UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31, 1999
Commission File Number 1-11154
------------------------------------
ULTRAMAR DIAMOND SHAMROCK CORPORATION
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification No. 13-3663331
6000 North Loop 1604 West
San Antonio, Texas 78249-1112
Telephone number: (210) 592-2000
--------------------------------------
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 ____
As of April 30, 1999, 86,587,000 shares of Common Stock, $0.01 par value, were
outstanding and the aggregate market value of such stock as of April 30, 1999
was $1,996,919,000.
<PAGE>
ULTRAMAR DIAMOND SHAMROCK CORPORATION
FORM 10-Q
MARCH 31, 1999
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998.................................................. 3
Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and 1998...................................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998...................................... 5
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 1999 and 1998......................... 6
Notes to Consolidated Financial Statements............................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......... 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................... 22
Item 4. Submission of Matters to a Vote of Security Holders................. 22
Item 6. Exhibits and Reports on Form 8-K.................................... 22
SIGNATURE..................................................... 23
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
March 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................................ $ 108.4 $ 176.1
Accounts and notes receivable, net............................... 307.0 562.7
Inventories...................................................... 581.8 635.6
Prepaid expenses and other current assets........................ 30.4 33.0
Deferred income taxes............................................ 98.4 98.4
--------- ---------
Total current assets.......................................... 1,126.0 1,505.8
--------- ---------
Property, plant and equipment....................................... 4,463.7 4,423.2
Less accumulated depreciation and amortization...................... (1,208.4) (1,162.0)
--------- ---------
Property, plant and equipment, net............................... 3,255.3 3,261.2
Other assets, net................................................... 582.1 548.0
--------- ---------
Total assets.................................................... $ 4,963.4 $ 5,315.0
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current portion of long-term debt.............. $ 4.8 $ 5.8
Accounts payable................................................. 301.7 366.0
Accrued liabilities.............................................. 343.2 402.4
Taxes other than income taxes.................................... 289.7 343.0
Income taxes payable............................................. 24.4 28.9
--------- ---------
Total current liabilities..................................... 963.8 1,146.1
--------- ---------
Long-term debt, less current portion................................ 1,762.2 1,926.2
Other long-term liabilities......................................... 443.3 453.7
Deferred income taxes............................................... 212.0 205.0
Commitments and contingencies
Company obligated preferred stock of subsidiary..................... 200.0 200.0
Stockholders' equity:
Common Stock, par value $0.01 per share:
250,000,000 shares authorized, 86,556,000 and
86,558,000 shares issued and outstanding as of
March 31, 1999 and December 31, 1998.......................... 0.9 0.9
Additional paid-in capital....................................... 1,513.1 1,512.7
Treasury stock................................................... (100.6) (100.1)
Retained earnings................................................ 74.6 82.5
Accumulated other comprehensive loss ............................ (105.9) (112.0)
--------- ---------
Total stockholders' equity..................................... 1,382.1 1,384.0
--------- ---------
Total liabilities and stockholders' equity..................... $ 4,963.4 $ 5,315.0
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in millions, except share and per share data)
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Sales and other revenues (including excise taxes).............. $2,725.7 $2,789.6
-------- --------
Operating costs and expenses:
Cost of products sold....................................... 1,547.2 1,621.3
Operating expenses.......................................... 255.7 287.9
Selling, general and administrative expenses................ 87.4 78.6
Taxes other than income taxes............................... 712.8 678.3
Depreciation and amortization............................... 57.1 65.4
-------- --------
Total operating costs and expenses....................... 2,660.2 2,731.5
-------- --------
Operating income............................................... 65.5 58.1
Interest income.............................................. 2.9 2.1
Interest expense............................................. (38.6) (36.1)
Equity income from Diamond-Koch.............................. 1.5 -
Gain on sale of property, plant and equipment................ - 7.0
-------- --------
Income before income taxes and dividends of
subsidiary................................................... 31.3 31.1
Provision for income taxes................................... 12.7 12.1
Dividends on preferred stock of subsidiary................... 2.6 2.6
-------- --------
Net income..................................................... $ 16.0 $ 16.4
======== ========
Net income per share:
Basic....................................................... $0.18 $0.18
Diluted..................................................... $0.18 $0.18
Weighted average number of shares (in thousands):
Basic....................................................... 86,557 87,284
Diluted..................................................... 86,643 90,882
Dividends per share:
Common Shares............................................... $0.275 $0.275
5% Cumulative Convertible Preferred Shares.................. - $0.625
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income...................................................... $ 16.0 $ 16.4
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization................................ 57.1 65.4
Provision for losses on receivables.......................... 1.7 4.9
Equity income from Diamond-Koch.............................. (1.5) -
Loss (gain) on sale of property, plant and equipment......... 0.1 (7.5)
Deferred income tax provision................................ 6.0 2.9
Other, net................................................... 0.5 (4.2)
Changes in operating assets and liabilities:
Decrease in accounts and notes receivable.................. 249.3 154.6
Decrease in inventories.................................... 56.8 97.1
Decrease in prepaid expenses and other current assets...... 2.7 13.2
Increase in other assets................................... (8.8) (7.7)
Decrease in accounts payable and other current liabilities. (195.4) (324.6)
Decrease in other long-term liabilities.................... (13.0) 5.9
------- --------
Net cash provided by operating activities................ 171.5 16.4
------- --------
Cash Flows from Investing Activities:
Capital expenditures........................................... (35.3) (28.8)
Deferred refinery maintenance turnaround costs................. (18.3) (7.5)
Proceeds from sales of property, plant and equipment........... 2.2 27.8
------- --------
Net cash used in investing activities........................ (51.4) (8.5)
------- --------
Cash Flows from Financing Activities:
Net change in commercial paper and short-term borrowings....... (162.6) 25.6
Repayment of long-term debt.................................... (2.7) (2.2)
Payment of cash dividends...................................... (23.8) (24.9)
Other, net..................................................... 0.1 4.5
------- --------
Net cash provided by (used in) financing activities.......... (189.0) 3.0
------- --------
Effect of exchange rate changes on cash......................... 1.2 0.1
------- --------
Net Increase (Decrease) in Cash and Cash Equivalents............ (67.7) 11.0
Cash and Cash Equivalents at Beginning of Period................ 176.1 92.0
------- --------
Cash and Cash Equivalents at End of Period...................... $ 108.4 $ 103.0
======= ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in millions)
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Net income...................................................... $16.0 $16.4
Other comprehensive income (loss):
Foreign currency translation adjustment...................... 7.2 3.7
Minimum pension liability adjustment, net of income taxes.... (1.1) -
----- -----
Comprehensive income............................................ $22.1 $20.1
===== =====
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
NOTE 1: Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
by Ultramar Diamond Shamrock Corporation (the Company), in accordance with
generally accepted accounting principles for interim financial reporting and
with Securities and Exchange Commission rules and regulations for Form 10-Q. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. These
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1998.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. The results of operations may be affected by seasonal factors, such as the
demand for petroleum products and working capital requirements in the Northeast
System, which vary significantly during the year; or industry factors that may
be specific to a particular period, such as movements in and the general level
of crude oil prices, the demand for and prices of refined products, industry
supply capacity and maintenance turnarounds.
Certain previously reported amounts have been reclassified to conform to the
1999 presentation.
NOTE 2: Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(in millions)
<S> <C> <C>
Crude oil and other feedstocks..........................................$189.5 $283.9
Refined and other finished products and convenience store items..........336.0 296.9
Materials and supplies................................................... 56.3 54.8
----- ------
Total inventories..................................................$581.8 $635.6
===== =====
</TABLE>
<PAGE>
NOTE 3: Computation of Net Income Per Share
Basic net income per share is calculated as net income less preferred stock
dividends divided by the weighted average number of Common Shares outstanding.
Diluted net income per share assumes, when dilutive, issuance of the net
incremental shares from stock options and restricted stock, and, in 1998, the
conversion of the 5% Cumulative Convertible Preferred Shares. The following
table reconciles the net income amounts and share numbers used in the
computation of net income per share (in millions, except per share data).
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Basic Net Income Per Share:
Weighted average number of Common Shares outstanding
(in thousands)............................................... 86,557 87,284
====== ======
Net income....................................................... $ 16.0 $ 16.4
Dividends on 5% Cumulative Convertible Preferred
Stock....................................................... - 1.1
------ ------
Net income applicable to Common Shares........................... $ 16.0 $ 15.3
====== ======
Basic net income per share....................................... $ 0.18 $ 0.18
====== ======
Diluted Net Income Per Share:
Weighted average number of Common Shares outstanding
(in thousands)............................................... 86,557 87,284
Net effect of dilutive stock options based on the treasury stock
method using the average market price............................ 86 804
Assumed conversion of 5% Cumulative Convertible Preferred
Shares (prior to conversion in March 1998)..................... - 2,794
------ ------
Weighted average common equivalent shares........................ 86,643 90,882
====== ======
Net income....................................................... $ 16.0 $ 16.4
====== ======
Diluted net income per share..................................... $ 0.18 $ 0.18
====== ======
</TABLE>
NOTE 4: Restructuring and Other Charges
In June 1998, the Company adopted a three-year restructuring plan to reduce its
retail cost structure by eliminating 341 positions to improve operating
efficiencies and to close and sell 316 under-performing convenience stores. In
addition, the Company restructured certain pipeline and terminal operations and
support infrastructure resulting in the elimination of 125 positions. As of
March 31, 1999, 88 convenience stores were sold or closed and 276 employees were
terminated under the retail and pipeline and terminal restructuring plans.
In December 1998, the Company finalized plans to eliminate approximately 300
non-essential jobs, programs and expenses and to implement new initiatives
designed to further reduce capital employed and improve earnings. As of March
31, 1999, 95 employees were terminated under the profit improvement program.
<PAGE>
Changes in accrued restructuring costs for the quarter ended March 31, 1999 were
as follows:
<TABLE>
<CAPTION>
Balance at Balance at
December 31, 1998 Payments Reductions March 31, 1999
----------------- -------- ---------- --------------
<S> <C> <C> <C> <C>
Severance and related costs $19.0 $6.8 $0.3 $11.9
Lease buyout costs 14.0 0.1 0.8 13.1
Fuel system removal costs 16.1 0.9 2.8 12.4
----- ---- ---- -----
$49.1 $7.8 $3.9 $37.4
===== ==== ==== =====
</TABLE>
NOTE 5: Commitments and Contingencies
The Company's operations are subject to environmental laws and regulations
adopted by various governmental authorities. Site restoration and environmental
remediation and clean-up obligations are accrued either when known or when
considered probable and reasonably estimable. Total future environmental costs
are difficult to assess and estimate 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 year, the Company
believes that such costs will not have a material adverse effect on the
Company's financial position.
There are various legal proceedings and claims pending against the Company that
arise in the ordinary course of business. It is management's opinion, based upon
advice of legal counsel, that these matters, individually or in the aggregate,
will not have a material adverse effect on the Company's financial position or
results of operations.
NOTE 6: Accounts Receivable Securitization
In March 1999, the Company arranged a $250.0 million revolving accounts
receivable securitization facility. On an ongoing basis, the Company sells
certain accounts receivable to Coyote Funding, L.L.C. (Coyote), a
non-consolidated, wholly-owned subsidiary, which then sells a percentage
ownership in such receivables, without recourse, to a third party cooperative
corporation. The gross proceeds resulting from the sale of the percentage
ownership interest in the receivables totaled $222.0 million as of March 31,
1999. The Company's retained interest in receivables sold to Coyote is included
in accounts and notes receivable, net in the accompanying consolidated balance
sheet. Discounts and net expenses associated with the sale of receivables
totaled $1.3 million and are included in interest expense in the consolidated
statement of income for the three months ended March 31, 1999.
NOTE 7: Business Segments
The Company has three reportable segments: Refining, Retail and
Petrochemical/NGL. The Refining segment includes refinery, wholesale, product
supply and distribution, and transportation operations. The Retail segment
includes Company-operated convenience stores, dealers/jobbers and truckstop
facilities, cardlock and home heating oil operations. The Petrochemical/NGL
segment includes the equity earnings from Diamond-Koch and earnings from
Nitromite fertilizer, NGL marketing and certain NGL pipeline operations.
Diamond-Koch is a 50-50 joint venture primarily related to the Mont Belvieu
petrochemical assets of the Company and Koch Industries, Inc.
<PAGE>
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately as each business
requires unique technology and marketing strategies. The Company evaluates
performance based on earnings before interest, taxes and depreciation and
amortization (EBITDA). Intersegment sales are generally derived from
transactions made at prevailing market rates.
<TABLE>
<CAPTION>
Petrochemical/
Refining Retail NGL Corporate Total
-------- ------ --- --------- -----
(in millions)
<S> <C> <C> <C> <C> <C>
Three months ended March 31, 1999:
Sales and other revenues from
external customers............... $1,435.2 $1,266.0 $ 24.5 $ - $2,725.7
Intersegment sales.................. 488.2 2.1 - - 490.3
EBITDA.............................. 110.3 52.9 1.0 (41.6) 122.6
Depreciation and amortization....... 39.8 16.2 0.3 0.8 57.1
Operating income (loss)............. 70.5 36.7 0.7 (42.4) 65.5
Total assets........................ 3,458.2 1,265.7 167.6 71.9 4,963.4
Three months ended March 31, 1998:
Sales and other revenues from
external customers............... 1,280.0 1,428.3 81.3 - 2,789.6
Intersegment sales.................. 521.1 1.0 6.1 - 528.2
EBITDA.............................. 70.1 67.3 15.5 (29.4) 123.5
Depreciation and amortization....... 37.7 23.1 2.4 2.2 65.4
Operating income (loss)............. 32.4 44.2 13.1 (31.6) 58.1
Total assets........................ 3,199.6 1,314.3 224.1 563.6 5,301.6
</TABLE>
The following summarizes the reconciliation of reportable segment operating
income to consolidated operating income for the three months ended March 31,
1999 and 1998 (in millions):
1999 1998
---- ----
Operating income:
Total operating income for reportable segments... $107.9 $ 89.7
Other income (loss).............................. (42.4) (31.6)
----- -----
Consolidated operating income................. $ 65.5 $ 58.1
===== ====
NOTE 8: Diamond 66
On March 19, 1999, the Company and Phillips Petroleum Company terminated
discussions related to the formation of a proposed joint venture (Diamond 66)
between the two companies. During the first quarter of 1999, the Company
expensed $11.0 million of transaction costs incurred related to the formation of
Diamond 66, which costs are included in selling, general and administrative
expenses.
NOTE 9: Proposed Sale of the Michigan System
In December 1998, the Company announced plans to consider the sale of the
Michigan operations, which consist of the Alma Refinery, product and crude
pipelines, four terminals and 183 convenience stores. The Company has received
and is currently reviewing several proposals from interested parties; however,
no agreements or final decision has been made relating to a possible sale of
such assets.
NOTE 10: Subsequent Events
On May 4, 1999, the Board of Directors declared a quarterly dividend of $0.275
per Common Share payable on June 3, 1999 to holders of record on May 20, 1999.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company
Ultramar Diamond Shamrock Corporation (the Company) is a leading independent
refiner and retailer of high-quality refined products and convenience store
merchandise in the central and southwest regions of the United States (the US
System), and the northeast United States and eastern Canada (the Northeast
System). Its operations consist of seven refineries, over 5,900 convenience
stores, pipelines, a home heating oil business, and related petrochemical
operations.
The Company's operating results are affected by Company-specific factors,
primarily its refinery utilization rates and maintenance turnarounds; seasonal
factors, such as the demand for petroleum products and working capital
requirements; and industry factors, such as movements in and the 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.
On March 19, 1999 the Company and Phillips Petroleum Company (Phillips)
terminated discussions related to the formation of a proposed joint venture
(Diamond 66) between the two companies. During the first quarter of 1999, the
Company expensed $11.0 million of transaction costs incurred related to the
formation of Diamond 66.
Seasonality
In the Northeast System, 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 home heating oil during the
winter months results in the Company's Northeast System having significantly
higher accounts receivable and inventory levels during the first and fourth
quarters of each year. The Company's US System is less affected by seasonal
fluctuations in demand than its operations in the Northeast System. The working
capital requirements of the US System, though substantial, show little
fluctuation throughout the year. Both the US and Northeast Systems are impacted
by the increased demand for gasoline during the summer driving season.
<PAGE>
Results of Operations
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Financial and operating data by geographic area for the three months ended March
31, 1999 and 1998 are as follows:
Financial Data:
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
US Northeast Total US Northeast Total
-- --------- ----- -- --------- -----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Sales and other revenues............... $2,146.6 $579.1 $2,725.7 $2,132.8 $656.8 $2,789.6
Cost of products sold (1).............. 1,241.8 305.4 1,547.2 1,256.0 365.3 1,621.3
Operating expenses..................... 227.5 28.2 255.7 257.0 30.9 287.9
Selling, general and
administrative expenses (2).......... 48.0 39.4 87.4 38.3 40.3 78.6
Taxes other than income taxes.......... 543.4 169.4 712.8 499.8 178.5 678.3
Depreciation and amortization.......... 47.9 9.2 57.1 56.5 8.9 65.4
------- ----- ------- ------- ----- -------
Operating income....................... $ 38.0 $ 27.5 65.5 $ 25.2 $ 32.9 58.1
======= ===== ======= =====
Interest income........................ 2.9 2.1
Interest expense....................... (38.6) (36.1)
Equity income from Diamond-Koch (3).... 1.5 -
Gain on sale of assets (4)............. - 7.0
--------- -------
Income before income taxes and
dividends of subsidiary.............. 31.3 31.1
Provision for income 12.7 12.1
taxes.............
Dividends on subsidiary stock.......... 2.6 2.6
--------- -------
Net income............................. $ 16.0 $ 16.4
========= =======
</TABLE>
(1) In March 1998, the Company recorded a $13.6 million non-cash reduction in
the carrying value of inventories due to the significant market drop in crude
oil and refined product prices during the first quarter of 1998.
(2) In March 1999, the Company expensed $11.0 million of transaction costs
associated with the termination of the proposed Diamond 66 joint venture.
(3) In September 1998, the Company contributed certain of its petrochemical
assets to the Diamond-Koch joint venture, which is being accounted for using the
equity accounting method. Operating income in the first quarter of 1998 for the
petrochemical assets contributed was $4.9 million, excluding overhead.
(4) In March 1998, the Company recognized a $7.0 million gain on the sale of a
25% interest in a pipeline and terminal facility.
<PAGE>
Operating Data:
- --------------
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
US System
Mid-Continent Refineries (1)
Throughput (bpd)............................. 390,600 402,300
Margin (dollars per barrel) (2).............. $ 3.27 $ 3.10
Operating cost (dollars per barrel).......... $ 1.87 $ 2.02
Wilmington Refinery
Throughput (bpd)............................. 131,800 124,000
Margin (dollars per barrel).................. $ 5.53 $ 4.82
Operating cost (dollars per barrel).......... $ 1.70 $ 2.28
Retail
Fuel volume (bpd)............................ 170,900 167,300
Fuel margin (cents per gallon)............... 10.9 13.9
Merchandise sales ($1,000/day)............... $ 3,188 $ 2,927
Merchandise margin (%)....................... 26.1% 30.7%
Northeast System
Quebec Refinery
Throughput (bpd)............................. 158,200 156,500
Margin (dollars per barrel)(2)............... $ 1.68 $ 2.23
Operating cost (dollars per barrel).......... $ 0.86 $ 1.03
Retail
Fuel volume (bpd)............................ 73,500 70,100
Overall margins (cents per gallon) (3)....... 25.8 29.1
(1) The Mid-Continent Refineries include the Alma, Ardmore, Denver, McKee and
Three Rivers Refineries.
(2) Refinery margins for 1998 exclude the impact of the non-cash charge for the
reduction in the carrying value of crude oil and refined product inventories due
to the drop in crude oil and refined product prices. Had the non-cash charge for
the reduction of inventories been included in the refinery margin computations,
the 1998 refinery margins would have been $2.91 per barrel for the Mid-Continent
Refineries and $1.75 per barrel for the Quebec Refinery.
(3) Retail marketing overall margin reported for the Northeast System represents
a blend of gross margin for Company and dealer-operated retail outlets and
convenience stores, home heating oil sales and cardlock operations.
<PAGE>
General
Net income for the quarter ended March 31, 1999 totaled $16.0 million as
compared to $16.4 million for the quarter ended March 31, 1998. The first
quarter of 1999 included a $6.6 million after-tax charge to record expenses
associated with the termination of the proposed Diamond 66 joint venture. The
first quarter of 1998 included a $4.3 million after-tax gain on the sale of a
25% interest in a pipeline and terminal facility and an $8.3 million after-tax
non-cash charge to reduce inventories due to the continuing drop in crude oil
and refined product prices. Excluding these unusual items, net income would have
been $22.6 million in 1999 as compared to $20.4 million in 1998. On a per share
basis, basic and diluted net income per share for both the first quarter of 1999
and 1998 was $0.18 per share.
US System
The US System had operating income of $38.0 million for the first quarter of
1999, as compared to $25.2 million for the first quarter of 1998. The increase
in operating income was primarily due to improved refinery margins and lower
operating expenses.
Overall, US refining operations improved significantly over 1998 levels due to
higher refinery margins and lower operating costs. The lower industry refining
margins resulting from high inventories and declining crude oil prices in the
early part of the first quarter of 1999 negatively impacted the Mid-Continent
Refineries' margin. However, the Mid-Continent Refineries benefited $1.15 per
barrel from the positive effect of buying their crude oil 40 days in advance in
the latter part of the quarter when crude oil prices began to rise, which
resulted in a $3.27 per barrel refinery margin for the first quarter of 1999. In
addition, the operating costs were lower in 1999 by $0.15 per barrel as compared
to 1998 due to lower utility and maintenance expenses. The decrease in refining
throughput for the Mid-Continent Refineries, from 402,300 barrels per day in
1998 to 390,600 barrels per day in 1999, was due to planned production cuts in
January and February 1999 implemented to counter the effect of weak industry
margins.
