoever shall be at the time in possession thereof.
-68-
<PAGE> 76
Section 19.14. Merger, Consolidation or Sale of Assets.
(a) Diamond Shamrock R & M may not consolidate with or merge into
any other corporation or sell all or substantially all of its assets to any
Person, except that Diamond Shamrock R & M may consolidate with or merge into
any other corporation, or sell all or substantially all of its assets to any
Person; provided that, the surviving corporation or transferee Person shall
assume, by execution and delivery of instruments satisfactory to Brazos, the
obligations of Diamond Shamrock R & M hereunder and become successor to Diamond
Shamrock R & M, but Diamond Shamrock R & M, if it is the surviving corporation,
shall not thereby be released, without the consent of Brazos, from its
obligations hereunder and, provided further, that such surviving corporation or
transferee Person will, on a pro forma basis, immediately after such
consolidation, merger or sale, possess a consolidated net worth greater than or
equal to that of Diamond Shamrock R & M immediately prior to such
consolidation, merger or sale and no Event of Default or Event of Facility
Termination shall have occurred or result therefrom.
(b) Brazos may not consolidate with or merge into any other
corporation or sell all or substantially all of its assets to any Person,
except that Brazos may consolidate with or merge into any other corporation, or
sell all or substantially all of its assets to any Person; provided that, the
surviving corporation or transferee Person shall assume, by execution and
delivery of instruments satisfactory to Diamond Shamrock R & M, the obligations
of Brazos hereunder and become successor to Brazos, but Brazos shall not
thereby be released without the consent of Diamond Shamrock R & M from its
obligations hereunder and, provided further, that such surviving corporation or
transferee Person will, on a pro forma basis, immediately after such
consolidation, merger or sale, possess a consolidated net worth greater than or
equal to that of Brazos immediately prior to such consolidation, merger or sale
and, provided further, that the Guaranty and Residual Guaranty Payment Support
shall remain in full force and effect for the benefit of the surviving
corporation or transferee Person and Diamond Shamrock R & M shall provide to
Brazos such documents, opinions or other assurances to such effect as Brazos
may reasonably request.
-69-
<PAGE> 77
(c) The terms and provisions of this Facilities Lease shall be
binding upon and inure to the benefit of Brazos and Diamond Shamrock R & M and
their respective successors and assigns.
Section 19.15. Expenses. Diamond Shamrock R & M shall pay all of the
out-of-pocket costs and expenses incurred by Brazos and any Assignee in
connection with this Facilities Lease, including without limitation the
reasonable fees and disbursements of counsel to Brazos and counsel to any
Assignee.
Section 19.16. Payment of Taxes. In connection with the sale or
purchase of Facility pursuant to this Facilities Lease, Diamond Shamrock R & M
shall pay or shall cause the purchaser of such Facility to pay in addition to
the purchase price, all transfer taxes, transfer gains taxes, mortgage
recording tax, if any, recording and filing fees and all other similar taxes,
fees, expenses and closing costs (including reasonable attorneys' fees) in
connection with the conveyance of such Facility to Diamond Shamrock R & M or
any purchaser; provided that Diamond Shamrock R & M or any purchaser shall not
be required to pay U.S. Federal net income or capital gains taxes or to pay
state and local net income or capital gains taxes which are imposed by a state
or locality because of a relationship between Brazos and such state or locality
unrelated to ownership of such Facility.
Section 19.17. Rule Against Perpetuities. The parties hereto do not
intend any interest created by this Facilities Lease to be a perpetuity or to
be subject to invalidation under the perpetuities rule, however, if the rule is
to be applied, then the perpetuities period shall be twenty-one (21) years
after the last to die of the currently living great-grandchildren and/or
grandchildren of George H. W. Bush.
Section 19.18. Reexecution. The parties hereto shall reexecute this
Facilities Lease to the extent necessary to make this Facilities Lease
enforceable under the laws of any State in which a Facility is located.
Section 19.19. Purchase or Sale of Property. Notwithstanding
anything to the contrary herein, Diamond Shamrock R & M shall not have the
right to purchase any Facility or arrange for the sale of any Facility to a
third party unless simultaneous with such
-70-
<PAGE> 78
purchase or sale any Property on which such Facility is located is purchased by
Diamond Shamrock R & M or sold to a third party.