The Wilmington Refinery margin improved 14.7% from $4.82 per barrel in 1998 to
$5.53 per barrel 1999 as the Company benefited from the supply imbalance in the
California market, which was caused by unplanned shutdowns at several West Coast
refineries. In addition, throughput at the Wilmington Refinery increased 6.3% to
131,800 barrels per day due to the debottlenecking of the fluid catalytic
cracking unit (FCCU) in December 1998.
The US retail operations were negatively impacted by the sharp increase in
wholesale gasoline prices, which increased faster than the retail pump prices.
The retail fuel margin declined from 13.9 cents per gallon in 1998 to 10.9 cents
per gallon in 1999. However, the Company realized a 2.2% increase in the retail
fuel volume in 1999 as compared to 1998 due to an aggressive pricing program
initiated to increase per store volumes. Partially offsetting the negative 1999
fuel margin was the 8.9% growth in merchandise sales in 1999 as compared to
1998. The merchandise margin, however, declined to 26.1% in 1999 due to the
increase in cigarette prices, which could not be fully passed on to customers.
Selling, general and administrative expenses for the first quarter of 1999 were
$9.7 million higher than in the first quarter of 1998 due to the $11.0 million
of transaction costs associated with the termination of the proposed Diamond 66
joint venture.
Northeast System
Sales and other revenues in the Northeast System decreased $77.7 million from
$656.8 million in the first quarter of 1998 to $579.1 million in the first
quarter of 1999. The decline in sales was due to reduced selling prices of
refined products as a result of lower crude oil prices compared to 1998.
Throughput for the first quarter of 1999 increased 1,700 barrels per day over
the first quarter of 1998. The lower throughput for the first quarter of 1998
was attributed to the shutdown of the crude unit for repairs. The refinery
margin decreased $0.55 per barrel from $2.23 per barrel in the first quarter of
<PAGE>
1998 to $1.68 per barrel in the first quarter of 1999 reflecting high product
inventories and the resulting reduced refinery margins in the Atlantic Basin
since the beginning of 1999. Partially offsetting the reduced refinery margin
were lower operating costs which declined to $0.86 per barrel in 1999 from $1.03
per barrel in 1998 due to lower supply and distribution expenses related to the
wholesale operations.
Retail operations benefited from a 4.9% increase in fuel volumes despite the
warm temperatures in the Northeast which reduced home heating oil volumes. The
overall retail margin declined to 25.8 cents per gallon in 1999 as the increased
sales were generated from the motorist and cardlock businesses, which have lower
margins as compared to the home heating oil business.
Selling, general and administrative expenses for the first quarter of 1999 were
comparable to the first quarter of 1998 due to lower haulage and delivery
expenses in the home heating oil business, which were partially offset by higher
administrative expenses associated with severance costs for a departing
executive.
Corporate
Interest expense of $38.6 million in the first quarter of 1999 was $2.5 million
higher than in the corresponding quarter of 1998 due to higher average
borrowings in 1999 as compared to 1998.
The consolidated income tax provisions for the first quarter of 1999 and 1998
were based upon the Company's estimated effective income tax rates for the years
ending December 31, 1999 and 1998 of 40.0% and 39.0%, respectively. The
consolidated effective income tax rates exceed the U.S. Federal statutory income
tax rate primarily due to state income taxes, the effects of foreign operations
and the amortization of nondeductible goodwill.
Outlook
The Company's earnings depend largely on refining and retail 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 retail margins
and the fact that they are affected by numerous diverse factors, it is
impossible to predict future margin levels.
Industry refining margins during the first quarter of 1999 continued in
record-low territory until mid-February when margins finally bottomed-out. With
margins approaching zero, or in the case of the Chicago market dropping below
zero, and with storage for refined products filled to capacity, some refiners
made significant production cuts and margins started to improve. At the same
time, several West Coast refineries reduced run rates as a result of a series of
mishaps and unplanned outages. With margins already turning around throughout
the United States, the disruption in the tightly balanced West Coast market had
a ripple effect throughout the country and the quarter ended with improved
refining margins.
As the second quarter of 1999 begins, crude oil prices have risen as OPEC seems
to be making good on their promise to cut crude oil output. The immediate effect
has been a reduction in refining margins as the run-up in crude oil prices has
outpaced increases in wholesale gasoline prices. At the same time, the deep
discounts for crude oil purchased in the prompt month that led to full
utilization of refining capacity throughout 1998 and into early 1999 have now
been replaced with the more normal premium for prompt month barrels. The premium
to purchase current barrels acts as a disincentive for refiners to refine
barrels in excess of current requirements because next month's barrels are
available at a discount from today's prices. As a consequence, utilization rates
should retreat from last year's record highs, and with demand for refined
products still robust, inventory levels should decline. As crude oil prices
stabilize and refined product inventories decline, refining and retail margins
should improve.
See "Certain Forward-Looking Statements."
<PAGE>
Capital Expenditures
The petroleum refining and marketing industry is a capital intensive business.
Significant capital requirements include expenditures to upgrade or enhance
refinery operations 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:
- maintenance expenditures, such as those required to maintain equipment
reliability and safety and to address environmental regulations; and
- growth opportunity expenditures, such as those planned to expand and upgrade
its retail business, to increase the capacity of certain refinery processing
units and pipelines and to construct additional petrochemical processing
units.
During the quarter ended March 31, 1999, capital expenditures totaled $35.3
million of which $17.2 million related to maintenance expenditures and $18.1
million related to growth opportunity expenditures. Approximately $12.4 million
and $4.2 million of costs have been incurred at the refineries and at the retail
level, respectively, for various maintenance expenditures. During the quarter
ended March 31, 1999, the Company also incurred $18.3 million in refinery
maintenance turnaround costs primarily at the Wilmington Refinery.
Growth opportunity expenditures for the quarter ended March 31, 1999 included:
- $9.5 million associated with the implementation of the Company's new infor-
mation technology system, and
- $5.5 million to revamp the McKee Refinery's FCCU power train.
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 from cash provided by
operations and, to the extent necessary, from the proceeds of borrowings under
its bank credit facilities and its commercial paper program 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
As of March 31, 1999, the Company had cash and cash equivalents of $108.4
million. The Company currently has two committed, unsecured bank facilities
which provide a maximum of $700.0 million U.S. and $200.0 million Cdn. of
available credit, and a $700.0 million commercial paper program supported by the
committed, unsecured U.S. bank facility.
As of March 31, 1999, the Company had borrowing capacity of approximately $614.4
million remaining under its committed bank facilities and commercial paper
program and had approximately $610.9 million under uncommitted, unsecured
short-term lines of credit with various financial institutions.
In addition to its bank credit facilities, the Company has $1.0 billion
available under universal shelf registrations previously filed with the
Securities and Exchange Commission. The net proceeds from any debt or equity
offering under the universal shelf registrations would add to the Company's
working capital and would be available for general corporate purposes.
The Company also has $69.1 million available pursuant to committed lease
facilities aggregating $355.0 million under which the lessors will construct or
acquire and lease to the Company primarily convenience stores.
The bank facilities and other debt agreements, as amended, require that the
Company maintain certain financial ratios and other restrictive covenants. The
Company is in compliance with such covenants and believes that such covenants
<PAGE>
will not have a significant impact on the Company's liquidity or its ability to
pay dividends. 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.
Effective March 29, 1999, the Company established a revolving accounts
receivable securitization facility (Securitization Facility) which provides the
Company with the ability to sell up to $250.0 million of accounts receivable on
an ongoing basis. In connection with the Securitization Facility, the Company
sells, on a revolving basis, an undivided interest in certain of its trade and
credit card receivables. The proceeds from the sale of accounts receivable,
which totaled $222.0 million at March 31, 1999, were used to reduce the
Company's outstanding indebtedness under its commercial paper program. The
remaining availability under the Securitization Facility will be used, among
other purposes, to further reduce debt.
On May 4, 1999, the Board of Directors declared a quarterly dividend of $0.275
per Common Share payable on June 3, 1999, to holders of record on May 20 , 1999.
Cash Flows for the Three Months Ended March 31, 1999
During the first quarter ended March 31, 1999, the Company's cash position
decreased $67.7 million to $108.4 million. Net cash provided by operating
activities was $171.5 million including the receipt of $222.0 million from the
sale of trade and credit card receivables under the Company's Securitization
Facility.
Net cash used in investing activities during the quarter ended March 31, 1999
totaled $51.4 million including $35.3 million for capital expenditures and $18.3
million for refinery maintenance turnaround costs.
Net cash used in financing activities during the quarter ended March 31, 1999
totaled $189.0 million, including payments to reduce short-term borrowings of
$162.6 million and for cash dividends totaling $23.8 million.
Exchange Rates
The value of the Canadian dollar relative to the U.S. dollar has weakened
substantially since the acquisition of the Canadian operations in 1992. As the
Company's Canadian operations are in a net asset position, the weaker Canadian
dollar has reduced, in U.S. dollars, the Company's net equity at March 31, 1999
by $104.8 million. Although the Company expects the exchange rate to fluctuate
during 1999, it cannot reasonably predict its future movement.
With the exception of its crude oil costs, which are U.S. dollar denominated,
fluctuations in the Canadian dollar exchange rate will affect the U.S. dollar
amount of revenues and related costs and expenses reported by the Canadian
operations. The potential impact on the refining margin of fluctuating exchange
rates together with U.S. dollar denominated crude oil costs is mitigated by the
Company's pricing policies in the Northeast System, which generally pass on any
change in the cost of crude oil. Retail margins, on the other hand, have been
adversely affected by exchange rate fluctuations 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 has considered various
strategies to manage currency risk, and it hedges the Canadian currency risk
when such hedging is considered economically appropriate.
Year 2000 Issue
State of Readiness
In 1997, the Company commenced efforts to address Year 2000 issues and
subsequently formalized an enterprise-wide effort to assess and mitigate or
eliminate the business risk associated with Year 2000 issues, focusing on:
- information technology (IT) computer hardware and software systems,
- internal process control equipment outside of the IT area used in the
refining or retail operations, and
- interfaces and support services from key suppliers, vendors and customers.
<PAGE>
A Company-wide process is in place to inventory, assess, test, remediate and
develop contingency plans for addressing the Year 2000 issues described above.
The process is ongoing and is periodically reassessed as new information becomes
known, and the process is revised accordingly. The Company has also engaged
outside consultants to assist in addressing its Year 2000 issues.
The Company's Northeast IT systems are not Year 2000 compliant. As a result, the
Company is implementing a new stand-alone enterprise-wide IT system which will
bring the Northeast into compliance by the third quarter of 1999. This new
enterprise-wide IT system will also be implemented in the US operations during
the fourth quarter of 1999 because it offers superior technological enhancements
and operating efficiencies not available in the existing US IT system. The cost
of the new enterprise-wide IT system for the Northeast and US is expected to be
approximately $48.0 million, with most of the costs being capitalized. As of
March 31, 1999, the Company has incurred $13.2 million of costs related to the
new IT system.
The Company believes it has identified most of the significant exposure items
associated with internal process control equipment used at the refineries and
throughout the retail operations, and has implemented a plan to bring such
equipment into Year 2000 compliance. The Company has also corresponded with its
key suppliers, vendors and customers and has developed a plan to mitigate
potential exposure areas. The estimated cost to be incurred for the verification
and testing of the systems implemented in 1995 and the non-IT and third-party
corrective action plans range from $28.2 million to $44.0 million, with most of
the costs being capitalized. The actual costs incurred will depend on the
alternative chosen for each corrective action. Management anticipates that all
corrective actions will be completed by December 31, 1999 to ensure minimal
disruption to operations as the new millennium begins.
Risks
Certain Year 2000 risk factors which could have a material adverse effect on the
Company's results of operations, liquidity, and financial condition include, but
are not limited to, failure to identify critical systems which could experience
failures, errors in efforts to correct problems, unexpected or extended failures
by key suppliers, vendors and customers, and failures in global banking systems
and commodity exchanges.
As a matter of operating policy, the Company routinely analyzes production and
automation systems for potential failures, such as interruptions in the supply
of raw materials or utilities. It is not anticipated that a problem in these
areas will have a significant impact on the Company's ability to continue normal
business activities. In addition, it is not expected that these failures would
impact safety or the environment nor have a material impact on production or
sales. Any problems in these systems can be dealt with using existing operating
procedures.
The worst case scenario would be that the Company's failure or the failure of
key suppliers, vendors and customers to correct material Year 2000 issues could
result in serious disruptions in normal business activities and operations. Such
disruptions could prevent the Company from refining crude oil and delivering
refined products to customers. While the Company does not expect a worst case
scenario, if it were to occur and could not be corrected on a timely basis or
otherwise mitigated by contingency plans, it could have a material adverse
impact on the Company's results of operations, liquidity and financial position.
Contingency Plans
Based on the current assessments and analysis of the Company's Year 2000
readiness and that of key suppliers, vendors and customers, Year 2000 specific
contingency plans are being developed for critical business operations. The
Company's US IT systems were initially assessed as being fundamentally Year 2000
compliant resulting from the 1995 implementation of a new IT system and the
migration in early 1998 of Total's operations to such new system at a cost of
$4.3 million. As a result of recent declarations by the vendor who developed the
system implemented in 1995, the Company has decided, as a part of its
contingency planning, to verify and test certain aspects of these systems during
1999 to mitigate as much as possible any material adverse impact which may arise
from possible Year 2000 issues. Those systems would only be used in the new
millenium as a contingency in the event the new enterprise-wide IT systems are
not yet operating.
For the remainder of 1999, the Year 2000 contingency plans will be adjusted or
new plans developed as circumstances warrant. The Company's current and planned
<PAGE>
activities with respect to the Year 2000 issue are expected to significantly
reduce the Company's level of uncertainty about the magnitude of the risk posed
by the Year 2000 issue and, in particular, about the Year 2000 compliance and
readiness of its key suppliers, vendors, and customers. The Company believes
that, with the implementation of new IT systems and completion of the planned
activities as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
See "Certain Forward-Looking Statements."
Certain Forward-Looking Statements
This quarterly report on Form 10-Q contains certain "forward-looking" statements
as such term is defined in the U. S. Private Securities Litigation Reform Act of
1995 and information relating to the Company and its subsidiaries that are based
on the beliefs of management as well as assumptions made by and information
currently available to management. When used in this report, the words
"anticipate," "believe," "estimate," "expect," and "intend" and words or phrases
of similar expressions, as they relate to the Company or its subsidiaries or
management, identify forward-looking statements. Such statements reflect the
current views of management with respect to future events and are subject to
certain risks, uncertainties and assumptions relating to the operations and
results of operations, including as a result of competitive factors and pricing
pressures, shifts in market demand and general economic conditions and other
factors.
Should one or more of these risks or uncertainties materialize, or should any
underlying assumptions prove incorrect, actual results or outcomes may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to various market risks, including changes in interest
rates, foreign currency rates and commodity prices related to crude oil, refined
products and natural gas. To manage or reduce these market risks, the Company
uses interest rate swaps, foreign exchange contracts, and commodity futures and
price swap contracts. The Company's policy governing the use of derivatives
requires that every derivative relate to an underlying, offsetting position,
anticipated transaction or firm commitment and prohibits the use of highly
complex or leveraged derivatives. Beginning in 1999, the Company revised its
feedstock procurement program to allow for limited discretionary hedging
activities based on expectations of future market conditions. A summary of the
Company's primary market risk exposures and its use of derivative financial
instruments is presented below.
Interest Rate Risk
The Company is subject to interest rate risk on its long-term fixed interest
rate debt. Commercial paper borrowings and borrowings under revolving credit
facilities do not give rise to significant interest rate risk because these
borrowings have maturities of less than three months. The carrying amount of the
Company's floating interest rate debt approximates fair value. Generally, the
fair market value of debt with a fixed interest rate will increase as interest
rates fall, and the fair market value will decrease as interest rates rise. This
exposure to interest rate risk is managed by obtaining debt that has a floating
interest rate or using interest rate swaps to change fixed interest rate debt to
floating interest rate debt. Generally, the Company maintains floating interest
rate debt of between 35% and 45% of total debt. Interest rates have remained
relatively stable over the past year and the Company anticipates such rates to
remain relatively stable over the next year.
The following table provides information about the Company's long-term debt and
interest rate swaps, both of which are sensitive to changes in interest rates.
For long-term debt, principal cash flows and related weighted average interest
rates by expected maturity dates, after consideration of refinancing, are
<PAGE>
presented. For interest rate swaps, the table presents notional amounts and
weighted average interest rates by expected (contractual) maturity dates.
Notional amounts are used to calculate the contractual payments to be exchanged
under the contract. Weighted average floating rates are based on implied forward
rates in the yield curve at March 31, 1999.
<TABLE>
<CAPTION>
Expected Maturity - Year Ending December 31,
-------------------------------------------------------------------
Fair Value
1999 2000 2001 2002 2003 Thereafter Total March 31,1999
---- ---- ---- ---- ---- ---------- ----- -------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term Debt:
Fixed rate.................. $ 3.6 $14.7 $86.5 $492.2 $35.0 $914.1 $1,546.1 $1,572.8
Average interest rate...... 8.6% 9.3% 9.6% 8.8% 8.9% 7.6% 8.1% N/A
Floating rate............... $ - $ - $ - $220.9 $ - $ - $ 220.9 $ 220.9
Average interest rate...... -% -% -% 5.1% -% -% 5.1% N/A
Interest Rate Swaps:
Fixed to floating........... $ - $ - $ - $200.0 $ - $250.0 $ 450.0 $ 450.0
Average pay rate........... 4.88% 5.23% 5.57% 5.79% 5.85% 6.32% 5.90% N/A
Average receive rate....... 6.43% 6.43% 6.43% 6.43% 6.59% 6.85% 6.66% N/A
</TABLE>
Foreign Currency Risk
The Company periodically enters into short-term foreign exchange contracts to
manage its exposure to exchange rate fluctuations on the trade payables of its
Canadian operations 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 March 31, 1999, the Company had short-term
foreign exchange contracts totaling $16.7 million. The Company's exposure to
market risk is minimal on these contracts as they matured on April 1, 1999.
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.
Commodity Price Risk
The Company is subject to the market risk associated with changes in market
prices of its underlying crude oil, refined products and natural gas; however,
such changes in values are generally offset by changes in the sales price of the
Company's refined products. Price swaps are price hedges for which gains and
losses are recognized when the hedged transactions occur; however, losses are
recognized when future prices are not expected to recover.
As of March 31, 1999, the Company had outstanding commodity futures and price
swap contracts to buy $586.0 million and sell $374.6 million of crude oil and
refined products or to settle differences between a fixed price and market price
on aggregate notional quantities of 6.4 million barrels of crude oil and refined
products which mature on various dates through June 2002. The fair value of
commodity futures contracts is based on quoted market prices. The fair value of
price swap contracts is determined by comparing the contract price with current
published quotes for futures contracts corresponding to the period that the
anticipated transactions are expected to occur.
<PAGE>
The information below reflects the Company's price swaps and futures contracts
that are sensitive to changes in crude oil or refined product commodity prices.
The table presents the notional amounts in barrels for crude oil, the weighted
average contract prices and the total contract amount by expected maturity
dates. Contract amounts are used to calculate the contractual payments and
quantity of barrels of crude oil to be exchanged under the futures contract.
<TABLE>
<CAPTION>
Weighted
Fair Contract Average
Carrying Value Contract Volumes Price
Year Ending December 31, Amount Amount Amount In Barrels Per Barrel
-------- ------ -------- ---------- ----------
(in millions, except weighted average price)
<S> <C> <C> <C> <C> <C>
Crude Procurement:
Futures contracts - buy:
1999............................................ $11.5 $16.9 $189.5 12.0 $15.80
2000............................................ 4.0 4.0 54.7 3.4 15.85
Futures contracts - sell:
1999............................................ (18.4) (43.0) 296.9 18.1 16.42
Price swaps:
2002............................................ (9.1) (13.4) 140.0 6.4 22.00
Discretionary:
Futures contracts - buy:
1999............................................ 35.5 35.5 201.9 12.5 16.18
Futures contracts - sell:
1999............................................ (17.3) (17.3) 77.7 4.9 15.75
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 4. Submission Of Matters To A Vote Of Security Holders
The Company's 1999 Annual Meeting of Stockholders was held on May 4, 1999 in San
Antonio, Texas. At the meeting, the Company's stockholders elected four
directors to serve three-year terms expiring in 2002, and ratified the
appointment of Arthur Andersen LLP to serve as independent accountants for the
Company and its subsidiaries for 1999.
The following tables summarize the number of votes cast for, against or
withheld, and number of abstentions as to each matter:
Election of Directors
Name Total Votes For Total Votes Withheld
H. Frederick Christie 77,119,910 275,158
W.H. Clark 77,115,798 279,270
Jean R. Gaulin 77,115,014 280,054
Bob Marbut 77,124,873 270,195
Ratification of Arthur Andersen LLP as Independent Accountants
For Against Abstain
77,145,166 57,336 192,566
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Performance Support Agreement dated March 29, 1999 among the Company,
Asset Securitization Cooperative Corporation (ASCC), and Canadian
Imperial Bank of Commerce (CIBC).
10.2 Credit Card Receivables Purchase Agreement dated March 29, 1999 among
Coyote funding, L.L.C. (Coyote), Diamond Shamrock Refining and
Marketing Company (DSRMC), ASCC and CIBC.
10.3 Trade Receivables Purchase Agreement dated March 29, 1999 among
Coyote, DSRMC, ASCC and CIBC.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
By: /s/ H. Pete Smith
H. PETE SMITH
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
May 13, 1999
EXECUTION COPY
PERFORMANCE SUPPORT AGREEMENT
THIS PERFORMANCE SUPPORT AGREEMENT ("Agreement") is executed as of this
29th day of March, 1999, by ULTRAMAR DIAMOND SHAMROCK CORPORATION ("UDS"), a
Delaware corporation (the "Support Provider"), in favor of ASSET SECURITIZATION
COOPERATIVE CORPORATION ("ASCC"), a California cooperative corporation, CANADIAN
IMPERIAL BANK OF COMMERCE ("CIBC") and any other Person which may become a
"Purchaser" under and as defined in both the Credit Card Receivables Purchase
Agreement and Trade Receivables Purchase Agreement (referred to below) (each a
"Purchaser" and collectively, the "Purchasers") and CIBC, in its capacity as the
Administrative Agent under both the Credit Card Receivables Purchase Agreement
and the Trade Receivables Purchase Agreement (the "Administrative Agent").
PRELIMINARY STATEMENTS
1. DSRM National Bank, a national banking association ("DSRMNB"), and
Diamond Shamrock Refining and Marketing Company, a Delaware corporation
("DSRM"), have executed that certain Amended and Restated Participation
Agreement dated as of May 1, 1997 (as the same may be amended, supplemented,
restated or otherwise modified from time to time, the "Participation Agreement")
pursuant to which DSRM purchases 100% participation interests in all Receivables
under all Accounts established and maintained by DSRMNB.
2. DSRMNB and DSRM have executed that certain Data Processing and
Service Agreement dated as of September 13, 1996 (as the same may be amended,
supplemented, restated or otherwise modified from time to time, the "Servicing
Agreement") pursuant to which DSRM processes all Receivables under all Accounts
established and maintained by DSRMNB.
3. TPI Petroleum, Inc., a Michigan corporation ("TPI"), Ultramar, Inc.,
a Nevada corporation ("Ultramar") and Diamond Shamrock Refining Company, L.P., a
Delaware limited partnership ("DSRLP"), as "Sellers", and DSRM, as "Buyer", have
executed that certain Transfer Agreement of even date herewith (as the same may
be amended, supplemented, restated or otherwise modified from time to time, the
"Transfer Agreement") pursuant to which DSRM shall acquire the Receivables
originated from time to time by TPI, Ultramar and DSRLP.
4. DSRM, as "Seller", and Coyote Funding, L.L.C., a Delaware limited
liability company ("Coyote Funding"), as "Buyer", have executed that certain
Credit Card Receivables Sale Agreement and that certain Trade Receivables Sale
Agreement both of even date herewith (as the same may be amended, supplemented,
<PAGE>
restated or otherwise modified from time to time, each a "Sale Agreement" and
collectively, the "Sale Agreements") pursuant to which Coyote Funding shall
purchase the Receivables and Receivables Assets offered for sale from time to
time by DSRM.
5. ASCC, the Purchaser, the Administrative Agent, DSRM, as "Collection
Agent" and Coyote Funding, as "Seller" have executed or will execute that
certain Credit Card Purchase Agreement and that certain Trade Receivables
Purchase Agreement both of even date herewith (as the same may be amended,
supplemented, restated or otherwise modified from time to time, each a "Purchase
Agreements" and collectively, the "Purchase Agreements") pursuant to which ASCC
may, and CIBC, if so requested, will purchase an Ownership Interest in the
Receivables and the Receivables Assets offered for sale from time to time by
Coyote Funding.
6. DSRMNB has executed that certain Security Agreement of even date
herewith (as the same may be amended, supplemented, restated or otherwise
modified from time to time, the "Security Agreement", and together with the
Participation Agreement, the Servicing Agreement, the Transfer Agreement, the
Sale Agreements and the Purchase Agreements, collectively, the "Transaction
Documents") in favor of CIBC, as Administrative Agent under the Credit Card
Receivables Purchase Agreement pursuant to which DSRMNB has granted the
Administrative Agent a security interest in the Receivables under all Accounts
established and maintained by DSRMNB.
7. Each of DSRMNB, DSRM, TPI, Ultramar, DSRLP and Coyote Funding
(collectively, the "UDS Transaction Parties") are direct or indirect
wholly-owned subsidiaries of the Support Provider.
8. It is a condition precedent to the Initial Purchase by the
Purchasers under the Purchase Agreements that the Support Provider execute and
deliver this Agreement to the Administrative Agent.
In consideration of the execution of the Purchase Agreements by the
Purchasers, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the Support Provider, the Support
Provider agrees as follows:
ARTICLE I
DEFINITIONS
SECTION 1. Definitions. Unless otherwise defined in this Agreement, all
defined terms used in this Agreement, including the Preliminary Statements
hereof, shall have the meanings ascribed to such terms in the Purchase
Agreements.
<PAGE>
ARTICLE II
PERFORMANCE SUPPORT OBLIGATION
Section 2.01. Performance Support Obligation. The Support Provider
hereby unconditionally and irrevocably guarantees for the benefit of the
Purchasers and the Administrative Agent (collectively, the "Beneficiaries"), the
due and punctual performance, observance and payment by the UDS Transaction
Parties and their respective successors and assigns of all of the terms,
covenants, conditions, agreements, undertakings and obligations on the part of
the UDS Transaction Parties to be paid, performed or observed under the
Transaction Documents or any document executed by each Transaction Party and
delivered in connection with the Purchase Agreements in accordance with the
terms thereof, including, without limitation, any agreement of any Transaction
Party to pay any money under either of the Purchase Agreements or any such other
document (all of the foregoing, the "Obligations"). Should the UDS Transaction
Parties fail to perform any Obligation, then the Support Provider will itself
duly and punctually perform, observe and pay, or cause to be duly and punctually
performed, observed or paid such Obligation, and it shall not be a condition to
the accrual of the obligation of the Support Provider hereunder to perform,
observe or pay any Obligation (or to cause the same to be performed, observed or
paid) that any Purchaser, the Administrative Agent or any other Person shall
have first made any request of or demand upon or given any notice to the Support
Provider or to any Transaction Party or their respective successors and assigns
or have initiated any action or proceeding against the Support Provider or any
Transaction Party or any of their respec tive successors and assigns in respect
thereof. Any Purchaser and the Administrative Agent may proceed to enforce the
obligations of the Support Provider under this Section 2.01 without first
pursuing or exhausting any right or remedy which such Purchaser or the
Administrative Agent may have against any Transaction Party, any other Person,
the Receivables, the Receivables Assets or any other property.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations and Warranties of the Support Provider.
The Support Provider hereby represents and warrants to the Purchasers and the
Administrative Agent on the date hereof and on the date of each purchase, sale,
assignment, transfer or other transaction under any of the Transaction
Documents:
(i) Support Provider is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and is duly qualified to do business, and in good
standing, in every jurisdiction where the nature of its business
requires it to be so qualified unless Failure to be so qualified
and in good standing would not materially adversely affect its
ability to perform its obligations hereunder.
<PAGE>
(ii) The execution, delivery and performance by the Support Provider
of this Agreement and the other instruments and documents to be
delivered hereunder, and the transactions contemplated hereby,
are within the Support Provider's corporate powers, have been
duly authorized by all necessary corporate action, do not
contravene (A) the Support Provider's charter or by-laws, (B)
any law, rule or regulation applicable to the Support Provider,
(C) any contractual restriction of a material nature Contained
in any indenture, loan or credit agreement, lease, mortgage,
security agreement, bond, note or other agreement or instrument
binding on the Support Provider or its property or (D) any
order, writ, judgment, award, injunction or decree binding on
the Support Provider or its property, which, in the case of any
of the foregoing would materially adversely affect its ability
to perform its obligations hereunder, and do not result in or
require the creation of any lien, claim or encumbrance upon or
with respect to any of its properties.
(iii) This Agreement has been duly executed and delivered on behalf of
the Support Provider and is the legal, valid and binding agree-
ment of the Support Provider enforceable against the Support
Provider in accordance with its terms, except as limited by
applicable bankruptcy, reorganization, insolvency or similar
laws affecting the enforcement of creditors' rights generally
and by general principles of equity.
(iv) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by
the Support Provider of this Agreement or any other document or
instrument to be delivered herewith.
(v) There are no actions, suits, or proceedings pending or, to the
knowledge of the Support Provider, threatened against the
Support Provider or affecting the property of the Support
Provider or any of its subsidiaries in any court, or before any
arbitrator of any kind, or before or by any governmental
authority, which would materially adversely affect its ability
to perform its obligations hereunder. Neither the Support
Provider nor any of its subsidiaries is in default with respect
to any order of any court, arbitrator or governmental body,
which, in the case of any of the foregoing would materially
<PAGE>
adversely affect its ability to perform its obligations
hereunder, and do not result in or require the creation of any
lien, claim or encumbrance upon or with respect to any of its
properties.
(vi) The consolidated balance sheet of the Support Provider and its
consolidated subsidiaries as of December 31, 1998, and the
related consolidated statements of income and retained earnings
of the Support Provider and its consolidated subsidiaries for
the fiscal year then ended, are in each case certified by Arthur
Andersen LLP, independent public accountants (and copies of
which have been furnished to the Administrative Agent) and such
statements are accompanied by an opinion of Arthur Andersen LLP
stating that such statements fairly present the consolidated
financial condition of the Support Provider and its consolidated
subsidiaries for the period ended on such date, all in
accordance with generally accepted accounting principles
consistently applied.
ARTICLE IV
COVENANTS
Section 4.01. Reporting Covenants. The Support Provider covenants and
agrees that, until this Agreement is terminated pursuant to Section 5.07, the
Support Provider will deliver to the Administrative Agent:
(a) as soon as available and in any event within 60 days after the end
of each of the first three quarters of each fiscal year of the Support Provider,
a consolidated income statement and a statement of changes in financial position
of the Support Provider and its consolidated subsidiaries for such period, and
consolidated statements of income and retained earnings of the Support Provider
and its consolidated subsidiaries each for the period commencing at the end of
the previous fiscal year and ending with the end of such quarter, certified by
the chief financial officer or chief accounting officer of the Support Provider
to be prepared to the best of his knowledge and belief in accordance with
generally accepted accounting principles subject to audit and normal year-end
adjustments;
(b) as soon as available and in any event within 120 days after the
end of each fiscal year of the Support Provider, a copy of the consolidated
balance sheets of the Support Provider and its consolidated subsidiaries as of
the end of such year and the related consolidated statements of income and
retained earnings of the Support Provider and its consolidated subsidiaries for
such year each reported on by nationally recognized public accountants;
<PAGE>
(c) upon request by the Administrative Agent, copies of all reports
and registration statements, if any, which the Support Provider or any
subsidiary files with the Securities and Exchange Commission or any national
securities exchange; and
(d) promptly from time to time furnish the Administrative Agent such
information, documents, records or reports respecting the financial conditions
and operations of the Support Provider as the Administrative Agent may
reasonably from time to time request.
Section 4.02. Stock Ownership and Merger Restrictions. The Support
Provider covenants and agrees that, until this Agreement is terminated pursuant
to Section 5.07, each of the UDS Transaction Parties will at all times be a
wholly-owned direct or indirect subsidiary of the Support Provider.
ARTICLE V
MISCELLANEOUS
Section 5.01. Validity of Obligations. The Support Provider agrees that
its obligations under this Agreement shall be unconditional, irrespective of (i)
the validity, enforceability, avoidance, subordination, discharge, or
disaffirmance by any Person (including a trustee in bankruptcy) of the
Obligations, (ii) the absence of any attempt to collect any Collections from the
Obligor related thereto, or to collect the Obligations from the UDS Transaction
Parties or any other Person, (iii) the waiver, consent, extension, forbearance
or granting of any indulgence by any Purchaser, the Administrative Agent or any
other Person with respect to any provision of any instrument evidencing the
Obligations, (iv) any change of the time, manner or place of performance of, or
in any other term of any of the Obligations, including without limitation, any
amendment to or modification of any Transaction Document, (v) any law,
regulation or order of any jurisdiction affecting any term of any of the
Obligations, or rights of any of the Purchasers, the Administrative Agent or any
other Person with respect thereto, (vi) the failure by any of the Purchasers,
the Administrative Agent or any other Person to take any steps to perfect and
maintain perfected its respective interest in any Receivable or any Receivables
Assets or other property acquired by it pursuant to any of the Transaction
Documents or in any security or collateral related to the Obligations (vii) any
exchange or release of any Receivable or any Receivables Assets or other
property acquired by any Purchaser, the Administrative Agent or any other Person
pursuant to any of the Transaction Documents, (viii) any failure to obtain any
authorization or approval from or other action by or to notify or file with, any
governmental authority or regulatory body required in connection with the
performance of the obligations hereunder by the Support Provider or (ix) any
impossibility or impracticability of performance, illegality, force majeure, any
act of government, or other circumstances which might constitute a default
available to, or a discharge of the UDS Transaction Parties or the Support
<PAGE>
Provider, or any other circumstance, event or happening whatsoever whether
foreseen or unforeseen and whether similar to or dissimilar to anything referred
to above. The Support Provider further agrees that its obligations under this
Agreement shall not be limited to any valuation, estimation or disallowance made
in connection with any proceedings involving any of the UDS Transaction Parties
filed under the Bankruptcy Code, whether pursuant to Section 502 of the
Bankruptcy Code or any other Section thereof. The Support Provider further
agrees that none of the Purchasers, the Administrative Agent or any other Person
under any of the Transaction Documents shall be under any obligation to marshall
any assets in favor of or against or in payment of any or all of the
Obligations. The Support Provider further agrees that, to the extent that any
Transaction Party makes a payment or payments to any of the Purchasers, the
Administrative Agent or any other Person under any of the Transaction Documents,
which payment or payments (or any part thereof) are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to such Transaction Party, its estate, trustee or receiver or any other
party, including, without limitation, the Support Provider, under any bankruptcy
law, state or federal law, common law or equitable cause, then to the extent of
such payment or repayment, the Obligation or part thereof which had been paid,
reduced or satisfied by such amount shall be reinstated and continued in full
force and effect as of the date such initial payment, reduction or satisfaction
occurred. The Support Provider waives all set-offs and counterclaims and all
presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor and notices of acceptance of this
Agreement. The Support Provider's obligations under this Agreement shall not be
limited if any Purchaser, the Administrative Agent or any other Person is
precluded for any reason (including without limitation, the application of the
automatic stay under Section 362 of the Bankruptcy Code) from enforcing or
exercising any right or remedy with respect to the Obligations, and the Support
Provider shall pay to such Purchaser, the Administrative Agent or such other
Person, as applicable, upon demand, the amount of the Obligations that would
otherwise have been due and payable had such rights and remedies been permitted
to be exercised.
Section 5.02. Irrevocability. The Support Provider agrees that its
obligations under this Agreement shall be irrevocable. In the event that under
applicable law (notwithstanding the Support Provider's agreement regarding the
irrevocable nature of its obligations hereunder), the Support Provider shall
have the right to revoke this Agreement, this Agreement shall continue in full
force and effect until a written revocation hereof specifically referring
hereto, signed by the Support Provider is actually received by the
Administrative Agent at the Administrative Agent's address at Canadian Imperial
Bank of Commerce, New York Branch, Attention: Asset Securitization Group, 425
Lexington Avenue, New York, NY 10017. Any such revocation shall not affect
<PAGE>
the right of any of the Purchasers or the Administrative Agent to enforce their
respective rights under this Agreement with respect to (i) any Obligation
(including any Obligation that is contingent or unmatured) which arose on or
prior to the date the aforementioned revocation was received by the
Administrative Agent or (ii) any Obligation which in any way relates to any
Receivable or any Receivables Assets existing or otherwise outstanding on the
date the aforementioned revocation was received by the Administrative Agent. If
any of the Purchasers make Purchases or take other action in reliance on this
Agreement after any such revocation by the Support Provider but prior to the
receipt by the Administrative Agent of said written notice, the rights of the
Purchasers and the Administrative Agent with respect thereto shall be the same
as if such revocation had not occurred. Without limiting the foregoing, this
Agreement may not be revoked at any time on or after the occurrence of an Event
of Liquidation under either of the Purchase Agreements.
Section 5.03. Waiver. The Support Provider hereby waives promptness,
diligence, notice of acceptance, notice of default by the UDS Transaction
Parties, notice of the incurrence of any Obligation and any other notice with
respect to any of the Obligations and this Agreement, the Transaction Documents,
and any other document related thereto and any requirement that the Purchasers,
the Administrative Agent or any other Person exhaust any right or take any
action against the UDS Transaction Parties, any other Person or any property.
The Support Provider warrants to the Purchasers and the Administrative Agent
that it has adequate means to obtain from the UDS Transaction Parties on a
continuing basis, all information concerning the financial condition of the UDS
Transaction Parties and the collectibility of the Receivables and Receivables
Assets, and that it is not relying on the Purchasers or the Administrative Agent
to provide such information either now or in the future.
Section 5.04. Subrogation. The Support Provider will not exercise or
assert any rights which it may acquire by way of subrogation under this
Agreement unless and until all of the Obligations shall have been paid and
performed in full and the Aggregate Ownership Interest is reduced to zero under
each Purchase Agreement. If any payment shall be made to the Support Provider on
account of any subrogation rights at any time prior to the occurrence of the
events described in the preceding sentence, each and every amount so paid will
be held in trust for the benefit of the Purchasers, the Administrative Agent and
any other applicable payee under any of the Transaction Documents and forthwith
be paid to the Administrative Agent or such payee, as applicable, to be credited
and applied to the Obligations.
Section 5.05. Costs and Expenses. The Support Provider shall pay, on
demand, all reasonable costs and expenses including, without limitation, all
court costs and reasonable attorneys' fees and expenses paid or incurred by any
of the Purchasers or the Administrative Agent in connection with (a) the
collection of all or any part of the obligations of the Support Provider
hereunder, (b) the enforcement of any term or provision of this Agreement or (c)
the prosecution or defense of any action by or against any of the Purchasers or
the Administrative Agent (without limiting clause (a) or (b) above, excluding
any such action brought by the UDS Transaction Parties or the Support Provider
or by any of the Purchasers or the Administrative Agent against the UDS
Transaction Parties or the Support Provider) in connection with this Agreement,
whether involving the UDS Transaction Parties, the Support Provider or any other
Person, including a trustee in bankruptcy, (excluding however any such action
that results from the gross negligence or willful misconduct of any Purchaser or
the Administrative Agent). The Support Provider shall pay interest on all
amounts owing by it under this Agreement from the date due and payable hereunder
until such obligations are paid in full, at the per annum rate of 2% plus the
Base Rate.
Section 5.06. Successors. This Agreement shall be binding upon the
Support Provider and upon the successors and assigns of the Support Provider and
shall inure to the benefit of the successors and assigns of the Purchasers and
the Administrative Agent; all references herein to the Support Provider and to
the UDS Transaction Parties shall be deemed to include their respective
successors and assigns. The successors and assigns of the UDS Transaction
Parties shall include, without limitation, a receiver, trustee or
debtor-in-possession of or for the UDS Transaction Parties. All references to
the singular shall be deemed to include the plural where the context so
requires.
Section 5.07. Termination. This Agreement shall terminate after the
latest to occur of (a) the date on which all the Obligations are paid and/or
performed in full, (b) the date the Aggregate Ownership Interest is reduced to
zero under both of the Purchase Agreements, and (c) the date on which the
Support Provider has satisfied in full its obligations hereunder.
Section 5.08. Integration; Conditions. This Agreement contains a final
and complete integration of all prior expressions of the parties hereto with
respect to the subject matter hereof, superseding all prior oral or written
understandings. No course of dealing, course of performance or trade usage and
no parol evidence shall be used to supplement or modify any term hereof. This
Agreement is fully effective on the date of its execution by the Support
Provider.
Section 5.09. Governing Law and Consent to Jurisdiction Waiver of Jury
Trial. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING, WITHOUT
LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF NEW YORK BUT
OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES).
(b) THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION
OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND
ANY COURT IN THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK,
AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION, SUIT OR PROCEEDING
BROUGHT AGAINST IT AND TO OR IN CONNECTION WITH ANY OF THE RELATED DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED THEREUNDER OR FOR RECOGNITION OR ENFORCEMENT OF
ANY JUDGMENT, AND THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
OR DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY LAW,
IN SUCH FEDERAL COURT. THE PARTIES HERETO AGREE THAT A FINAL JUDGMENT IN ANY
SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT, OR IN ANY OTHER MANNER PROVIDED BY LAW.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO HEREBY WAIVE AND
AGREE NOT TO ASSERT BY WAY OF 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 COURTS, 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 THE RELATED DOCUMENTS OR THE SUBJECT MATTER THEREOF MAY NOT BE
LITIGATED IN OR BY SUCH COURTS. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREUNDER. EACH PARTY
HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY PARTY
HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER TRANSACTION
DOCUMENTS TO WHICH IT IS A PARTY, BY AMONG OTHER THINGS, THIS WAIVER.
Section 5.10. Counterparts. This Agreement may be executed in two or
more counterparts (and by different parties on separate counterparts), each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Support Provider this 29th day of March, 1999.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
By: /s/ Steve Blank
Name: Steve Blank
Title: Vice President and Treasurer
Address: 6000 North Loop West 1604
San Antonio, TX 78249-1112
Attention: Treasurer
Acknowledged and accepted this
29th day of March, 1999.