Section 19.20. Severability. In case one or more provisions of this
Facilities Lease shall be invalid, illegal or unenforceable in any respect
under any applicable law, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected or impaired
thereby.
-71-
<PAGE> 79
IN WITNESS WHEREOF, Brazos and Diamond Shamrock R & M have caused this
Amended and Restated Facilities Lease Agreement to be executed and delivered by
their duly authorized officers as of the day and year first above written.
BRAZOS RIVER LEASING L.P.
By: Headwater Investments L.P.,
its General Partner
By: Headwater Holdings, Inc.,
its General Partner
By: /s/ GREGORY C. GREENE
-----------------------------------
Gregory C. Greene,
President
DIAMOND SHAMROCK REFINING
(Corporate Seal) AND MARKETING COMPANY
ATTEST:
By: /s/ R.C. BECKER
- ------------------------ -----------------------------------
Name: R.C. Becker
Title:
-72-
<PAGE> 80
STATE OF NEW YORK Section
Section
COUNTY OF NEW YORK Section
BEFORE ME, the undersigned authority, personally appeared Gregory C.
Greene, President of HEADWATER HOLDINGS, INC., a Texas corporation, the general
partner of HEADWATER INVESTMENTS L.P.,, a Texas limited partnership, the
general partner of BRAZOS RIVER LEASING L.P., a Texas limited partnership,
known to me to be the person whose name is subscribed to the foregoing
instrument, and who acknowledged to me that he executed same for the purposes
herein expressed and in the capacity herein stated.
WITNESS MY HAND AND SEAL OF OFFICE this _____ day of December 1996.
NOTARY PUBLIC, STATE OF NEW YORK
STATE OF NEW YORK Section
Section
COUNTY OF NEW YORK Section
BEFORE ME, the undersigned authority, personally appeared
_____________________________, __________________ of DIAMOND SHAMROCK REFINING
AND MARKETING COMPANY, a Delaware corporation, known to me to be the person
whose name is subscribed to the foregoing instrument, and who acknowledged to
me that he executed same for the purposes herein expressed and in the capacity
herein stated.
WITNESS MY HAND AND SEAL OF OFFICE this _____ day of December 1996.
NOTARY PUBLIC, STATE OF NEW YORK
-73-
<PAGE> 81
EXHIBIT A
SCHEDULE OF INSURANCE
1. All risk direct physical damage insurance for the Property and
all improvements, equipment and structures located thereon in the amounts and
subject to the deductibles and self-insurance provisions that are applicable
under like insurance coverage maintained by Lessee for similar property and
equipment owned, leased or held by Lessee.
2. Comprehensive general public liability insurance, including,
without limitation, general auto liability, covering legal liability against
claims for bodily injury, death or property damage, occurring on, in or about
each Property and the improvements, equipment and structures located thereon,
or occurring as a result of the use of products sold or services rendered at a
Property in the minimum amount of $1,000,000 with respect to any one
occurrence, accident or disaster or incidence of negligence, together with
excess liability insurance covering the same risks to a combined single limit
of a minimum of $15,000,000 per occurrence, or any combination of primary and
excess liability insurance with the equivalent cumulative limits per
occurrence, which primary and excess liability coverage may be subject to such
deductibles and the Lessee may self-insure with respect to such coverage to the
extent of $1,000,000 per occurrence, or to such greater extent as may be
approved by Lessor in writing.
3. Pollution insurance covering physical damage to the Property
and the improvements, equipment, and structures located thereon and the legal
liability of Lessor and Lessee against claims for bodily injury, death or
property damage resulting from the seepage of or pollution by petroleum
products which are stored, used, handled or sold on or at Property, in the
minimum amount as may be required by law, or, if greater, in the minimum amount
as may be applicable under like insurance coverage maintained by Lessee for
similar property and equipment owned, leased or held by Lessee, under any
combination of primary and excess coverage, which primary and excess pollution
coverage may be subject to such deductibles and the Lessee may self-insure with
respect to such coverage to the extent of $10,000,000 per occurrence, or to
such greater extent as may be approved by Lessor in writing.