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK BRANCH,
as Administrative Agent on behalf
of the Purchasers under each
Purchase Agreement
By: /s/ John Gevlin
Name: John Gevlin
Title: Authorized Signatory
EXECUTION COPY
CREDIT CARD RECEIVABLES PURCHASE AGREEMENT
among
COYOTE FUNDING, L.L.C.
as Seller,
DIAMOND SHAMROCK REFINING AND MARKETING COMPANY,
as Collection Agent,
ASSET SECURITIZATION COOPERATIVE CORPORATION
as the Conduit Purchaser,
CANADIAN IMPERIAL BANK OF COMMERCE
as the Back-Stop Purchaser,
and
CANADIAN IMPERIAL BANK OF COMMERCE
as Administrative Agent
Dated as of March 29, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I: DEFINITIONS........................................................1
ARTICLE II: PURCHASE FACILITY................................................12
SECTION 2.1. Purchase Facility.............................................12
SECTION 2.2. Extension or Acceleration of the Termination Date.............13
ARTICLE III: SALE OF OWNERSHIP INTEREST......................................13
SECTION 3.1. Determination of Ownership Interest...........................13
SECTION 3.2. Frequency of Determining Aggregate Ownership Interest.........15
SECTION 3.3. Maximum Ownership Interest....................................15
SECTION 3.4. Blocked Accounts and Collections..............................15
ARTICLE IV: PURCHASE PRICE...................................................16
SECTION 4.1. Determination of Cash Component of Purchase Price.............16
SECTION 4.2. Determination of Deferred Payment Component of Purchase
Price.........................................................16
ARTICLE V: FEES AND EXPENSES.................................................17
SECTION 5.1. Settlement Date Payments......................................17
SECTION 5.1.1. Purchase Discount.........................................17
SECTION 5.1.2. Purchase Premium..........................................17
SECTION 5.1.3. Operating Expense Fee.....................................18
SECTION 5.1.4. Collection Agent Fee......................................18
SECTION 5.1.5. Unused Facility Fee.......................................18
SECTION 5.1.6. Administration Fee........................................18
SECTION 5.2. Structuring Fee...............................................18
SECTION 5.3. Legal Fees and Expenses.......................................18
SECTION 5.4. Interest on Unpaid Amounts....................................19
SECTION 5.5. Audits........................................................19
ARTICLE VI: PURCHASE PROCEDURES..............................................19
SECTION 6.1. Types of Purchases............................................19
SECTION 6.2. Notice Requirements...........................................19
SECTION 6.3. Conditions Precedent to Initial Purchase......................20
SECTION 6.3.1. Membership in the Purchaser...............................20
SECTION 6.3.2. Fees......................................................20
SECTION 6.3.3. Absence of Liens..........................................20
SECTION 6.3.4. Financing Statements......................................20
SECTION 6.3.5. Credit Card Receivables Sale Agreement, Etc...............21
SECTION 6.3.6. Receivables Activity Report...............................21
<PAGE>
SECTION 6.3.7. Resolutions...............................................21
SECTION 6.3.8. Legal Opinion of Seller's, DSRM's, DSRMNB's and the
Parents's Counsel.........................................21
SECTION 6.3.9. Good Standing Certificates................................21
SECTION 6.3.10. Performance Support Agreement............................21
SECTION 6.3.11. Blocked Account Agreements...............................21
SECTION 6.4. Condition Precedent to All Incremental Purchases..............22
SECTION 6.5. Conditions Precedent to All Purchases.........................22
SECTION 6.5.1. Representations and Covenants.............................22
SECTION 6.5.2. Other Documents...........................................22
ARTICLE VII: SETTLEMENT PROCEDURES...........................................22
SECTION 7.1. Settlement Date...............................................22
SECTION 7.2. Application of Collections....................................22
SECTION 7.2.1. Application of Collections on Days That Are Not
Settlement Dates..........................................22
SECTION 7.2.2. Application of Collections on Settlement Dates............23
SECTION 7.3. Adjustments, Etc..............................................24
SECTION 7.4. Receivables Activity Report...................................25
ARTICLE VIII: ADMINISTRATIVE AGENT AND COLLECTION AGENT......................25
SECTION 8.1. Appointment of Administrative Agent...........................25
SECTION 8.1.1. Replacement of Administrative Agent.......................25
SECTION 8.2. Appointment of Collection Agent...............................25
SECTION 8.2.1. Replacement of Collection Agent; Notification of
Obligors..................................................26
ARTICLE IX: REPRESENTATIONS AND WARRANTIES...................................27
SECTION 9.1 Representations and Warranties of the Seller and the
Collection Agent................................................27
ARTICLE X: COVENANTS.........................................................29
SECTION 10.1. Affirmative Covenants of the Seller and the Collection
Agent........................................................29
SECTION 10.2. Reporting Requirements of the Seller.........................32
SECTION 10.3. Negative Covenants of the Seller and the Collection Agent....33
ARTICLE XI: INDEMNIFICATIONS; INCREASED COSTS; TAX MATTERS...................35
SECTION 11.1. Indemnification by Seller of Purchasers, etc.................35
SECTION 11.2. Indemnification Due to Failure to Consummate Purchase........36
SECTION 11.3. Increased Costs..............................................36
SECTION 11.4. Increased Capital............................................37
SECTION 11.5. Taxes........................................................37
SECTION 11.6. Notices......................................................38
<PAGE>
ARTICLE XII: MISCELLANEOUS...................................................39
SECTION 12.1. Amendments, Etc..............................................39
SECTION 12.2. Notices, Etc.................................................39
SECTION 12.3. [Reserved]...................................................39
SECTION 12.4. No Waiver; Remedies..........................................39
SECTION 12.5. Binding Effect; Assignability................................39
SECTION 12.6. GOVERNING LAW................................................40
SECTION 12.7. Construction of the Agreement................................40
SECTION 12.8. No Proceedings...............................................40
SECTION 12.9. Confidentiality..............................................41
SECTION 12.10. Execution in Counterparts...................................41
SECTION 12.11. Severability Clause.........................................41
SECTION 12.12. SUBMISSION TO JURISDICTION; APPOINTMENT OF AGENT TO
ACCEPT SERVICE OF PROCESS...................................41
<PAGE>
EXHIBITS
Exhibit A Form of Notice for Initial and Incremental Purchases
Exhibit B-1 Form of Notice of Election Not to Make Reinvestment Purchase
Exhibit B-2 Form of Notice of Election to Suspend Purchases and of Payment of
Reduction in Investment
Exhibit C Form of Membership Agreement
Exhibit D Form of Blocked Account Agreement
Exhibit E Form of Receivables Activity Report
Exhibit F Forms of Cardholder Agreements
SCHEDULES
Schedule A Credit and Collection Policies
Schedule B List of Blocked Account Banks
Schedule C List of Addresses for the Seller, DSRM and DSRMNB
<PAGE>
This CREDIT CARD RECEIVABLES PURCHASE AGREEMENT (this "Agreement") is
entered into as of March 29, 1999, by and among COYOTE FUNDING, L.L.C., a
Delaware limited liability company, as the Seller, DIAMOND SHAMROCK REFINING AND
MARKETING COMPANY, as the Collection Agent, ASSET SECURITIZATION COOPERATIVE
CORPORATION, as a Purchaser, and CANADIAN IMPERIAL BANK OF COMMERCE, as a
Purchaser and as the Administrative Agent.
ARTICLE I: DEFINITIONS
As used in this Agreement, the following terms shall have the specified
meanings and shall include in the singular number the plural and in the plural
number the singular:
"Account" means a credit card account established and maintained by
DSRMNB in and pursuant to a Cardholder Agreement between DSRMNB and an Obligor
or Obligors or by DSRM in and pursuant to a Cardholder Agreement between DSRM
and an Obligor or Obligors.
"Acquired Account" means any Account acquired by DSRMNB or DSRM (or any
of their successors) following the date hereof which arose from or in connection
with the business of any Person that is not a subsidiary of the Parent as of the
date hereof.
"Administration Fee" means the percentage used to determine the fee
payable by the Seller to the Back-Stop Purchaser, as described in Section 5.1.5.
"Administrative Agent" means Canadian Imperial Bank of Commerce and any
replacement thereof under Section 8.1.1.
"Affected Party" has the meaning specified in Section 11.4.
"Affiliate" means, as to any Person, any other Person that directly or
indirectly, is in control of, is controlled by or is under common control with
such Person or is a director or officer of such Person.
"Aggregate Ownership Interest" means at any time, the Ownership
Interests of all Purchasers at such time.
"Agreement" means this Credit Card Receivables Purchase Agreement, as
it may be amended, restated, supplemented or otherwise modified from time to
time.
"Alternative Rate" for any Settlement Period means an interest rate per
annum equal to the sum of (a) the LIBO Rate (Reserve Adjusted) plus (b) 0.50%;
provided, however, that (i) in the case of any Settlement Period of less than
one month, the LIBO Rate (Reserve Adjusted) under clause (a) above shall be
calculated as if such Settlement Period has a duration of one month unless the
Administrative Agent and the Collection Agent agree in writing to a different
rate; (ii) if it shall become unlawful for CIBC to obtain funds in the London
interbank market in order to make, fund or maintain any Purchase hereunder or
deposits in dollars (in the applicable amounts) are not being offered by CIBC in
the London interbank market then the "Alternative Rate" for any Settlement
Period shall be calculated using an interest rate per annum equal to the Base
Rate; and (iii) following the occurrence of an Event of Liquidation, the
"Alternative Rate" for each Payment Period shall be the sum of the applicable
interest rate per annum determined pursuant to provisions set forth above plus
2.0% per annum.
"Back-Stop Purchaser" means CIBC and its successors and assigns.
"Base Rate" means, on any date, a fluctuating rate of interest per
annum equal to the higher of (a) the Prime Rate and (b) the Federal Funds Rate
plus 1.0%.
"Blocked Account" means any blocked account established in the name of
the Seller to which the Collection Agent shall deposit Collections in accordance
with the terms of this Agreement.
"Blocked Account Agreement" means the agreement in the form of Exhibit
D hereto executed among the Seller, DSRM, DSRMNB (with respect to the
Participation Interest), the Administrative Agent and a Blocked Account Bank.
"Blocked Account Bank" means any bank listed on Schedule B.
"Business Day" means a day other than a Saturday or Sunday on which
each of the Conduit Purchaser, the Back-stop Purchaser, the Administrative
Agent, the Collection Agent and the Seller is open for business.
"Cardholder Agreement" means the agreement (and related application)
for a credit card account between any Obligor or Obligors and DSRMNB or DSRM, as
applicable, in substantially the form of one of the forms attached hereto as
Exhibit F as each agreement may be amended, modified or otherwise changed from
time to time in accordance with the Credit and Collection Policies.
"Charge-off" means any Receivable:
(1) all or any portion of which remains unpaid more than 180 days past
the date on which it was due; or
(2) that has been or should have been charged-off in conformity
with the then current Credit and Collection Policies.
"Charge-off Ratio" means, as of any date of determination, a fraction,
expressed as a percentage, the numerator of which is the aggregate outstanding
balance of all Receivables that became Charge-offs during the month most
recently ended, and the denominator of which is the aggregate outstanding
balance of all Receivables on the last Business Day of the month most recently
ended.
<PAGE>
"CIBC" means Canadian Imperial Bank of Commerce.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection" means any amount paid by an Obligor or any other party
with respect to a Receivable or other form of payment in accordance with the
Cardholder Agreement in effect from time to time.
"Collection Agent" means DSRM or any replacement thereof under Section
8.2.1.
"Collection Agent Fee" means the percentage used to determine the fee
payable by the Purchasers to the Collection Agent, as described in Section
5.1.4.
"Commencement Date" means the date following the Conduit Purchaser's
election not to make any further purchases under this Agreement provided that no
Event of Liquidation has occurred.
"Conduit Lender" has the meaning specified in Section 11.3.
"Conduit Purchaser" means Asset Securitization Cooperative Corporation,
a California cooperative corporation, and its successors and assigns.
"Credit and Collection Policies" means the policies and procedures
relating to the operation of the credit card business of DSRM and DSRMNB,
respectively, including, without limitation, the policies and procedures for
determining the creditworthiness of potential and existing credit card
customers, and relating to the maintenance of credit card accounts and
collection of credit card receivables, as attached hereto as Schedule A, as such
policies and procedures may be amended or otherwise modified from time to time
in strict compliance with this Agreement.
"Credit Card Receivables Sale Agreement" means the Credit Card
Receivables Sale Agreement of even date herewith between DSRM and the Seller, as
amended, restated, supplemented or otherwise modified from time to time.
"Credit Facilities" means each of the committed loan facilities, lines
of credit, letters of credit, surety bonds and other forms of credit enhancement
available to the Conduit Purchaser to support the Conduit Purchaser's commercial
paper and which are not Liquidity Facilities.
"Days Sales Outstanding" means, as of any date of determination, a
number of days equal to the product of (a) the number of days in the most
recently ended month and (b) (i) the aggregate outstanding balance of all
Receivables (other than Finance Charge Receivables) as of the end of such month,
divided by (ii) the aggregate increase in the outstanding balance of all
Receivables during such month, but excluding increases resulting from
newly-arising Finance Charge Receivables.
<PAGE>
"Default Ratio" means, as of any date of determination, a fraction,
expressed as a percentage, the numerator of which is the aggregate outstanding
balance of all Receivables that became Defaulted Receivables during the month
most recently ended, and the denominator of which is the aggregate outstanding
balance of all Receivables on the last Business Day of the month most recently
ended.
"Defaulted Account" means an Account as to which, consistent with the
Credit and Collection Policies, the Collection Agent charged off Receivables in
such Account as uncollectible.
"Defaulted Receivable" means any Receivable:
(1) all or any portion of which remains unpaid more than 90 days past
the date on which it was due; or
(2) that is owed by an Obligor that is in bankruptcy, reorganization,
insolvency or similar proceedings.
"Delinquency Ratio" means, as of any date of determination, a fraction,
expressed as a percentage, the numerator of which is the aggregate outstanding
balance of all Receivables that were unpaid for more than 60 days but fewer than
91 days past the dates on which they were due as of the end of the month most
recently ended, and the denominator of which is the aggregate outstanding
balance of all Receivables as of such date.
"Diamond Shamrock Entity" has the meaning specified in Section 10.1(n).
"DSRM" means Diamond Shamrock Refining and Marketing Company, a
Delaware corporation, and its successors.
"DSRMNB" means DSRM National Bank, a national banking association and
its successors.
"DSRMNB Participation Agreement" means that certain Amended and
restated Participation Agreement dated as of May 1, 1997, between DSRMNB and
DSRM, as amended, restated, supplemented or otherwise modified from time to
time.
"DSRM Servicing Agreement" means the Data Processing and Servicing
Agreement dated as of September 13, 1996, between DSRMNB and DSRM, as amended,
restated, supplemented or otherwise modified from time to time.
"Eligible Account" means an Account:
(1) that is not an Acquired Account);
<PAGE>
(2) that is payable in United States dollars;
(3) the Obligor of which has its most recent billing address in the
United States or its territories or possessions;
(4) that DSRM or DSRMNB, as applicable, has not classified on its
records as counterfeit, canceled, fraudulent, stolen or lost;
(5) that would not be deemed a Defaulted Account upon conveyance
of the related Receivables to the Purchaser; and
(6) that arises under a Cardholder Agreement with respect to which no
Receivable or any interest therein has previously been sold, assigned or trans-
ferred to any Person other than a Purchaser pursuant to this Agreement, DSRM
pursuant to the DSRMNB Participation Agreement or the Seller pursuant to the
Credit Card Receivables Sale Agreement.
"Eligible Receivable" means any Receivable:
(1) which has arisen under an Eligible Account;
(2) which is not unpaid for more than 60 days past the date on which
it was due;
(3) which is payable only in U.S. dollars;
(4) which is not a Defaulted Receivable or a Charge-off;
(5) which is not subject to any dispute, claim, defense or offset;
(6) which is an "account" or a "general intangible" within the
meaning of the Uniform Commercial Code of the State in which is
located the Seller's place of business or, if the Seller has more
than one place of business, the Seller's chief executive office;
(7) which arose in the ordinary course of business of DSRMNB or DSRM,
as applicable, from a bona fide sale of merchandise or insurance
or the rendering of services accepted by the Obligor of that
Receivable and was acquired from DSRM pursuant to the Credit Card
Receivables Sale Agreement;
(8) in which the applicable Purchaser shall, upon the Purchase of an
Ownership Interest therein, acquire good and marketable title to
the Ownership Interest therein, free and clear of all liens,
<PAGE>
security interests and encumbrances other than any in favor of any
Purchaser that may be created under this Agreement;
(9 that is the legal, valid and binding payment obligation of the
Obligor thereon;
(10) which together with the Cardholder Agreement related thereto does
not contravene or violate in any respect any laws, rules or
regulations applicable thereto (including, without limitation,
laws, rules, and regulations relating to usury, truth in lending,
consumer credit protection, fair credit billing, fair credit re-
porting, equal credit opportunity and fair debt collection
practices and privacy);
(11) which is not subject to any restrictions on the transfer, assign-
ability or sale thereof;
(12) which satisfies in all material respects all applicable terms of
the Credit and Collection Policies; and
(13) which the Administrative Agent has not designated, upon thirty
days' notice to the Seller, as no longer eligible for transfer
hereunder.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
the rules and regulations thereunder, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer with the Seller under Section
414 of the Code.
"Event of Liquidation" means any one or more of the following events:
(a) the Parent's long-term unsecured private debt or public debt
rating falls below BBB- from S&P or Baa3 from Moody's; the
Performance Support Agreement shall cease to be in full force
and effect; or the Parent shall have disaffirmed or otherwise
repudiated its obligations under the Performance Support Agreement
or notified the Administrative Agent or any Purchaser of its
intention to do so;
(b) Any of DSRMNB , DSRM or the Seller shall no longer be a wholly-
owned direct or indirect subsidiary of the Parent;
(c) the Seller shall cease to be a member of the Conduit Purchaser;
<PAGE>
(d) the Seller or the Collection Agent (if it is DSRM or any Diamond
Shamrock Entity) shall fail to make any payment when due to any of
the Purchasers under any of the Sale Documents;
(e) any Diamond Shamrock Entity shall breach any representation or
warranty or fail to perform or observe any term , covenant or
agreement applicable to it which is contained in any Sale Document
to which it is a party other than one covered by clause (d) above,
and such breach or failure is likely to have a material adverse
effect on the collectibility of the Receivables;
(f) (i) the Seller, DSRM, DSRMNB or the Parent shall be in bankruptcy,
reorganization, insolvency or similar proceedings or (ii) any
other Diamond Shamrock Entity shall be in bankruptcy, reorganiza-
tion, insolvency or similar proceedings and any such proceeding
has had or can reasonably be expected to have a material adverse
effect on the collectibility of the Receivables, the ability of
any of the Diamond Shamrock Entities to perform their respective
obligations under the Sale Documents or the legality, validity or
enforceability of any Sale Document or of the Ownership Interest;
(g) the Aggregate Ownership Interest shall exceed the Maximum Owner-
ship Interest and the Seller shall have failed to make the payment
required under Section 3.3;
(h) on any Settlement Date the Delinquency Ratio shall be greater than
the Historical Delinquency Ratio;
(i) on any Settlement Date the Days Sales Outstanding exceeds 65 days;
(j) on any Settlement Date the Default Ratio shall be greater than
5.25%;
(k) on any Settlement Date the Charge-off Ratio shall be greater that
2.75%;
(l) the occurrence of any event which has had or can reasonably be
expected to have a material adverse effect on (i) the collect-
ibility of the Receivables, or (ii) the legality, validity or en-
forceability of any Sale Document or of the Ownership Interest; or
(m) The Parent, DSRM or the Seller shall default in the payment when
due (whether at scheduled maturity, required prepayment, demand or
otherwise) with respect to any indebtedness of the Parent, DSRM or
the Seller, the outstanding principal amount of which indebted-
ness, in the aggregate, is $25 ,000, 000 or higher; or the Parent,
DSRM or the Seller shall default in the performance or observance
of any other obligation or condition with respect to any such in-
debtedness or any other event shall occur or condition exist, if,
as a result, such indebtedness 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.
<PAGE>
"Extension Date" means the last day of each calendar quarter commencing
June 30, 1999.
"Facility Limit" means the excess of $250,000,000 over the aggregate
outstanding "Investment" under and as defined in the Trade Receivables Purchase
Agreement; provided, however, that on and after the Termination Date, the
"Facility Limit" shall equal the outstanding Investment from time to time.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to (a) the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the immediately preceding Business Day)
by the Federal Reserve Bank of New York, or (b) if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent from three Federal
funds brokers of recognized standing selected by it.
"Fee Letter" means the letter agreement of even date herewith between
the Administrative Agent and the Seller relating to fees.
"Finance Charge Collections" means, with respect to any Credit Card
Receivable, that portion of Collections attributable to amounts collected from
Obligors in respect of Periodic Finance Charges and Service Charges.
"Finance Charge Receivables" means all amounts billed to an Obligor on
an Account in respect of Periodic Finance Charges and Service Charges that have
not yet been paid.
"Historical Delinquency Ratio" means, as of any date of determination,
a percentage equal to the product of (i) 1.50 and (ii) the greatest of the
fractions determined for each month during the period of 12 months preceding the
date of determination obtained by dividing (A) the aggregate amount of all
Receivables that were unpaid for more than 60 days but fewer than 91 days past
the dates on which they were due as at the end of each such month by (B) the
outstanding balance of Receivables as at the end of each such month.
"Incremental Purchase" means any Purchase (other than an Initial
Purchase) which causes the amount of the Investment to increase.
"Initial Purchase" means, with respect to a Purchaser, the first
Purchase by such Purchaser under this Agreement.
<PAGE>
"Investment" means the sum of:
(1) the aggregate amount of cash paid by the Purchasers to the Seller
for their respective Initial Purchases and all Incremental Pur-
chases, less the amount of all Collections received and applied
pursuant to Section 7.2.2(b)(ii)(A) and of all payments made by
the Seller and applied under Sections 3.3 6.2(c) and 7.3; and
(2) any amounts owed by the Seller to the Purchasers under Article XI.
"LIBO Rate" means, for any Settlement Period, the rate of interest
determined by the Administrative Agent to be the average (rounded upwards, if
necessary, to the nearest 1/16 of 1%) of the rates per annum at which U.S.
dollar deposits in immediately available funds are offered by CIBC two Business
Days prior to the beginning of such Settlement Period to prime banks in the
interbank eurodollar market as at or about 10:00 A.M. New York time, for
delivery on the first date of such Settlement Period, for a one month period and
in an amount equal to the amount of the Investment to be funded at the LIBO Rate
as of such second Business Day prior to the beginning of such Settlement Period.
"LIBO Rate (Reserve Adjusted)" means, relative to any Purchase for any
Settlement Period, a rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) determined pursuant to the following formula:
LIBO Rate = LIBO Rate
----------
(Reserve Adjusted) 1-LIBOR
Reserve
Percentage
The Administrative Agent shall determine the LIBO Rate (Reserve Adjusted) for
each Settlement Period applicable to any Purchase and promptly provide a
certificate of such calculation to the Seller thereof (which determination
shall, in the absence of manifest error, be conclusive on the Seller).
"LIBOR Reserve Percentage" means, relative to each Settlement Period, a
percentage (expressed as a decimal) equal to the daily average during such
Settlement Period of the percentages in effect on each day of such Settlement
Period, as prescribed by the Board of Governors of the Federal Reserve System
(or any successor thereof) for determining the maximum reserve requirements
applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other
applicable regulation which prescribes reserve requirements applicable to such
"Eurocurrency Liabilities".
"Liquidity Facilities" means each of the committed loan facilities,
lines of credit and other financial accommodations available to the Conduit
Purchaser to support the liquidity of the Conduit Purchaser's commercial paper
notes and medium term notes.
"Maximum Ownership Interest" means 100%.
<PAGE>
"Moody's" means Moody's Investors Service, Inc., and any successor
thereto.
"Obligor" means any Person that is obligated to make payment on a
Receivable pursuant to a Cardholder Agreement.
"Operating Expense Fee" means the percentage used to determine the fee
payable by the Seller to the Conduit Purchaser, as described in Section 5.1.3.
"Other Taxes" has the meaning specified in Section 11.5(b).
"Ownership Interest" means, at any time, the undivided percentage
ownership interest of a Purchaser in the Receivables Assets and related
Collections as determined pursuant to Section 3.1(a).
"Parent" means Ultramar Diamond Shamrock Corporation, a Delaware cor-
poration or any successor.
"Participating Receivable" means each Receivable subject to the Parti-
cipation Interest.
"Participation Interest" means the 100% participation interest of DSRM
under the DSRMNB Participation Agreement in all Receivables under all Accounts
established and maintained by DSRMNB.
"PBGC" means the Pension Benefit Guaranty Corporation and any successor
thereto.
"Performance Support Agreement" means the Performance Support Agreement
of even date herewith executed by the Parent in favor of the Administrative
Agent and the Purchasers, as amended, restated, supplemented or otherwise
modified from time to time.
"Periodic Finance Charges" shall have with respect to any Account, the
meaning specified in the Cardholder Agreement applicable to such Account for
finance charges or any similar term.
"Person" means any corporation, natural person, firm, joint venture,
partnership, limited liability company, trust, unincorporated organization,
enterprise, government or any department or agency of any government.
"Plan" means each employee benefit plan (as defined in Section 3(3) of
ERISA) currently sponsored, maintained or contributed to by the Seller or any
ERISA Affiliate or with respect to which the Seller or any ERISA Affiliate has
any liability.
"Prime Rate" means the rate announced by CIBC from time to time as its
prime rate in the United States, such rate to change as and when such designated
rate changes. The Prime Rate is not intended to be the lowest rate of interest
<PAGE>
charged by CIBC in connection with extensions of credit to debtors.
"Purchase" means any purchase by a Purchaser of an Ownership Interest
from the Seller under this Agreement, and includes such Purchaser's Initial
Purchase, any Incremental Purchase and any Reinvestment Purchase by such
Purchaser.
"Purchase Discount" means the percentage used to determine the amount
payable by the Seller to the Purchasers to cover the Purchasers' cost of funding
the Purchases, as described in Section 5.1.1.
"Purchase Premium" means the percentage used to determine the amount
payable by the Seller to the Purchasers, as described in Section 5.1.2.
"Purchaser" means each of the Conduit Purchaser and the Back-Stop
Purchaser.
"Receivable" means the obligation of an Obligor under an Account to pay
for merchandise sold or services rendered, and includes the rights of DSRMNB,
DSRM or the Seller, as applicable, to payment of any interest, Periodic Finance
Charges or Service Charges and in the merchandise (including returned goods) and
contracts relating to such Receivable, all security interests, guaranties and
property securing or supporting payment of such Receivable, all books and
records relating to the Receivables, all rights of the Seller or DSRM, as
applicable, under the Credit Card Receivables Sale Agreement, the DSRMNB
Participation Agreement and the Servicing Agreement, and all proceeds of the
foregoing.
"Receivables Activity Report" means the report in the form of Exhibit E
hereto to be provided by the Collection Agent to the Administrative Agent in
accordance with Sections 6.4 and 7.4 of this Agreement.
"Receivables Assets" means all Receivables (other than Participating
Receivables) and the Participation Interest.
"Receivables Systems" has the meaning specified in Section 9.1(p).
"Reinvestment Purchase" means any Purchase made with Collections.
"Reserve" means, as of any date, an amount equal to the Investment on
such date multiplied by the greater of (a) 10% and (b) the percentage equivalent
of a fraction, the numerator of which equals the sum of the items set forth
below (each expressed as a percentage), and the denominator of which equals 100%
minus such sum:
(1) the product of (a) 2.00 and (b) the highest monthly Default Ratio
for any of the 12 months preceding such date;
<PAGE>
(2) the Collection Agent Fee; and
(3) the Yield Reserve Percentage.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., and any successor thereto.
"Sale Documents" means this Agreement, the Credit Card Receivables Sale
Agreement, the Blocked Account Agreements, the DSRMNB Participation Agreement,
the DSRM Servicing Agreement, the Exhibits hereto and thereto to which the
Seller is a party and all other certificates, agreements and documents executed
from time to time by the Seller in connection with the transactions contemplated
in this Agreement.
"Seller" means Coyote Funding, L.L.C., a Delaware limited liability
company, and its successors and permitted assigns.
"Service Charges" means with respect to any Receivable, fees specified
in the related Cardholder Agreement applicable to the related Account as annual
membership or annual fees, late charges, late payment charges, returned check
fees, overlimit charges or default charges or any similar terms other than
Periodic Finance Charges.
"Settlement Date" means any date, as described in Section 7.1 of this
Agreement, on which the Collection Agent is required to remit specified payments
to the Purchasers.
"Settlement Period" means the period from (and including) a Settlement
Date (or, in the case of the initial Settlement Period under this Agreement,
from the date of the earliest Initial Purchase) to (but excluding) the
immediately succeeding Settlement Date.
"Taxes" has the meaning specified in Section 11.5(a).
"Termination Date" means the earlier of (a) March 27, 2000, as such
date may be extended pursuant to Section 2.2 and (b) the date on which an Event
of Liquidation occurs.
"Trade Receivables Purchase Agreement" means the Trade Receivables
Purchase Agreement of even date herewith among the Seller, DSRM, the Conduit
Purchaser, the Back-Stop Purchaser and the Administrative Agent relating to a
portfolio of trade receivables originated by certain Affiliates of the Seller
and serviced by DSRM.
"Unused Facility Fee" has the meaning specified in Section 5.2.
"Year 2000 Compliant" has the meaning specified in Section 9.1(p).
<PAGE>
"Yield Reserve Percentage" means, for any Settlement Period, the
greatest Yield Reserve Shortfall Percentage in any of the three Settlement
Periods immediately preceding such date times the fraction 104/360.
"Yield Reserve Shortfall Percentage" means, for any Settlement Period,
the excess, if any, of (A) the sum of (i) the Purchase Premium, (ii) the
Purchase Discount multiplied by 1.3, (iii) the Operating Expense Fee and (iv)
the Collection Agent Fee, over (B) the ratio, expressed as a percentage of (i)
the aggregate Finance Charge Collections for such Settlement Period divided by
(ii) the ending amount of Receivables for such Settlement Period.
ARTICLE II: PURCHASE FACILITY
SECTION 2.1. Purchase Facility. On the terms and conditions described
in this Agreement, the Conduit Purchaser may, in its sole discretion, purchase
an Ownership Interest in Receivables Assets offered for sale from time to time
by the Seller. The Back-Stop Purchaser, if so requested by the Seller, will
purchase during the period on and after the Commencement Date until (but
excluding) the Termination Date, an Ownership Interest in Receivables Assets
offered for sale from time to time (provided that no Event of Liquidation has
occurred and is continuing) by the Seller. Nothing herein shall be construed as
constituting a commitment on the part of the Seller to sell an Ownership
Interest in Receivables Assets or on the Conduit Purchaser to make any
Purchases. In no event shall the Back-Stop Purchaser's share of the Investment
exceed the excess of the Facility Limit over the outstanding Investment of the
Conduit Purchaser's Ownership Interest.
SECTION 2.2. Extension or Acceleration of the Termination Date.
(a) Prior to the occurrence of an Event of Liquidation, the Seller may,
on a quarterly basis at least 15 days prior to any Extension Date, request by
notice to the Back-Stop Purchaser that the date specified in clause (a) of the
definition of "Termination Date" be extended (any such request being an
"Extension Notice"). The Back-Stop Purchaser shall not have a commitment or
obligation to extend the Termination Date. If the Back-Stop Purchaser, in its
sole discretion, agrees to accept any request on the part of the Seller to
extend the Termination Date, it shall so advise the Seller in writing by not
later than five Business Days prior to such Extension Date. In the event
Back-Stop Purchaser shall fail to advise the Seller in response to any Extension
Notice, such request for extension shall be deemed to have been declined. Upon
acceptance in writing by the Back-Stop Purchaser of any request set forth in an
Extension Notice, the Termination Date shall thereupon become the date which is
360 days following such Extension Date. As of no date during the term of this
Agreement shall the period from such date to the Termination Date then in effect
exceed a period of 360 days.
(b) Notwithstanding the provisions of Section 2.2(a), the Seller may
accelerate the Termination Date by notifying the Purchasers and the Administra-
tive Agent to such effect. Such notice shall be given by no later than 1:00 p.m.
New York time on the third Business Day preceding the date on which Seller
intends the Termination Date to occur.
ARTICLE III: SALE OF OWNERSHIP INTEREST
SECTION 3.1. Determination of Ownership Interest.
(a) When a Purchaser accepts an offer from the Seller to purchase an
interest in Receivables Assets, such Purchaser shall have acquired, in exchange
for the purchase price paid, an undivided percentage ownership interest in the
Receivables Assets and any Collections relating to the Receivables Assets. The
undivided percentage interest of a Purchaser in the Receivables Assets and
Collections shall be referred to in this Agreement as such Purchaser's
"Ownership Interest". The Ownership Interests of all of the Purchasers on any
date shall be referred to herein as the "Aggregate Ownership Interest" on such
date, and, except as provided in paragraphs (b) and (c) of this Section, is
equal to the following fraction (expressed as a percentage):
I + R
---------
ER
where:
I = the Investment on such date
R = the Reserve on such date
ER = the outstanding balance of all Eligible Receivables excluding
Finance Charge Receivables on such date
The Ownership Interest will change from time to time, except as provided in
paragraphs (b) and (c) of this Section, whenever the Investment, Reserve or
Eligible Receivables changes.
(b) During any period when the Investment is being reduced, the
Aggregate Ownership Interest will remain fixed at the percentage in effect as of
the close of business on the Business Day immediately preceding the commencement
of that period.
(c) The Aggregate Ownership Interest in the Receivables Assets will be
reduced to zero when the Purchasers receive the following amounts:
(1) their respective shares of the Investment;
(2) as further provided in Section 7.2.2(b)(i), their respective
shares of the accrued and unpaid portion of the Purchase Discount,
Purchase Premium, Unused Facility Fee, Collection Agent Fee (if
<PAGE>
not payable to a Diamond Shamrock Entity), Operating Expense Fee
and Administration Fee; and
(3) all other fees, expenses and amounts payable to the Purchasers
under this Agreement.
When the Aggregate Ownership Interest in the Receivables is reduced to zero, the
Purchasers shall not be entitled to receive any additional Collections from the
Receivables Assets.
(d) The Administrative Agent shall maintain books and records (which
shall be presumed accurate absent manifest error) reflecting the respective
shares of the Purchasers in the Aggregate Ownership Interest based upon the
aggregate amount of cash paid by each Purchaser to the Seller for the Initial
Purchase by such Purchaser and all Incremental Purchases by such Purchaser, less
the amount of all Collections received and applied pursuant to Section
7.2.2(b)(ii)(A) and of all payments made by the Seller and applied under
Sections 3.3 6.2(c) and 7.3. The Administrative Agent shall allocate amounts
paid by the Seller hereunder in respect of the Aggregate Ownership Interest
accordingly, taking into account the differing rates for determining Purchase
Discount for each Purchaser.
(e) Subject to the provisions of Section 8.2(d), upon any Purchaser's
purchase of an Ownership Interest, the Administrative Agent shall be entitled to
(i) endorse all drafts, checks and other forms of payment on account of the
Receivables and to settle, adjust and forgive any amounts payable on the
Receivables and (ii) exercise all other incidents of ownership in the
Receivables Assets.
(f) The Seller hereby assigns to the Administrative Agent, for the
benefit of the Purchasers, all rights of the Seller against DSRM under the
Credit Card Receivables Sale Agreement and agrees that (i) the Administrative
Agent and the Purchasers shall be third party beneficiaries of the Seller's
rights under the Credit Card Receivables Sale Agreement, (ii) the Seller will
enforce its rights under the Credit Card Receivables Sale Agreement on behalf of
the Administrative Agent and the Purchasers and (iii) the Administrative Agent,
on behalf of the Purchasers shall be entitled to enforce such rights against
DSRM if the Seller does not enforce such rights following notice from the
Administrative Agent, as if the Administrative Agent and the Purchasers had been
parties to the Credit Card Receivables Sale Agreement.
SECTION 3.2. Frequency of Determining Aggregate Ownership Interest. The
Collection Agent shall determine or be deemed to determine the Aggregate
Ownership Interest and report it to the Administrative Agent at the following
times:
(a) on the date of each Initial Purchase;
(b) on each Settlement Date;
(c) on the date of each Incremental Purchase;
<PAGE>
(d) on the Business Day immediately preceding any period during which
the Investment is being reduced;
(e) on the Business Day on which the Investment ceases being reduced;
(f) when the Collection Agent has reason to believe that the Maximum
Ownership Interest has been exceeded; and
(g) at the request of any Purchaser.
SECTION 3.3. Maximum Ownership Interest. If during any Settlement
Period the Aggregate Ownership Interest at the end of such Settlement Period
exceeds the Maximum Ownership Interest, the Seller shall immediately make a
payment to the Collection Agent in an amount sufficient to reduce the Aggregate
Ownership Interest to the Maximum Ownership Interest but not to exceed the
portion of Collections paid to Seller during such Settlement Period. Any such
payment will be used to reduce the Investment and shall be applied ratably to
the Ownership Interests of the Purchasers according to their respective shares
of the Investment.
SECTION 3.4. Blocked Accounts and Collections. The Collection Agent
shall identify and segregate all Collections within 24 hours of receipt thereof
by the Collection Agent, the Seller or DSRMNB, as the case may be, and deposit
such Collections, on a daily basis, in the form received, to a Blocked Account
Bank for deposit into a Blocked Account. In furtherance of the intent of the
parties described in Section 3.1 above, and in order to secure the prompt and
complete payment, observance and performance of this Agreement, the Seller
hereby assigns and pledges to the Administrative Agent, for the benefit of the
Purchasers, and grants a security interest thereto in, all of Seller's right
title and interest in each Blocked Account, including, without limitation, any
deposits or sums at any time held in each Blocked Account. Upon the occurrence
and during the continuation of an Event of Liquidation, the Administrative Agent
may take control of the Blocked Accounts, and either the Administrative Agent or
any Purchaser may notify the Obligors that the Receivables Assets have been
assigned to the Purchasers, and in its own name and/or the name of DSRMNB, DSRM
and/or the Seller, as applicable, demand, collect, receive, receipt for, sue
for, compound and discharge any or all amounts due or to become due thereon,
and, in the Administrative Agent's or Purchasers' discretion (and without
creating any obligation of the Purchasers or Administrative Agent), file any
claim or take any other action or proceeding which the Administrative Agent or
the Purchasers may deem necessary or appropriate to protect and realize upon the
Receivables Assets.
ARTICLE IV: PURCHASE PRICE
The purchase price payable by a Purchaser for its Ownership Interest in
the Receivables and any Collections shall be comprised of a cash component and a
deferred payment component.
<PAGE>
SECTION 4.1. Determination of Cash Component of Purchase Price. When a
Purchaser accepts an offer from the Seller to make a Purchase, such Purchaser
will pay the following amounts in cash to the Seller:
(a) for any Initial and any Incremental Purchases, the amount speci-
fied in the notice required to be delivered by the Seller under
Section 6.2(a); or
(b) for a Reinvestment Purchase, the amount obtained by multiplying
(i) the dollar amount of the Collections received on the date of
such Purchase by (ii) such Purchaser's Ownership Interest on that
date, and subtracting from such amount any amounts then payable
to the Administrative Agent under Section 7.2.2(b)(i);
provided that the payment of any amount described in (a) or (b) above would not
cause (and such amount shall be reduced so as not to cause) either:
(1) the Investment at any time to exceed the Facility Limit; or
(2) the Aggregate Ownership Interest to exceed the Maximum Ownership
Interest.
SECTION 4.2. Determination of Deferred Payment Component of Purchase
Price. Upon and after the reduction of the Aggregate Ownership Interest to zero
as described in Section 3.1(c), all Collections or other cash received by the
Administrative Agent or any Purchaser on account of Receivables Assets and the
interest of the Purchasers therein and all Receivables Assets held by or on
behalf of the Purchasers will be transmitted in the form received by such
Purchaser or the Administrative Agent to the Seller. The transmission of such
amount by such Purchaser or the Administrative Agent shall be deemed to satisfy
the payment of the deferred payment component of the purchase price under this
Article IV.
ARTICLE V: FEES AND EXPENSES
SECTION 5.1. Settlement Date Payments. The Administrative Agent will
notify the Seller and the Collection Agent on the last Business Day of each
calendar month of the Purchase Discount, Purchase Premium, Unused Facility Fee,
Operating Expense Fee, Administration Fee and Collection Agent Fee. On each
Settlement Date, the Seller will pay to the Purchaser the following, in
accordance with Section 7.2.2.
SECTION 5.1.1. Purchase Discount. A Purchase Discount equal to, for
each day in any Settlement Period, the weighted average of the following:
(i) the weighted average determined on each such day of the discount
rates on all commercial paper notes issued by the Conduit Purchaser at a
discount on such day (other than commercial paper notes the proceeds of which
are used by the Conduit Purchaser to (x) purchase receivables, or extend
financing secured thereby, at a fixed interest rate or (y) conduct any arbitrage
activities of the Conduit Purchaser), converted to an annual yield-equivalent
rate on the basis of a 360-day year;
<PAGE>
(ii) the weighted average determined on each such day of the annual
interest rates payable on all interest-bearing commercial paper notes issued by
the Conduit Purchaser on such day (other than (A) the commercial paper notes
described in clauses (x) and (y) of paragraph (i) above), on the basis of a
360-day year;
(iii) the Alternative Rate for the Settlement Period relating to the
Settlement Date to the extent that the Conduit Purchaser has borrowed money
during such Settlement Period (which money shall be borrowed only after a
determination by the Conduit Purchaser that financing its activities during such
period by issuing commercial paper notes would not be practicable or
cost-efficient); and
(iv) the Alternative Rate for the Settlement Period relating to such
Settlement Date in respect of that portion of the Investment, if any, allocable
to the Ownership Interest of the Back-Stop Purchaser.
SECTION 5.1.2. Purchase Premium. In respect of the Ownership Interest
of the Conduit Purchaser, a Purchase Premium equal to the rate per annum speci-
fied as such in the Fee Letter.
SECTION 5.1.3. Operating Expense Fee. In respect of the Ownership
Interest of the Conduit Purchaser, an Operating Expense Fee to cover routine
operating expenses of the Conduit Purchaser incurred during the immediately
preceding Settlement Period, including fees payable to commercial paper dealers,
issuing and paying agents, rating agencies, printers and auditors; provided that
(i) the Operating Expense Fee in respect of commercial paper dealer commissions
shall not exceed a rate per annum equal to 0.05% and (ii) the Operating Expense
Fee in respect of issuing and paying agent fees, rating agency fees, printing
and all other routine operating expenses shall not exceed a rate per annum equal
to 0.01%. If the amount of any Operating Expense Fee paid for any Settlement
Period exceeds the actual amount of the operating costs and expenses of the
Conduit Purchaser incurred during such period, then the Conduit Purchaser will
remit on an annual basis the excess to the Seller in the form of a patronage
distribution.
SECTION 5.1.4. Collection Agent Fee. A Collection Agent Fee equal to
2.00% per annum, which fee shall be remitted by the Purchasers to the Collection
Agent. If a Diamond Shamrock Entity is acting as the Collection Agent, then the
Collection Agent shall retain an amount equal to the Collection Agent Fee (in
full satisfaction of the payment of such fee to the Collection Agent) out of
amounts required to be remitted by the Collection Agent in accordance with
Section 7.2.2(b)(i).