4. Workers' compensation and employers' liability insurance
covering Diamond Shamrock R & M's employees in such amount as is required by
law, or if permissible under state law, any legally appropriate alternative
providing substantially similar compensation for injured workers.
March 21, 1997
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Years Ended December 31,
----- ----- -------- ---
1996 1995 1994
---- ---- ----
(in millions, except per share data)
<S> <C> <C> <C>
Primary
Average shares outstanding . . . . . . . . . . . . . . . . 74.427 69.470 68.072
Net effect of dilutive stock options - based
on the treasury stock method using average market price . .554 .661
------ ------- ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 74.427 70.024 68.733
====== ====== ======
(Loss) income before cumulative effect of
accounting change . . . . . . . . . . . . . . . . . . . . $(35.9) $ 95.0 $136.8
Cumulative effect, to December 31, 1994,
of accounting change . . . . . . . . . . . . . . . . . . 22.0
------ ------- ------
Net (loss) income . . . . . . . . . . . . . . . . . . . . . (35.9) 117.0 136.8
Dividend requirement on preferred stock . . . . . . . . . . 4.3 4.3 4.3
------ ------- ------
Net (loss) income applicable to common shares . . . . . . . $(40.2) $112.7 $132.5
====== ====== ======
(Loss) income per common share before cumulative
effect of accounting change . . . . . . . . . . . . . . . $(.54) $1.30 $1.93
Cumulative effect of accounting change . . . . . . . . . . .31
------ ------- ------
Net (loss) income per common share . . . . . . . . . . . . $(.54) $1.61 $1.93
====== ===== =====
Fully Diluted
Average shares outstanding . . . . . . . . . . . . . . . . 74.427 69.470 68.072
Net effect of dilutive stock options - based
on the treasury stock method using the
year-end market price, if higher than
average market price . . . . . . . . . . . . . . . . . . .606 .629
Assumed conversion of 5% cumulative preferred stock . . . . 3.320 3.320
------ ------- ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 74.427 73.396 72.021
====== ====== ======
(Loss) income before cumulative effect of
accounting change . . . . . . . . . . . . . . . . . . . . $(35.9) $ 95.0 $136.8
Cumulative effect, to December 31, 1994,
of accounting change . . . . . . . . . . . . . . . . . . 22.0
------ ------- ------
Net (loss) income . . . . . . . . . . . . . . . . . . . . . (35.9) 117.0 136.8
Dividend requirement or preferred stock . . . . . . . . . . 4.3
------ ------- ------
Net (loss) income applicable to common shares . . . . . . . $(40.2) $117.0 $136.8
====== ====== ======
(Loss) income per common share before cumulative
effect of accounting change . . . . . . . . . . . . . . . $(.54) $1.29 $1.90
Cumulative effect of accounting change . . . . . . . . . . .30
------ ------- ------
Net (loss) income per common share . . . . . . . . . . . . $(.54) $1.59 $1.90
===== ===== =====
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
STATE OR JURISDICTION
SUBSIDIARIES OF ORGANIZATION
AUTOTRONIC SYSTEMS, INC. Delaware
BELVEX, INC. Texas
BIG DIAMOND NUMBER 1, INC. Texas
BIG DIAMOND, INC. Texas
CANADIAN ULTRAMAR HOLDING CORP. Canada
COLONNADE ASSURANCE LIMITED Bermuda
COLONNADE VERMONT INSURANCE COMPANY Vermont
CORNER STORE MEXICO, S.A. DE C.V. Mexico
CORPORATE CLAIMS MANAGEMENT, INC. Texas
D-S MONT BELVIEU, INC. Texas