SECTION 5.1.5. Administration Fee. In respect of the Ownership Interest
of the BackStop Purchaser outstanding during the immediately preceding
Settlement Period, if any, an Administration Fee of up to 0.01% to cover routine
operating expenses of the Back-Stop Purchaser incurred during such immediately
preceding Settlement Period.
<PAGE>
SECTION 5.2. Unused Facility Fee. On each Settlement Date, in addition
to the amounts payable pursuant to Section 5.1, the Seller shall pay to the
Back-Stop Purchaser an "Unused Facility Fee" for the period from the immediately
preceding Settlement Date (or, in the case of the initial payment of such fee,
from the date hereof) to such Settlement Date equal to (i) the rate per annum
specified in the Fee Letter for computing the Unused Facility Fee, multiplied by
(ii) an amount, if positive, equal to the Facility Limit minus the average daily
amount of the outstanding Investment (calculated without regard to any amounts
then owed by the Seller under Article XI of this Agreement or under any similar
provision in any other Sale Document). The Unused Facility Fee shall be
calculated on the basis of a year of 360 days for actual days elapsed, and shall
be payable by the Seller from sources other than Collections allocable to the
Purchasers. There shall be credited against the Unused Facility Fee payable
hereunder, the actual amount of any "Unused Facility Fee" (as defined in the
Trade Receivables Purchase Agreement) actually paid under the Trade Receivables
Purchase Agreement.
SECTION 5.3. Structuring Fee. The Seller will pay a structuring fee
to the Purchaser on the date on which this Agreement is executed as set forth in
the Fee Letter.
SECTION 5.4. Legal Fees and Expenses. In addition to all other amounts
payable by the Seller under this Agreement, the Seller agrees to pay to the
Purchasers by no later than 30 days after presentation of a bill therefore, (i)
the reasonable fees and expenses of counsel for the Purchasers in connection
with the negotiation, preparation, execution, amendment and enforcement of the
Sale Documents and advice with respect to the Purchasers' rights and remedies
thereunder and (ii) all reasonable and documented out-of-pocket costs and
expenses of the Purchasers and the Administrative Agent incurred in connection
with this Agreement not otherwise provided for in this Agreement which are
accrued and owing to a Purchaser or the Administrative Agent, including, without
limitation, expenses in connection with due diligence activities of the
Purchasers as to the Diamond Shamrock Entities after the date hereof, such as
the costs of travel and lodging, but excluding any expenses associated with the
replacement of the Administrative Agent.
SECTION 5.5. Interest on Unpaid Amounts. To the extent that the Seller
or Collection Agent fails to pay when due to a Purchaser or the Administrative
Agent any fee, expense or other amount payable hereunder or under any Sale
Document, interest shall be due and payable on such unpaid amount, for each day
until paid in full, at the rate of 2.00% in excess of the Base Rate in effect
from time to time.
SECTION 5.6. Audits. In addition to all other amounts payable by the
Seller hereunder (including, without limitation, under Sections 5.1.3 and 5.4
above), the Seller shall reimburse the Purchasers and the Administrative Agent
in respect of all reasonable out-of-pocket costs and expenses incurred by them
in the conduct of any audit or inspection of the Seller, DSRMNB or the
Collection Agent in connection with the Sale Documents.
<PAGE>
ARTICLE VI: PURCHASE PROCEDURES
SECTION 6.1. Types of Purchases. The three types of Purchases which can
be made under this Agreement are an Initial Purchase, an Incremental Purchase
and a Reinvestment Purchase. The first Purchase made by each Purchaser under
this Agreement is the Initial Purchase with respect to such Purchaser. Any
Purchase (other than the Initial Purchase) made by a Purchaser which causes the
amount of the Investment to increase is an Incremental Purchase. The amount of
each Incremental Purchase shall be $5,000,000 or greater. Any Purchase made by a
Purchaser with Collections is a Reinvestment Purchase.
SECTION 6.2. Notice Requirements.
(a) In the case of the Initial Purchase with respect to any Purchaser
or any Incremental Purchase, the Seller will give the Administrative Agent three
Business Days' written notice of its offer to sell an Ownership Interest in
Receivables Assets to such Purchaser. The notice will be in the form of Exhibit
A, and will include the amount of the new Investment requested and the Business
Day on which the Purchase will be made. The Conduit Purchaser will notify the
Seller within one Business Day after the receipt of such notice from the Seller
whether it intends to accept or reject the offer.
(b) Each of the Seller and the Conduit Purchaser may elect not to make
Reinvestment Purchases by notifying the other parties hereto to such effect.
Such notice shall be given by no later than 1:00 P.M. New York time on the third
Business Day preceding the date on which the Reinvestment Purchase was
contemplated to be made. The notice will be in the form of Exhibit B-1, and will
specify (i) the date on which Reinvestment Purchases shall cease and (ii) the
amount to which the Investment shall be reduced before Reinvestment Purchases
will recommence. No such notice shall be required if an Event of Liquidation
occurs, and no further Reinvestment Purchases by any Purchaser shall be made
upon the occurrence of an Event of Liquidation.
(c) The Seller may, on any Business Day (provided that notice has been
given to the Administrative Agent in the form of Exhibit B-2 by no later than
1:00 P.M. New York City time on the third Business Day prior thereto), reduce
the dollar amount of the Investment in lieu of the application of Collections to
the amount of such reduction by paying to the Administrative Agent, for the
ratable account of the Purchasers based upon their respective shares of the
Investment, by 12:00 Noon New York City time on the Business Day of the
contemplated reduction, the dollar amount by which the Investment is to be
reduced after giving effect to the application of Collections received and
applied to the reduction of the Investment on such Business Day.
SECTION 6.3. Conditions Precedent to Initial Purchase. The following
conditions must be satisfied before the first Initial Purchase hereunder,
whether made by the Conduit Purchaser, in its sole discretion, or the Back-Stop
Purchaser:
<PAGE>
SECTION 6.3.1. Membership in the Purchaser. The Seller will have joined
the Conduit Purchaser as a member by delivering to the Conduit Purchaser an
executed Membership Agreement in the form of Exhibit C, together with the sum of
$10,000 as an investment in the Conduit Purchaser. Such investment will be
refunded by the Conduit Purchaser to the Seller when the Aggregate Ownership
Interest is reduced to zero and no further Purchases are to be made.
SECTION 6.3.2. Fees. The Administrative Agent and each Purchaser will
have received all fees due hereunder or in connection herewith on or prior to
the date of such first Initial Purchase hereunder.
SECTION 6.3.3. Absence of Liens. The Administrative Agent will have
received evidence acceptable to it (including Uniform Commercial Code search
reports) that all Receivables, all Receivables Assets and all proceeds thereof
are free and clear of liens, security interests, claims and encumbrances other
than those created pursuant to this Agreement, the Credit Card Receivables Sale
Agreement or the DSRMNB Participation Agreement.
SECTION 6.3.4. Financing Statements. The Administrative Agent will have
received acknowledgment copies of UCC-1 financing statements, and all other
documents reasonably requested by the Administrative Agent, to evidence the
perfection of the Purchasers' Ownership Interests in the Receivables Assets.
SECTION 6.3.5. Credit Card Receivables Sale Agreement, Etc. The
Administrative Agent shall have received an executed copy of the Credit Card
Receivables Sale Agreement, a copy certified to be a true copy of the executed
DSRMNB Participation Agreement, a copy certified to be a true copy of the
executed DSRMNB Servicing Agreement and the written acknowledgment of DSRMNB
referred to in Section 2.1(b) of the Credit Card Receivables Sale Agreement.
SECTION 6.3.6. Receivables Activity Report. The Administrative Agent
will have received a Receivables Activity Report in the form of Exhibit E
covering the calendar month ending most recently prior to the date of the first
Initial Purchase hereunder.
SECTION 6.3.7. Resolutions. The Administrative Agent will have
received a certificate of each of the Seller's , DSRM's, the Parent's and
DSRMNB's secretary or assistant secretary attesting to:
(a) the resolutions of such Person's Board of Directors authorizing
the execution by such Person of the Sale Documents to be executed by such
Person;
(b) the names and signatures of the officers of such Person authorized
to execute the Sale Documents to be executed by such Person; and
<PAGE>
(c) the completeness and correctness of the attached constitutional
documents (certified by the appropriate governmental officer) and by-laws of
such Person.
SECTION 6.3.8. Legal Opinion of Seller's, DSRM's, DSRMNB's and the
Parents's Counsel. The Administrative Agent will have received one or more
opinions from counsel to the Seller's, DSRM, DSRMNB's and the Parent
satisfactory in form and substance to the Administrative Agent.
SECTION 6.3.9. Good Standing Certificates. The Administrative Agent
will have received certificates of recent date issued by the Secretary of State
of the States of Delaware and Texas with respect to the Seller, DSRM and the
Parent, and a certificate of due status issued by the Office of the Comptroller
of the Currency with respect to DSRMNB, as to the legal existence and good
standing of the Seller, DSRM and the Parent and legal existence and due status
of DSRMNB, respectively.
SECTION 6.3.10. Performance Support Agreement. The Administrative
Agent will have received a duly executed Performance Support Agreement satisfac-
tory in form and substance to the Administrative Agent.
SECTION 6.3.11. Blocked Account Agreements. The Administrative Agent
will have received the original Blocked Account Agreement executed by the
Seller, DSRMNB, DSRM, the Administrative Agent and each Blocked Account Bank, as
applicable.
SECTION 6.4. Condition Precedent to All Incremental Purchases. Before
any Purchaser will consider making an Incremental Purchase, the Administrative
Agent will have received a Receivables Activity Report in the form of Exhibit E
covering the period from the date on which the last such report was delivered
under Section 7.4 and the Business Day preceding the date of the Incremental
Purchase.
SECTION 6.5. Conditions Precedent to All Purchases. The following
conditions must be satisfied before any Purchaser will consider making any
Purchase:
SECTION 6.5.1. Representations and Covenants. On and as of the date of
such Purchase (i) the representations of the Seller in Article IX shall be true
and correct with the same effect as if made on such date and (ii) the Seller
shall be in compliance with the covenants set forth in this Agreement.
SECTION 6.5.2. Other Documents. The Administrative Agent and each of
the Purchasers will have received all other documents that any of them had
reasonably requested from the Seller.
<PAGE>
ARTICLE VII: SETTLEMENT PROCEDURES
SECTION 7.1. Settlement Date. Each of the following shall constitute
a Settlement Date:
(a) the first Business Day of each month;
(b) each day designated as a Settlement Date by the Administrative
Agent; provided, however, that Administrative Agent shall not cause Settlement
Dates to occur on a basis more frequent than weekly unless either an Event of
Liquidation has occurred or a Purchaser is itself being liquidated;
(c) each Business Day on which the Investment is reduced in accordance
with Section 3.1 or 6.2;
(d) any date on which a reduction in the Investment is required to
prevent the Aggregate Ownership Interest from exceeding the Maximum Ownership
Interest; and
(e) each date on which any payment due to a Purchaser from the Seller
under Article XI has not been made.
SECTION 7.2. Application of Collections. The Collection Agent will
apply the Collections as provided in Sections 7.2.1 and 7.2.2, as applicable.
SECTION 7.2.1. Application of Collections on Days That Are Not
Settlement Dates. The Collection Agent will, by 2:00 P.M. (New York City time)
on any Business Day (other than a Settlement Date) since the preceding
Settlement Date, from Collections received on such day:
(a) first, pay to the Seller for its share of ownership in the
Collections an amount equal to the product of: (i) 1 minus the
Aggregate Ownership Interest and (ii) total Collections; and
(b) second, pay to the Seller for a Reinvestment Purchase an amount
equal to the product of: (i) the Aggregate Ownership Interest and
(ii) total Collections less the amounts described in Section
7.2.2(b)(i).
SECTION 7.2.2. Application of Collections on Settlement Dates. The
Collection Agent will, by 3:00 P.M. (New York City time) on each Settlement
Date, from Collections received since the preceding Settlement Date:
(a) first, pay to the Seller for its share of ownership in the
Collections an amount equal to the product of: (i) 1 minus the
Aggregate Ownership Interest and (ii) total Collections; and
<PAGE>
(b) second, from the Purchasers' Aggregate Ownership Interest in the
Collections, pay:
(i) first, to the Administrative Agent for the account of the
Purchasers according to their respect interests therein an
amount equal to the sum of the following amounts for each
day in the Settlement Period:
[(PD + PP + OEF + CAF) x CPI] + [(PD +AA + CAF) x BPI]
------------------- --------------------
360 360
where PD = Purchase Discount
PP = Purchase Premium
OEF = Operating Expense Fee
CAF = Collection Agent Fee
AA = Administration Fee
CPI = the Conduit Purchaser's Investment
BPI = the Back-Stop Purchaser's Investment
(ii) second,
(A) if Reinvestment Purchases have been suspended, then all
remaining Collections will be paid to the Purchasers
ratably according to their respect Investments as a
return thereof; or
(B) if Reinvestment Purchases have not been suspended,
then all remaining Collections shall be paid to the
Seller for Reinvestment Purchases.
SECTION 7.3. Adjustments, Etc.
(a) The Collection Agent shall not include any Receivable as an
Eligible Receivable if (i) the representation and warranty contained in Section
9.1(f) is no longer true with respect to any Receivable in which any Purchaser
has an Ownership Interest or (ii) the Seller or Collection Agent proposes to (x)
reduce or cancel the outstanding balance of any Receivable in which a Purchaser
has an Ownership Interest as a result of defective, rejected or returned
merchandise or services or in connection with a claim, dispute, or offset
asserted against such Receivable by an Obligor or (y) otherwise amend, modify or
waive any term or condition of such Receivable (other than in a manner that does
not affect the aging or impair the collectibility of such Receivable and
otherwise is in accordance with the Credit and Collection Policies).
<PAGE>
(b) On or before the Settlement Date next succeeding the date on which
any Receivable is affected as described in the preceding clause (a), the Seller
shall either:
(i) pay to the Collection Agent to be applied in accordance with Sec-
tion 7.2 an amount equal to the outstanding balance of such Receivable (or
any affected portion thereof); or
(ii) adjust the Aggregate Ownership Interest in effect on such date by
decreasing "ER" in the denominator of the fraction described in Section
3.1(a) by the outstanding balance of the affected Receivable (or any
affected portion thereof) so long as the Aggregate Ownership Interest would
not, as a result, exceed the Maximum Ownership Interest.
SECTION 7.4. Receivables Activity Report. The Collection Agent will
provide the Administrative Agent with a Receivables Activity Report no later
than 3 Business Days following each Settlement Date. The Receivables Activity
Report will be in the form of Exhibit E and will cover the most recently
completed Settlement Period.
ARTICLE VIII: ADMINISTRATIVE AGENT AND COLLECTION AGENT
SECTION 8.1. Appointment of Administrative Agent. Each Purchaser has
appointed CIBC as its Administrative Agent. The Administrative Agent is
responsible for administering and enforcing this Agreement and fulfilling all
other duties expressly assigned to it in this Agreement. Each Purchaser has
granted the Administrative Agent the authority to take all actions necessary to
assure the Seller's compliance with the terms of this Agreement and to take all
actions required or permitted to be performed by such Purchaser under this
Agreement.
SECTION 8.1.1. Replacement of Administrative Agent. Either Purchaser
may, at any time in its discretion, upon 120 days' prior written notice to the
Administrative Agent and the Seller remove the Administrative Agent and appoint
a new Administrative Agent acceptable to all Purchasers, which shall have the
duties described in Section 8.1. Such appointment of a successor Administrative
Agent shall be effective upon the acceptance by such successor Administrative
Agent of all of the duties and obligations of the Administrative Agent under
this Agreement. The appointment of a new Administrative Agent shall not increase
any of the fees payable under this Agreement and any expenses associated with
such appointment shall be paid by the Purchasers and/or the Administrative
Agent.
SECTION 8.2. Appointment of Collection Agent.
(a) Each Purchaser appoints DSRM as its Collection Agent and the
Collection Agent accepts such appointment. The Collection Agent shall be
responsible for collecting the Receivables and Receivables Assets, tracking,
holding and remitting the Collections and fulfilling all other duties expressly
assigned to it in this Agreement.
<PAGE>
(b) The Collection Agent shall, on each day on which Collections are
received by it, set aside and hold in trust for the Purchasers their share of
such Collections.
(c) Each Purchaser grants the Collection Agent the authority necessary
to carry out its duties under this Agreement for so long as it is acting as
Collection Agent.
(d) Each Purchaser grants to each Collection Agent, for so long as it
is acting in that capacity, an irrevocable power of attorney to endorse all
drafts, checks and other forms of payment made out in the name of the Seller or
any other Diamond Shamrock Entity and to settle, adjust and forgive any
Receivable, subject to the provisions of Section 10.3(b) hereof. Upon any
replacement of the Collection Agent, such power of attorney in favor of the
replaced Collection Agent will terminate and have no further force or effect.
(e) The Collection Agent shall exercise reasonable care in the
performance of its duties under this Agreement and shall use the same degree of
care and skill which it applies to its own property.
(f) The Collection Agent may delegate its duties hereunder to such
Person as may be approved by the Administrative Agent upon receipt of 120 days'
prior written notice, such approval not to be unreasonably withheld, but such
delegation shall neither affect the obligations of the Collection Agent under
any of the Sale Documents nor the rights of any Purchaser or the Administrative
Agent under any of the Sale Documents, including, without limitation, the right
to replace the Collection Agent pursuant to Section 8.2.1.
SECTION 8.2.1. Replacement of Collection Agent; Notification of
Obligors.
(a) Upon the occurrence of any Event of Liquidation, the Administra-
tive Agent or any Purchaser may upon the provision of three Business Days prior
written notice to DSRM remove DSRM as its Collection Agent, appoint a new
Collection Agent, take control of the Blocked Accounts (by delivering to the
Blocked Account Bank notice in the form attached to the Blocked Account
Agreements), notify Obligors of the Aggregate Ownership Interest in the
Receivables Assets and exercise all other incidents of ownership in the
Receivables Assets.
(b) The Administrative Agent and the Purchasers shall have the right
to remove any successor Collection Agent to DSRM and to take the other actions
described in (a) above at any time in their sole discretion.
(c) If DSRM is removed as Collection Agent, DSRM shall transfer and
cause any Person to whom duties of the Collection Agent have been delegated by
DSRM pursuant to Section 8.2(f), to transfer, to the Administrative Agent or any
successor servicer designated by the Administrative Agent all records,
correspondence and documents (including computer tapes or other back-up media)
requested by the Administrative Agent or such successor and to permit such
persons to have access to, and to copy, all data and information used by DSRM in
the collection, administration or monitoring of the Receivables and the
Receivables Assets. In addition, the Seller or DSRM, as applicable, will grant
<PAGE>
or cause to be granted to the Administrative Agent or its designee an
irrevocable, non-exclusive license to use, without royalty or payment of any
kind, all software used by the Seller, DSRM or any of their Affiliates, as
applicable, to account for the Receivables, to the extent necessary to
administer the Receivables, whether such software is owned by the Seller, DSRM
or any such Affiliate, as applicable, or is owned by others and used by the
Seller, DSRM or any such Affiliate, as applicable, under license agreements with
respect thereto, provided, that should the consent of any licensor of the
Seller, DSRM or any such Affiliate, as applicable, to such grant of the license
described herein be required, each of the Seller and DSRM hereby agrees, upon
the request of the Administrative Agent, to use its best efforts to obtain the
consent of such third-party licensor. Any license granted hereby shall be
irrevocable, and shall terminate on the date after the Termination Date on which
the Aggregate Ownership Interest shall have been reduced to zero.
ARTICLE IX: REPRESENTATIONS AND WARRANTIES
SECTION 9.1 Representations and Warranties of the Seller and the
Collection Agent. Each of the Seller and the Collection Agent makes, with
respect to itself, the following representations and warranties to the
Purchasers:
(a) The Seller is a limited liability company and the Collection Agent
is a corporation duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of organization and each is duly
qualified in good standing in each jurisdiction where the failure to be so
qualified could materially adversely affect its ability to perform its
obligations hereunder.
(b) The execution, delivery and performance by the Seller and the
Collection Agent of the Sale Documents to which they are party, and the Seller's
use of the proceeds of the Purchases, are within the Seller's and the Collection
Agent's respective company or corporate powers, have been duly authorized by all
necessary company or corporate action, do not contravene (i) the Seller's
certificate of formation or operating agreement or the Collection Agent's
certificate of incorporation or by-laws or (ii) applicable law or any material
contractual restriction binding on the Seller or the Collection Agent, and do
not result in or require the creation of any lien (other than pursuant hereto)
upon or with respect to any of their respective properties; and no transaction
contemplated hereby requires compliance with any bulk sales act or similar law.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Seller or the Collection
Agent of the Sale Documents, or for the perfection of Purchasers' Aggregate
Ownership Interest in the Receivables Assets, or exercise by the Seller of the
Seller's rights and remedies under the Credit Card Receivables Sale Agreement,
except for the filing of the financing statements referred to in Section 6.3.4.
<PAGE>
(d) The Sale Documents, when executed and delivered by the Seller and
the Collection Agent, will be the legal, valid and binding obligation of the
Seller and the Collection Agent, respectively, enforceable in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect affecting the enforcement of creditors' rights generally and
except as may be limited by general principles of equity (whether considered in
a suit at law or in equity).