D-S SPLITTER, INC. Delaware
D-S SYSTEMS, INC. Delaware
D-S UNITED, INC. Delaware
D-S VENTURE COMPANY, L.L.C. Delaware
D-S WORLD ENERGY, INC. Delaware
D.S.E. PIPELINE COMPANY Delaware
DSRM NATIONAL BANK n/a
DIAMOND REFORMING, INC. Delaware
DIAMOND SECURITY SYSTEMS, INC. Delaware
DIAMOND SHAMROCK ARIZONA, INC. Delaware
DIAMOND SHAMROCK BOLIVIANA, LTD. California
DIAMOND SHAMROCK LEASING, INC. Delaware
DIAMOND SHAMROCK PIPELINE COMPANY Delaware
DIAMOND SHAMROCK REFINING COMPANY, L.P. Delaware
DIAMOND SHAMROCK REFINING AND MARKETING Delaware
COMPANY
DIAMOND SHAMROCK STATIONS, INC. Delaware
DIAMOND SHAMROCK OF BOLIVIA, INC. Delaware
EMERALD CORPORATION Delaware
EMERALD MARKETING, INC. Texas
EMERALD PIPE LINE CORPORATION Delaware
INTEGRATED PRODUCT SYSTEMS, INC. Delaware
KEMPCO PETROLEUM COMPANY Texas
NATIONAL CONVENIENCE STORES INCORPORATED Delaware
NATIONAL MONEY ORDERS, INC. Texas
NORTH AMERICAN INTELECOM, INC. Delaware
PETRO/CHEM ENVIRONMENTAL SERVICES, INC. Delaware
PHOEBUS ENERGY LTD. Bermuda
SCHEPPS FOOD STORES, INC. Texas
<PAGE> 2
(Exhibit 21, cont.)
SEA EAGLE INSURANCE COMANY Hawaii
SERVIN SERVICIOS INTEGRALES, S.A. DE C.V. Mexico
SHAMROCK VENTURES LTD. Bermuda
SIGMOR BEVERAGE, INC. Texas
SIGMOR CORPORATION Delaware
ULTRAMAR D.S., INC. Texas
SIGMOR PIPELINE COMPANY Texas
SKELLY-BELVIEU PIPELINE COMPANY, L.L.C. Delaware
STOP N GO MARKETS OF GEORGIA, INC. Georgia
STOP N GO MARKETS OF TEXAS, INC. Texas
TEXAS SUPER DUPER MARKETS, INC. Texas
TOC-DS COMPANY Delaware
THE SHAMROCK PIPE LINE CORPORATION Delaware
ULTRAMAR CREDIT CORP. Canada
ULTRAMAR LTEe/ULTRAMAR LTD. Canada
ULTRAMAR SERVICES INC. Canada
WEST EMERALD PIPE LINE CORPORATION Delaware
XCEL PRODUCTS COMPANY, INC. Texas
XRAL STORAGE AND TERMINALING COMPANY Texas
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements (i) Form S-8 (No. 33-52148) pertaining to the Ultramar Diamond
Shamrock Corporation 1992 Long-Term Incentive Plan, (ii) Form S-8 (No.
33-62894) pertaining to the Ultramar Diamond Shamrock Corporation Restricted
Share Plan for Directors, (iii) Form S-8 (No. 333-19131) pertaining to the
Diamond Shamrock Inc. 1987 Long-Term Incentive Plan and the Diamond Shamrock
Inc. Long-Term Incentive Plan, (iv) Form S-3 (No. 33-74162) pertaining to the
Ultramar Diamond Shamrock Corporation Stock Purchase and Dividend Reinvestment
Plan, and (v) Form S-3 (No. 33-82662) pertaining to the registration of
$200,000,000 of debt securities of our report dated February 7, 1997 with
respect to the consolidated financial statements and schedule of Ultramar
Diamond Shamrock Corporation (formerly Ultramar Corporation) included in this
Annual Report (Form 10-K) for the year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
San Antonio, Texas
March 25, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in each of the Prospectuses
constituting part of the Registration Statements of Ultramar Diamond Shamrock
Corporation on Form S-3 (Nos. 33-74162 and 33-82662) and on Form S-8 (Nos.
33-52148, 33-62894, and 333-19131) of our report dated February 7, 1997,
appearing in Exhibit 13.3 of this Annual Report on Form 10-K.
/s/PRICE WATERHOUSE LLP
San Antonio, Texas
March 25, 1997
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned directors and/or officers of Ultramar Diamond Shamrock
Corporation, hereby constitute and appoint Patrick J. Guarino, Curtis V.