(e) There is no pending, or to the knowledge of the Seller,
threatened, action or proceeding affecting the Seller or the Collection Agent
or any of its subsidiaries before any court, governmental agency or arbitrator
which is reasonably likely to materially adversely affect (i) its financial
condition or operations or (ii) its ability to perform its obligations under the
Sale Documents, or which is reasonably likely to affect the legality, validity
or enforceability of any Sale Document or of the Aggregate Ownership Interest.
(f) The Seller is the legal and beneficial owner of the Receivables
Assets free and clear of any lien, security interest, claim or encumbrance,
except as created by this Agreement, the Credit Card Receivables Sale Agreement
or the DSRMNB Participation Agreement; upon each Purchase, the Administrative
Agent, on behalf of the applicable Purchaser, will acquire a valid and perfected
first priority ownership interest in the Receivables Assets then existing or
thereafter arising and in the Collections with respect thereto, free and clear
of any lien, security interest, claim or encumbrance, except as created by this
Agreement, the Credit Card Receivables Sale Agreement or the DSRMNB
Participation Agreement.
(g) The information provided by the Seller to the Collection Agent for
use in each Receivables Activity Report prepared under Section 7.4 and all
written information and Sale Documents furnished or to be furnished at any time
by the Seller to the Administrative Agent in connection with this Agreement is
or will be accurate in all material respects as of their respective dates, and
no such document will contain any untrue statement of a material fact or will
omit to state a material fact necessary to make any such statement not
materially misleading.
(h) Each eceivables Activity Report and any other report prepared by
the Collection Agent pursuant to this Agreement will be accurate in all material
respects as of its date, and no such document will contain any untrue statement
of a material fact or will omit to state a material fact necessary to make any
such report not materially misleading.
(i) The chief place of business and chief executive office of the
Seller and the office where the Seller keeps its records concerning the
Receivables and the Receivables Assets are located at the address specified
below its signature to this Agreement. The chief place of business and chief
executive office of each of DSRMNB and DSRM, and the office where they maintain
their respective records concerning the Receivables are located at the addresses
specified on Schedule D.
<PAGE>
(j) The names and addresses of the Blocked Account Banks, together
with the account numbers of the Blocked Accounts, are specified in Schedule C
hereto (or at such other Blocked Account Banks and/or such other Blocked
Accounts as have been notified to the Administrative Agent).
(k) The Parent, the Seller, DSRM and DSRMNB are treating the con-
veyance of the Aggregate Ownership Interest in the Receivables Assets and the
Collections under the Sale Documents as a sale for purposes of generally
accepted accounting principles.
(l) Each Plan is in compliance with all of the applicable material
provisions of ERISA and each Plan intended to be qualified under Section 401(a)
of the Code is so qualified. No Plan has incurred an "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or Section 412 of the
Code) whether or not waived. Neither the Seller nor any ERISA Affiliate: (i) has
incurred or expects to incur any liability under Title IV of ERISA, with respect
to any Plan, which could give rise to a lien in favor of the PBGC, other than
liability for the payment of premiums, all of which have been timely paid when
due in accordance with Section 4007 of ERISA, (ii) has incurred or expects to
incur any withdrawal liability, within the meaning of Section 4201 of ERISA,
(iii) is subject to any lien under Section 412(n) of the Code or Sections 302(f)
or 4068 of ERISA or arising out of any action brought under Sections 4070 or
4301 of ERISA, or (iv) is required to provide security to a Plan under Section
401(a)(29) of the Code. The PBGC has not instituted proceedings to terminate any
Plan or to appoint a trustee or administrator of any such Plan and no
circumstances exist that constitute grounds under Section 4042 of ERISA to
commence any such proceedings.
(m) Each of the Seller, DSRMNB and DSRM has complied in all material
respects with the Credit and Collection Policies with respect to the
Receivables.
(n) Prior to a transfer pursuant to the Credit Card Receivables Sale
Agreement, DSRM shall be the legal and beneficial owner of the Receivables
Assets sold by DSRM to the Seller pursuant to the Credit Card Receivables Sale
Agreement free and clear of any lien, security interest or encumbrance except as
created by the DSRMNB Participation Agreement and the Credit Card Receivables
Sale Agreement is effective to, and shall, transfer to the Seller (and the
Seller shall acquire) from DSRM all right, title and interest of DSRM in each
such Receivable Asset and Collections with respect thereto free and clear of any
lien, security interest or encumbrance except as created by the DSRMNB
Participation Agreement.
(o) The Collection Agent (i) has completed a review and assessment of
all computer applications (including, but not limited to those of its suppliers,
vendors, customers and any third party servicers), which are related to or
involved in the origination, collection, management or servicing of the
Receivables (the "Receivable Systems") and (ii) has determined that such
Receivable Systems are (or will be on or before November 30, 1999) able to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999 ("Year 2000 Compliant"). The costs
of all assessment, remediation, testing and integration related to the
Collection Agent's plan for becoming Year 2000 Compliant will not have
materially and adversely affect the collectibility of the Receivables or the
business or operations of the Seller, DSRM, DSRMNB or the Parent.
<PAGE>
ARTICLE X: COVENANTS
SECTION 10.1. Affirmative Covenants of the Seller and the Collection
Agent. Until the Aggregate Ownership Interest is reduced to zero and no further
Purchases are to be made, each of the Seller and the Collection Agent (with
respect to itself) will, unless the Administrative Agent on behalf of the
Purchaser, has otherwise consented in writing:
(a) Comply in all material respects with all applicable laws, rules,
regulations and orders with respect to it, its business and properties and all
Receivables and Collections.
(b) Maintain its existence as a limited liability company (in the case
of the Seller) or corporation (in the case of the Collection Agent) in the state
of Delaware, and qualify and remain qualified in good standing in each
jurisdiction where the failure to be so qualified could materially adversely
affect its ability to perform its obligations hereunder.
(c) At any reasonable time, subject to reasonable prior notice of not
less than two Business Days (or one Business Day if the Administrative Agent is
investigating a potential Event of Liquidation), permit any Purchaser or its
agents or representatives to visit and inspect any of its properties, to examine
its books of account and other records and files relating to Receivables and
Receivables Assets (including, without limitation, computer tapes and disks) and
to discuss its affairs, business, finances and accounts as they relate to the
Receivables and Receivables Assets with its officers and employees.
(d) Maintain and implement administrative and operating procedures
(including, without limitation, an ability to recreate records evidencing the
Receivables and the Receivables Assets in the event of the destruction of the
originals thereof), and keep and maintain all records and other information,
reasonably necessary or advisable for the collection of Receivables and
Receivables Assets (including, without limitation, records adequate to permit
the daily identification of Receivables and all Collections and adjustments to
Receivables).
(e) At its expense timely and fully perform and comply in all material
respects with all material provisions and covenants required to be observed by
the Seller under the contracts related to the Receivables.
(f) Keep the Seller's places of business and chief executive office
(if the Seller has more than one place of business) and the office where it
keeps the originals of its records concerning the Receivables at the addresses
listed on Schedule D or, upon 30 days' prior written notice to the Administra-
tive Agent, at any other location in a jurisdiction where all UCC financing
statements and such other instruments and documents that may be necessary or
<PAGE>
desirable or that the Administrative Agent or any Purchaser may reasonably
request to perfect, protect or evidence the Aggregate Ownership Interest have
been filed.
(g) Comply in all material respects with the Credit and Collection
Policies in regard to each Receivable and any contract related to such
Receivable.
(h) File and maintain in effect all filings, and take all such other
actions, as may be necessary to protect the validity and perfection of the
Aggregate Ownership Interest in Receivables Assets.
(i) Cause each Plan to comply with all applicable provisions of ERISA.
(j) Not (i) permit any accumulated funding deficiency (as defined in
Section 302 of ERISA or Section 412 of the Code) to exist with respect to any
Plan, whether or not waived, (ii) fail, or permit any ERISA Affiliate to fail,
to pay any required installment or any other payment required under Section 412
of the Code with respect to any Plan on or before the due date for such
installment or other payment, (iii) terminate, or permit any ERISA Affiliate to
terminate, any Plan which would result in any liability of the Seller or any
ERISA Affiliate under Title IV of ERISA, (iv) take any action or fail to take
any action, or permit any ERISA Affiliate to take any action or fail to take any
action, with respect to any multiemployer plan (as defined in Section 3(37) of
ERISA) that will result in withdrawal liability of the Seller or any ERISA
Affiliate, or (v) amend, or permit any ERISA Affiliate to amend, a Plan
resulting in an increase in liabilities such that the Seller or any ERISA
Affiliate is required to provide security to such Plan under Section 401(a)(29)
of the Code.
(k) Treat the conveyance of the Aggregate Ownership Interest in the
Receivables Assets and the Collections under this Agreement and the other Sale
Documents as a sale for purposes of generally accepted accounting principles.
(l) At its own expense, timely and fully perform and comply in all
material respects with all material provisions, covenants and other promises
required to be observed by it under the Cardholder Agreements related to the
Receivables, and timely and fully comply in all material respects with the
Credit and Collection Policies in regard to each Receivable and the related
Cardholder Agreement.
(m) The Seller hereby acknowledges that the Purchasers are entering
into the transactions contemplated by this Agreement in reliance upon the
Seller's identity as a separate legal entity from the DSRMNB, DSRM, the Parent
or any Diamond Shamrock Entity (as defined below). Therefore, from and after the
date of execution and delivery of this Agreement, the Seller shall take all
reasonable steps including, without limitation, all steps that any Purchaser or
the Administrative Agent may from time to time reasonably request to maintain
the Seller's identity as a separate legal entity and to make it manifest to
third parties that the Seller is an entity with assets and liabilities distinct
from those of DSRMNB, DSRM, the Parent and any Affiliates (other than the
Seller) thereof (individually a "Diamond Shamrock Entity" and collectively the
<PAGE>
"Diamond Shamrock Entities"), and not just a division of any Diamond Shamrock
Entity. Without limiting the generality of the foregoing and in addition to and
consistent with the covenant set forth in paragraph (b) above, the Seller shall:
(i) require that all full-time employees of the Seller identity
themselves as such and not as employees of any Diamond Shamrock Entity
(including, without limitation, by means of providing appropriate employees
with business or identification cards identifying such employees as the
Seller's employees);
(ii) compensate all employees, consultants and agents for services
provided to the Seller by such employees, consultants and agents and, to
the extent any employee, consultant or agent of the Seller is also an
employee, consultant or agent of any Diamond Shamrock Entity, allocate the
compensation of such employee, consultant or agent between the Seller and
such Diamond Shamrock Entity on a basis which reflects the services
rendered to the Seller and such Diamond Shamrock Entity;
(iii) clearly identify its offices (by signage or otherwise) as its
offices;
(iv) allocate all overhead expenses (including, without limitation,
telephone and other utility charges) for items shared between the Seller
and any Diamond Shamrock Entity on the basis of actual use to the extent
practicable and, to the extent such allocation is not practicable, on a
basis reasonably related to actual use;
(v) ensure that all material company actions are duly authorized by
its Board of Management;
(vi) maintain the Seller's books and records separate from the
individual books and records of any other Diamond Shamrock Entity;
(vii) if required by generally accepted accounting principles,
prepare its financial statements separately from those of other Diamond
Shamrock Entities and, to the extent included in the consolidated
financial statements of the Diamond Shamrock Entities, indicate that
the Seller is a limited liability company separate from the other Diamond
Shamrock Entities included in such consolidated financial statements; and
(viii) not commingle funds or other assets of the Seller with those of
any other Diamond Shamrock Entity and not maintain bank accounts or other
depository accounts to which any other Diamond Shamrock Entity is an
account party, into which any other Diamond Shamrock Entity makes deposits
or from which any other Diamond Shamrock etity has the power to make
withdrawals.
<PAGE>
(n) With respect to each Receivable and the Participation Interest in
each Participating Receivable sold by DSRM to the Seller, pay to DSRM reasonably
equivalent value in consideration of the transfer of such Receivable or the
Participation Interest in such Participating Receivable, as applicable.
(o) Request that DSRM hold in trust and promptly turn over to the
Collection Agent any Collections received by DSRM on the Seller's behalf.
(p) The Collection Agent will promptly notify the Administrative Agent
in the event the Collection Agent discovers or determines that any computer
application (including those of its suppliers, vendors and customers) that is
necessary for the origination, collection, management, or servicing of the
Receivables will not be Year 2000 Compliant on or before November 30, 1999.
Further, the Collection Agent will deliver simultaneously with any quarterly or
annual financial statements or reports to be delivered under this Agreement, a
report signed by an appropriate officer that no material event, problems or
conditions have occurred which in the opinion of management would prevent or
materially delay the Collection Agent's plan to become Year 2000 Compliant.
SECTION 10.2. Reporting Requirements of the Seller. Until the Aggregate
Ownership Interest is reduced to zero and no further Purchases are to be made,
the Seller will, unless the Purchasers shall otherwise consent in writing,
furnish to the Administrative Agent for each Purchaser (or, in the case of (f)
below, assist the Collection Agent in furnishing to the Administrative Agent for
each Purchaser):
(a) (i) promptly and in any event within 30 Business Days after the
Seller or any ERISA Affiliate knows or has reason to know that a "reportable
event" (as defined in Section 4043 of ERISA) has occurred with respect to any
Plan and for which notice to the PBGC has not been waived by regulations, a
statement of an officer of the Seller setting forth details as to such
reportable event and the action that the Seller or an ERISA Affiliate proposes
to take with respect thereto, together with a copy of the notice of such
reportable event, if any, given to the PBGC, the Internal Revenue Service or the
Department of Labor; (ii) promptly and in any event within 10 Business Days
after receipt thereof, a copy of any notice the Seller or any ERISA Affiliate
may receive from the PBGC relating to the intention of the PBGC to terminate any
Plan or to appoint a trustee to administer any such Plan; (iii) promptly and in
any event within 10 Business Days after a filing with the PBGC pursuant to
Section 412(n) of the Code of a notice of failure to make a required installment
or other payment with respect to a Plan, a statement of an officer of the Seller
setting forth details as to such failure and the action that the Seller or an
ERISA Affiliate proposes to take with respect thereto, together with a copy of
such notice given to the PBGC; and (iv) promptly and in any event within 30
Business Days after receipt thereof by the Seller or any ERISA Affiliate from
the sponsor of a multiemployer plan (as defined in Section 3(37) of ERISA), a
copy of each notice received by the Seller or any ERISA Affiliate concerning the
imposition of withdrawal liability or a determination that a multiemployer plan
is, or is expected to be, terminated or reorganized;
<PAGE>
(b) as soon as possible and in any event within three Business Days
after the occurrence of any Event of Liquidation, written notice of such event;
(c) as soon as possible and in any event with five days after the
occurrence thereof, written notice of any material change in the Credit and
Collection Policies;
(d) such other information, documents, records or reports respecting
(i) the Receivables as the Purchaser may from time to time reasonably request or
(ii) in connection with any of the transactions contemplated by this Agreement
or the administration of this Agreement, the condition or operations, financial
or otherwise, of the Seller or any of its subsidiaries as the Purchaser may from
time to time reasonably request;
(e) together with each Receivables Activity Report, commencing with
the Receivables Activity Report to be delivered in the month of June, 1999, and
continuing until such time as all Receivables Systems are Year 2000 Compliant, a
report setting in forth in reasonable detail the status of efforts to cause all
Receivables Systems to be Year 2000 Compliant; and
(f) the Receivables Activity Report as required under Section 7.4,
together with a certificate of an officer of the Seller to the effect that all
of the representations and warranties contained in Section 9.1 are true and
correct in all material respects as of the date of delivery of each Receivables
Activity Report.
SECTION 10.3. Negative Covenants of the Seller and the Collection
Agent. Until the Aggregate Ownership Interest is reduced to zero and no further
Purchases are to be made, neither the Seller nor the Collection Agent, as
applicable, will, unless the Administrative Agent on behalf of the Purchasers
has otherwise consented in writing:
(a) Except as provided herein, sell, assign (by operation of law or
otherwise) or otherwise dispose of, or create or suffer to exist any security
interest, lien or encumbrance upon or with respect to Receivables, Receivables
Assets, Collections or the Blocked Accounts or assign any right to receive
income in respect thereof.
(b) Amend or otherwise modify the terms of any Receivable, or amend,
modify or waive any term or condition of any contract related thereto other than
in accordance with the Credit and Collection Policies and this Agreement.
(c) Make any change in the character of its business or in the Credit
and Collection Policies which would, in either case, be reasonably likely to
impair the collectibility or credit quality of any Receivables.
(d) Add or terminate any bank as a Blocked Account Bank from those
listed on Schedule C hereto, or make any change in its instructions to Obligors
regarding payments to be made to the Seller, unless the Purchaser shall have
received notice of such addition, termination or change, and with respect to the
<PAGE>
addition of any Blocked Account, a Blocked Account Agreement, executed by, as
applicable, the Seller, DSRM, DSRMNB, the Administrative Agent and such Blocked
Account Bank, shall have been delivered to the Administrative Agent, in each
case not later than the Settlement Date immediately following the end of the
calendar quarter in which such event occurred.
(e) Deposit or otherwise credit, or cause or permit to be so
deposited or credited, to any Blocked Account cash or cash proceeds other than
Collections.
(f) Amend or waive any provision of the DSRMNB Participation Agree-
ment, the Credit Card Receivables Sale Agreement or the DSRM Servicing
Agreement.
(g) In the case of the Seller, enter into or be a party to any
agreement or instrument, other than in the ordinary course of business, and
other than this Agreement, the Trade Receivables Purchase Agreement, the Credit
Card Receivables Sale Agreement, the Trade Receivables Sale Agreement, and each
"Revolving Note" (as defined in the Credit Card Receivables Sale Agreement and
the Trade Receivables Sale Agreement, respectively), or amend, modify or waive
any provision in any thereof, or give any approval or consent or permission
provided for in any thereof;
(h) In the case of the Seller, engage in any business or enterprise or
enter into any transaction other than as contemplated by this Agreement, the
Trade Receivables Purchase Agreement, the Credit Card Receivables Sale Agreement
and the Trade Receivables Sale Agreement; or
(i) Amend the Certificate of Formation or Limited Liability Agreement
of the Seller in any manner which requires unanimous consent of the Board of
Management thereof or which causes any other material change therein.
ARTICLE XI: INDEMNIFICATIONS; INCREASED COSTS; TAX MATTERS
SECTION 11.1. Indemnification by Seller of Purchasers, etc. Without
limiting any other rights which the Purchasers, the Administrative Agent and
their respective officers, directors, employees, agents and affiliates may have
hereunder or under applicable law, the Seller hereby indemnifies such parties
(each an "Indemnified Person") and holds them harmless from and against any and
all damages, losses, claims, liabilities and related costs and expenses
(including reasonable attorneys' fees and disbursements) incurred by any of them
arising out of or resulting from this Agreement or the purchase by any Purchaser
of any Ownership Interest in Receivables, including, without limitation:
(i) the reliance by the Administrative Agent or the Purchasers on
any representation or warranty made by the Seller (or any of its officers)
under or in connection with this Agreement or any Sale Document, which was
incorrect in any material respect when made;
<PAGE>
(ii) the failure by the Seller or the Collection Agent to comply
with any covenant set forth in this Agreement, whether as Seller, Collection
Agent or otherwise;
(iii) the failure to vest and maintain in the Purchaser, or to
transfer to the Purchasers, legal and equitable title to, and ownership of, an
undivided percentage ownership interest (to the extent of the Ownership
Interest) in the Receivables Assets, free and clear of any security interest,
lien, claim or encumbrance other than any in favor of the Administrative Agent
or any Purchaser that may be created under this Agreement;
(iv) the transfer by the Seller of an undivided percentage owner-
ship interest in any Receivables other than the Ownership Interest;
(v) the Seller's use of proceeds of the Purchases;
(vi) the failure timely to file financing statements or other
similar instruments or documents under the Uniform Commercial Code of any
applicable jurisdiction or other applicable laws with respect to any
Receivables, whether at the time of a Purchase or otherwise;
(vii) the return or transfer by the Collection Agent of any portion
of Collections allocable to the Ownership Interest to the Seller or any other
person for any reason whatsoever;
(viii) any dispute, claim, offset or defense of any Obligor to the
payment of any Receivable (including a defense based on such Receivable's or the
related contract's not being a legal, valid and binding obligation of such
Obligor enforceable against it in accordance with its terms), or any other claim
resulting from the sale, use, operation or ownership of or defects in or
breaches of warranties with respect to, the merchandise or services relating to
such Receivable or the furnishing or failure to furnish such merchandise or
services;
(ix) the Seller's failure to pay when due any taxes (including
sales, excise or personal property taxes) payable in connection with the
Receivables;
(x) the commingling of Collections with other funds of the Seller;
or
(xi) the failure by the Seller to comply with any applicable law,
rule or regulation with respect to any Receivable, or the nonconformity of any
Receivable with any such applicable law, rule or regulation.
If and to the extent that the foregoing undertaking may be unenforceable for any
reason, the Seller hereby agrees to make the maximum contribution to the payment
of the amounts indemnified against in this Section which is permissible under
applicable law. The obligation of Seller to indemnify as set forth above shall
not include damages, losses, claims, liabilities or related costs or expenses,
arising solely from (i) except as otherwise provided in this Agreement,
Receivables becoming Defaulted Receivables pursuant clause (2) or (3) of the
definition of "Defaulted Receivable,", or (ii) gross negligence or willful
misconduct of an Indemnified Person seeking indemnification.
<PAGE>
SECTION 11.2. Indemnification Due to Failure to Consummate Purchase.