Anastasio, Harold D. Mallory and Todd Walker, or any of them, their true and
lawful attorneys-in-fact and agents, each with full power of substitution and
resubstitution, to do any and all acts and things in their name and behalf in
their capacity as a director and/or officer of Ultramar Diamond Shamrock
Corporation and to execute any and all instruments for them and in their name
in such capacity, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable Ultramar Diamond Shamrock Corporation to
comply with the Securities Exchange Act of 1934, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with the Annual Report on Form 10-K of Ultramar Diamond Shamrock
Corporation for the fiscal year ended December 31, 1996, including without
limitation, power and authority to sign for them, in their name in the capacity
indicated above, such Form 10-K and any and all amendments thereto, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that the said attorneys-in-fact and agents, or their substitute
or substitutes, or any one of them, shall do or cause to be done by virtue
hereof.
/s/ R. R. HEMMINGHAUS /s/ JEAN GAULIN
- ------------------------- -----------------------------
R. R. HEMMINGHAUS JEAN GAULIN
/s/ E. GLENN BIGGS /s/ BYRON ALLUMBAUGH
- ------------------------- -----------------------------
E. GLENN BIGGS BYRON ALLUMBAUGH
/s/ W. E. BRADFORD /s/ H. FREDERICK CHRISTIE
- ------------------------- -----------------------------
W. E. BRADFORD H. FREDERICK CHRISTIE
/s/ W. H. CLARK /s/ RUSSELL H. HERMAN
- ------------------------- -----------------------------
W. H. CLARK RUSSELL H. HERMAN
/s/ BOB MARBUT /s/ MADELEINE SAINT-JACQUES
- ------------------------- -----------------------------
BOB MARBUT MADELEINE SAINT-JACQUES
/s/ KATHERINE D. ORTEGA /s/ C. BARRY SCHAEFER
- ------------------------- -----------------------------
KATHERINE D. ORTEGA C. BARRY SCHAEFER
/s/ H. PETE SMITH
-----------------------------
H. PETE SMITH
Dated: February 5, 1997
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, on behalf of
Ultramar Diamond Shamrock Corporation, a Delaware corporation (the
"Corporation"), hereby constitutes and appoints Patrick J. Guarino, Curtis V.
Anastasio, Harold D. Mallory and Todd Walker, attorneys-in-fact and agents of
the Corporation, with full power of substitution and resubstitution, to do any
and all acts and things in its name and on its behalf and to execute any and
all instruments in its name in such capacity which they may deem appropriate or
advisable to enable the Corporation to comply with the Securities Exchange Act
of 1934, as amended, and any rules and regulations of the Securities and
Exchange Commission, in connection with the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1996, including without limitation,
the power to sign such report on the Corporation's behalf and to sign any
amendments thereto, and to file the same, with all exhibits thereto, and other
documents required in connection therewith, with the Securities and Exchange
Commission, granting to each and all of said attorneys-in-fact, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection with the filing of such report as herein
described.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
/s/ R. R. HEMMINGHAUS
- ---------------------
R. R. Hemminghaus
Chairman of the Board and
Chief Executive Officer
Dated: February 5, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 197,900
<SECURITIES> 0
<RECEIVABLES> 518,500
<ALLOWANCES> 15,400
<INVENTORY> 633,300
<CURRENT-ASSETS> 1,399,300
<PP&E> 3,685,200
<DEPRECIATION> 954,400
<TOTAL-ASSETS> 4,420,000
<CURRENT-LIABILITIES> 1,096,200
<BONDS> 0
0
0
<COMMON> 700
<OTHER-SE> 1,240,200
<TOTAL-LIABILITY-AND-EQUITY> 4,420,000
<SALES> 10,208,400
<TOTAL-REVENUES> 10,208,400
<CGS> 6,550,000
<TOTAL-COSTS> 6,550,000
<OTHER-EXPENSES> 928,100
<LOSS-PROVISION> 13,600
<INTEREST-EXPENSE> 128,500
<INCOME-PRETAX> (40,200)
<INCOME-TAX> (4,300)
<INCOME-CONTINUING> (35,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,900)
<EPS-PRIMARY> (0.54)
<EPS-DILUTED> (0.54)
</TABLE>