The Seller will indemnify the Purchaser on demand and hold it harmless against
all costs (including, without limitation, breakage costs) and expenses resulting
from any failure by the Seller (i) to consummate a Purchase after the Purchaser
has accepted an offer from the Seller to make such Purchase or (ii) to fulfill
its obligations pursuant to Section 6.2, and the Purchaser will indemnify the
Seller on demand and hold it harmless against all costs (including, without
limitation, breakage costs) and expenses resulting from any failure by (i) the
Conduit Purchaser to pay the required purchase price after it has accepted an
offer to Purchase from the Seller, (ii) the Conduit Purchaser to fulfill its
obligations pursuant to Section 6.2 or (iii) the Back-Stop Purchaser to pay the
required purchase price after a proper request from the Seller for such
purchase..
SECTION 11.3. Increased Costs. If due to either: (i) the introduction
of or any change (including, without limitation, any change by way of imposition
or increase of reserve requirements) in or in the interpretation by any
governmental or regulatory authority or agency of any law or regulation (other
than laws or regulations relating to taxes) or (ii) the compliance by any
Purchaser or any lender under any Liquidity Facility or Credit Facility (each, a
"Conduit Lender") with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), (1) there shall
be an increase in the cost to the Purchaser or such Conduit Lender of accepting,
funding or maintaining any Purchase hereunder, (2) there shall be a reduction in
the amount receivable with regard to any Purchase or (3) such Purchaser or
Conduit Lender shall be required to make a payment calculated by reference to
the Purchases made hereunder or Purchase Discount received by it, then the
Seller shall, from time to time, within 30 days from the date the Administrative
Agent makes demand therefor, pay the Administrative Agent for the account of the
applicable Purchaser or Conduit Lender (as a third party beneficiary in the case
of any Conduit Lender), that portion of such increased costs incurred, amounts
not received or required payment made or to be made, which the Administrative
Agent reasonably determines is attributable to accepting, funding and
maintaining any Purchase hereunder. In determining such amount, the
Administrative Agent may use any reasonable averaging and attribution methods.
The applicable Purchaser or Conduit Lender shall submit to the Seller a
certificate as to the existence and amounts of such increased costs incurred,
amounts not received or receivable or required payment made or to be made, which
certificate shall, in the absence of manifest error, be presumptively correct
for all purposes. Any Affected Party that incurs such increased costs as
described in this Section 11.3 shall use its reasonable efforts (consistent with
its internal policy and legal and regulatory restrictions) to take such steps as
would eliminate or reduce the amount of such increased costs; provided, that no
such steps shall be required to be taken if, in the reasonable judgment of such
Affected Party, such steps would be disadvantageous to such Affected Party.
SECTION 11.4. Increased Capital. If either (i) the introduction of or
any change in or in the interpretation by any governmental or regulatory
authority or agency of any law or regulation or (ii) compliance by any Pur-
chaser, the Administrative Agent, any Conduit Lender or any parent company of
<PAGE>
the foregoing (each an "Affected Party") with any guideline or request from any
central bank or other governmental authority (whether or not having the force of
law) affects or would affect the amount of capital required or expected to be
maintained by such Affected Party or such Affected Party reasonably determines
that the amount of such capital is increased by or based upon the existence of
any Purchaser's agreement to make or maintain or to consider making or main-
taining Purchases hereunder and other similar agreements or facilities, then,
within 30 days from the date such Affected Party or the Administrative Agent
makes demand therefor, the Seller shall immediately pay to such Affected Party
(as a third party beneficiary, in the case of any Affected Party other than a
Purchaser or the Administrative Agent) or the Administrative Agent for the
account of such Affected Party from time to time, as specified by such Affected
Party or the Administrative Agent, additional amounts sufficient to compensate
such Affected Party in light of such circumstances, to the extent that such
Affected Party or the Administrative Agent on behalf of such Affected Party
reasonably determines such increase in capital to be allocable to the existence
any agreement of a Purchaser hereunder. A certificate as to the existence and
amounts of such increases shall be submitted to the Seller by such Affected
Party or the Administrative Agent, shall, in the absence of manifest error, be
presumptively correct for all purposes. Any Affected Party that is entitled to
compensation for increases in capital as described in this Section 11.4 shall
use its reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions) to take such steps as would eliminate or reduce the
amount of such compensation; provided, that no such steps shall be required to
be taken if, in the reasonable judgment of such Affected party, such steps would
be disadvantageous to such Affected Party.
SECTION 11.5. Taxes. (a) Any and all payments and deposits required
to be made hereunder or under any instrument delivered hereunder by the Seller
shall be made, in accordance with Section 7.2, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding, in
the case of an Affected Party, net income taxes that are imposed by the United
States and franchise taxes and similar taxes and net income taxes, that are
imposed on such Affected Party by the state or foreign jurisdiction under the
laws of which such Affected Party is organized or in which it is otherwise doing
business or any political subdivision thereof (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Seller or the Collection Agent shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder to any Affected Party, (i) the Seller shall make an additional payment
to such Affected Party, in an amount sufficient so that, after making all
required deductions (including deductions applicable to additional sums payable
under this Section 11.5), such Affected Party receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Seller or
the Collection Agent, as the case may be, shall make such deductions and (iii)
the Seller or the Collection Agent, as the case may be, shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, the Seller agrees to pay any present or future stamp
or other documentary taxes or any other excise or property taxes charges or
similar levies which arise from any payment made hereunder or under any
<PAGE>
instrument delivered hereunder or from the execution, delivery or registration
of, or otherwise with respect to, this Agreement or any instrument delivered
hereunder (hereinafter referred to as "Other Taxes").
(c) The Seller will indemnify each Affected Party (as a third party
beneficiary, in the case of any Affected Party other than a Purchaser or the
Administrative Agent) for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section 11.5(c)) paid by such Affected Party and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within 30 days from the
date the Affected Party makes written demand therefor. A certificate as to the
existence and amount of such indemnification shall be submitted to the Seller by
such Affected Party, setting forth the calculation thereof, and shall, in the
absence of manifest error, be presumptively correct for all purposes.
(d) Within 30 days after the date of any payment of Taxes, the Seller
will furnish to the Administrative Agent the original or a certified copy of a
receipt evidencing payment thereof.
(e) Any Affected Party that is entitled to the payment of any
additional amount pursuant to this Section 11.5 shall use its reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to
take such steps as would eliminate or reduce the amount of payment; provided,
that no such steps shall be required to be taken if, in the reasonable judgment
of such Affected party, such steps would be disadvantageous to such Affected
Party.
SECTION 11.6. Notices. Each Purchaser shall notify the Seller within 30
Business Days of its knowledge of a claim for which it intends to seek
indemnification under Section 11.1 or reimbursement under Section 11.5 from the
Seller. The Seller shall provide reasonable assistance to the parties
indemnified under Section 11.1, to the extent reasonably requested by them, in
any action, suit or proceeding brought by or against them in connection with the
indemnification granted herein. The Seller hereby agrees that if it assumes
control of the defense in any action, suit or proceeding brought by or against
any Indemnified Party, the outcome of any such proceeding will be subject to the
indemnification provisions of Article XI of this Agreement. Each Purchaser shall
notify the Seller of a claim for which it intends to seek reimbursement under
Sections 11.3 or 11.4 from the Seller; provided, however, that in connection
with any such notice, the applicable Purchaser shall not be entitled to receive
reimbursement in respect of any otherwise reimbursable amount under Section 11.3
or 11.4 to the extent that such amount was incurred more than 60 days prior to
the date of such notice.
ARTICLE XII: MISCELLANEOUS
SECTION 12.1. Amendments, Etc. No amendment or waiver of, or con-
sent to the Seller's departure from, any provision of this Agreement shall be
effective unless it is in writing and signed by the parties hereto and then such
<PAGE>
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which it was given.
SECTION 12.2. Notices, Etc. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing or
by a telecommunications device capable of creating a written record, and sent,
as to each party hereto, at its address set forth under its name on the
signature pages hereto, or at such other address as shall be designated by such
party in a written notice to the other parties hereto. All such notices and
communications shall be effective (a) upon personal delivery thereof, including,
but not limited to, delivery by overnight mail and courier service, (b) upon
receipt after it shall have been mailed by United States mail, first class or
certified or registered, with postage prepaid, or (c) in the case of notice by
such a telecommunications device, when properly transmitted, except that notices
and communications to an Purchaser pursuant to Section 6.2 shall be effective
when received by such Purchaser.
SECTION 12.3. [Reserved].
SECTION 12.4. No Waiver; Remedies. No failure on the part of the
Administrative Agent or any Purchaser to exercise, and no delay in exercising,
any right hereunder or under any Sale Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 12.5. Binding Effect; Assignability. (a) This Agreement shall
be binding upon and inure to the benefit of the Seller, each Purchaser, the
Administrative Agent and their respective successors and assigns, except that
the Seller shall not have the right to assign any interest herein without the
prior written consent of each Purchaser and the Administrative Agent, and the
Purchaser shall not have the right to assign any interest herein except in
accordance with paragraph (b) below. This Agreement shall create and constitute
the continuing obligation of the parties hereto in accordance with its terms,
and shall remain in full force and effect until such time as the Ownership
Interest is reduced to zero and no further Purchases are to be made; provided,
however, that rights and remedies of the Purchasers and the Administrative Agent
under Article XI and Section 5.3 and the provisions of Section 12.11 shall
survive any termination of this Agreement.
(b) The Conduit Purchaser may assign its interests hereunder without
the consent of the Seller, to CIBC, any affiliate of CIBC, any financial
institution providing a Liquidity Facility or Credit Facility or any vehicle
organized by CIBC or by any affiliate thereof. Any Purchaser may assign its
interests hereunder to any other Person with the prior written consent of
Seller, such consent not to be unreasonably withheld. Upon any assignment by a
Purchaser, the assignee shall become the owner of the Purchaser's interest in
the Receivables Assets purchased hereunder for all purposes of this Agreement.
Upon any assignment, the assignee thereof shall have all the rights and
obligations of a Purchaser under this Agreement, and shall be subject to the
same terms and conditions of this Agreement. The parties to this Agreement
acknowledge that the Conduit Purchaser has assigned and shall be permitted to
<PAGE>
continue to assign (without consent) to CIBC, as collateral agent for the
benefit of the holder of the debt instruments issued by the Conduit Purchaser, a
security interest in all of the Conduit Purchaser's right, title and interest in
and to, among other things, all rights of the Conduit Purchaser in and to this
Agreement and other securitization agreements entered into by the Conduit
Purchaser with other sellers and the assets purchased from or assigned by such
other sellers pursuant thereto.
SECTION 12.6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 12.7. Construction of the Agreement. The parties hereto intend
that the conveyance of the Ownership Interest in Receivables Assets by the
Seller to the Purchasers shall be treated as sales for purposes of generally
accepted accounting principles. If, despite such intention, a determination is
made that such transactions shall not be treated as sales, then this Agreement
shall be interpreted to constitute a security agreement and the transactions
effected hereby shall be deemed to constitute a secured financing by the
Purchasers to the Seller under applicable law. For such purpose, the Seller
hereby grants to the Administrative Agent for the benefit of the Purchasers a
continuing security interest to the extent of such Ownership Interest in the
Receivables Assets and Collections to secure the obligations of the Seller to
the Purchasers hereunder.
SECTION 12.8. No Proceedings. The Seller, the Back-Stop Purchaser, the
Administrative Agent and the Collection Agent each hereby agrees that it will
not institute against the Conduit Purchaser any bankruptcy, reorganization,
insolvency or similar proceeding under any federal or state bankruptcy or
similar law, for one year and a day after the latest maturing commercial paper
note or other rated indebtedness (whether or not issued to fund the purchase or
maintenance of the Ownership Interest hereunder) issued by the Conduit Purchaser
is paid.
SECTION 12.9. Confidentiality. The Purchasers and the Administrative
Agent agree to maintain the confidentiality of any information regarding the
Seller, the Collection Agent or the Receivables obtained in accordance with the
terms of this Agreement which is not publicly available, but any Purchaser or
the Administrative Agent may reveal such information (a) to applicable rating
agencies, liquidity providers and credit providers, provided that such liquidity
providers and credit providers agree to maintain the confidentiality of such
information on the same terms that Purchaser is required to do so hereunder, (b)
as reasonably necessary or appropriate in connection with the administration or
enforcement of this Agreement, (c) as reasonably necessary or appropriate in
connection with its funding of purchases under this Agreement, provided that any
private third parties to whom such information is disclosed agree to maintain
the confidentiality of such information on the same terms as the Purchaser is
required to do so hereunder, (d) as required by law, government regulation,
court proceeding or subpoena or (e) to bank regulatory agencies and examiners.
<PAGE>
SECTION 12.10. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement.
SECTION 12.11. Severability Clause. Any provisions of this Agreement
which are prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 12.12. SUBMISSION TO JURISDICTION; APPOINTMENT OF
AGENT TO ACCEPT SERVICE OF PROCESS.
(A) THE SELLER AND THE COLLECTION AGENT HEREBY SUBMIT TO THE
NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF ANY
FEDERAL COURT LOCATED IN SUCH STATE IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF
THE SELLER AND THE COLLECTION AGENT IRREVOCABLY WAIVES ANY OBJECTION WHICH IT
MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH PROCEEDING AND ANY CLAIM THAT ANY
SUCH PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(B) EACH OF THE SELLER AND THE COLLECTION AGENT HAS IRREVOCABLY
APPOINTED CT CORPORATION SYSTEM AS ITS AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE
FOR AND ON ITS BEHALF, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES
AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH PROCEEDING BROUGHT IN ANY SUCH
COURT WHICH MAY BE MADE ON SUCH AGENT. IF FOR ANY REASON SUCH AGENT SHALL CEASE
TO BE AVAILABLE TO ACT AS SUCH, EACH OF THE SELLER AND THE COLLECTION AGENT
AGREES TO DESIGNATE A NEW AGENT IN THE CITY OF NEW YORK ON THE TERMS AND FOR THE
PURPOSES OF THIS SECTION 12.11 SATISFACTORY TO THE PURCHASER.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their duly authorized officers as of the date set forth on the cover page of
this Agreement.
COYOTE FUNDING, L.L.C.
as Seller
By: /s/ Steve Blank
Name: Steve Blank
Title: Vice President and Treasurer
Address: 6000 North Loop 1604 West
San Antonio, Texas 78249-1112
Attention: Treasurer
Telephone No.: (210) 592-2000
Facsimile No.: (210) 592-2010
DIAMOND SHAMROCK REFINING AND
MARKETING COMPANY
as Collection Agent
By: /s/ Steve Blank
Name: Steve Blank
Title: Vice President and Treasurer
Address: 6000 North Loop 1604 West
San Antonio, Texas 78249-1112
Attention: Treasurer
Telephone No.: (210) 592-2000
Facsimile No.: (210) 592-2010
ASSET SECURITIZATION COOPERATIVE
CORPORATION,
as Conduit Purchaser
By: /s/ Dean Kurdyla
Name: Dean Kurdyla
Title: Controller
Address: 425 Lexington Avenue
New York, New York 10017
Attention: Asset Securitization Group
Telecopier: (212) 856-3643
CANADIAN IMPERIAL BANK OF COMMERCE,
as Back-Stop Purchaser
By: /s/ John Gevlin
Name: John Gevlin
Title: Authorized Signatory
Address: 425 Lexington Avenue
New York, New York 10017
Attention: Asset Securitization Group
Telecopier: (212) 856-3643
CANADIAN IMPERIAL BANK OF COMMERCE,
as Administrative Agent
By: /s/ John Gevlin
Name: John Gevlin
Title: Authorized Signatory
Address: 425 Lexington Avenue
New York, New York 10017
Attention: Asset Securitization Group
Telecopier: (212) 856-3643
EXECUTION COPY
TRADE RECEIVABLES PURCHASE AGREEMENT
among
COYOTE FUNDING, L.L.C.
as Seller,
DIAMOND SHAMROCK REFINING AND MARKETING COMPANY
as Collection Agent,
ASSET SECURITIZATION COOPERATIVE CORPORATION
as Conduit Purchaser,
CANADIAN IMPERIAL BANK OF COMMERCE
as Back-Stop Purchaser and as Administrative Agent
Dated as of March 29, 1999
<PAGE>
TABLE OF CONTENTS
Article Page
- ------- ----
ARTICLE I: DEFINITIONS........................................................1
ARTICLE II: PURCHASE FACILITY................................................14
SECTION 2.1. Purchase Facility.......................................14
SECTION 2.2. Extension or Acceleration of the Termination Date.......14
ARTICLE III: SALE OF OWNERSHIP INTEREST......................................15
SECTION 3.1. Determination of Ownership Interest.....................15
SECTION 3.2. Frequency of Determining Aggregate Ownership
Interest................................................16
SECTION 3.3. Maximum Ownership Interest..............................17
SECTION 3.4. Lock Boxes, Blocked Accounts and Collections............17
ARTICLE IV: PURCHASE PRICE...................................................18
SECTION 4.1. Determination of Cash Component of Purchase Price.......18
SECTION 4.2. Determination of Deferred Payment Component of
Purchase Price..........................................18
ARTICLE V: FEES AND EXPENSES.................................................18
SECTION 5.1. Settlement Date Payments................................18
SECTION 5.1.1 Purchase Discount.................................19
SECTION 5.1.2. Purchase Premium.................................19
SECTION 5.1.3. Operating Expense Fee............................19
SECTION 5.1.4. Collection Agent Fee.............................20
SECTION 5.1.5. Administration Fee...............................20
SECTION 5.2. Unused Facility Fee.....................................20
SECTION 5.3. Structuring Fee.........................................20
SECTION 5.4. Legal Fees and Expenses.................................20
SECTION 5.5. Interest on Unpaid Amounts..............................21
SECTION 5.6. Audits..................................................21
ARTICLE VI: PURCHASE PROCEDURES..............................................21
SECTION 6.1. Types of Purchases......................................21
SECTION 6.2. Notice Requirements.....................................21
SECTION 6.3. Conditions Precedent to Initial Purchase................22
SECTION 6.3.1. Membership in the Purchaser......................22
SECTION 6.3.2. Fees.............................................22
SECTION 6.3.3. Absence of Liens.................................22
SECTION 6.3.4. Financing Statements.............................22
SECTION 6.3.5. Trade Receivables Sale Agreement; Transfer
Agreement........................................23
SECTION 6.3.6. Receivables Activity Report......................23
<PAGE>
SECTION 6.3.7. Resolutions......................................23
SECTION 6.3.8. Legal Opinion of Seller's and DSRM's and the
Parents's Counsel................................23
SECTION 6.3.9. Good Standing Certificates.......................23
SECTION 6.3.10. Performance Support Agreement...................23
SECTION 6.3.11. Lock-Box and Blocked Account Agreements.........23
SECTION 6.4. Condition Precedent to All Incremental Purchases........24
SECTION 6.5. Conditions Precedent to All Purchases...................24
SECTION 6.5.1. Representations and Covenants....................24
SECTION 6.5.2. Notice...........................................24
SECTION 6.5.3. Other Documents..................................24
ARTICLE VII: SETTLEMENT PROCEDURES...........................................24
SECTION 7.1. Settlement Date.........................................24
SECTION 7.2. Application of Collections..............................25
SECTION 7.2.1. Application of Collections on Days That Are
Not Settlement Dates.............................25
SECTION 7.2.2. Application of Collections on Settlement
Dates............................................25
SECTION 7.3. Adjustments, Etc........................................26
SECTION 7.4. Receivables Activity Report.............................27
ARTICLE VIII: ADMINISTRATIVE AGENT AND COLLECTION AGENT.......................27
SECTION 8.1. Appointment of Administrative Agent.....................27
SECTION 8.1.1 Replacement of Administrative Agent...............27
SECTION 8.2. Appointment of Collection Agent.........................27
SECTION 8.2.1. Replacement of Collection Agent; Notification
of Obligors......................................28
ARTICLE IX: REPRESENTATIONS AND WARRANTIES...................................29
SECTION 9.1. Representations and Warranties of the Seller and
the Collection Agent....................................29
ARTICLE X: COVENANTS.........................................................32
SECTION 10.1. Affirmative Covenants of the Seller and the
Collection Agent...............................................32
SECTION 10.2. Reporting Requirements of the Seller...................35
SECTION 10.3. Negative Covenants of the Seller and the
Collection Agent...............................................36
<PAGE>
ARTICLE XI: INDEMNIFICATIONS; INCREASED COSTS................................38
SECTION 11.1. Indemnification by Seller of the Purchasers, etc.......38
SECTION 11.2. Indemnification Due to Failure to Consummate
Purchase...............................................39
SECTION 11.3. Increased Costs........................................40
SECTION 11.4. Increased Capital......................................40
SECTION 11.5. Taxes..................................................41
SECTION 11.6. Notices................................................42
ARTICLE XII: MISCELLANEOUS...................................................43
SECTION 12.1. Amendments, Etc........................................43
SECTION 12.2. Notices, Etc...........................................43
SECTION 12.3. [Reserved].............................................43
SECTION 12.4. No Waiver; Remedies....................................43
SECTION 12.5. Binding Effect; Assignability..........................43
SECTION 12.6. GOVERNING LAW..........................................44
SECTION 12.7. Construction of the Agreement..........................44
SECTION 12.8. No Proceedings.........................................44
SECTION 12.9. Confidentiality........................................44
SECTION 12.10. Execution in Counterparts.............................45
SECTION 12.11. Severability Clause...................................45
SECTION 12.12. SUBMISSION TO JURISDICTION; APPOINTMENT OF AGENT
TO ACCEPT SERVICE OF PROCESS..........................45
<PAGE>
EXHIBITS
Exhibit A Form of Notice for Initial and Incremental Purchases
Exhibit B-1 Form of Notice of Election Not to Make Reinvestment Purchase
Exhibit B-2 Form of Notice of Election to Suspend Purchases and of Payment of
Reduction in Investment
Exhibit C Form of Membership Agreement
Exhibit D Form of Lock-Box Agreement
Exhibit E Form of Blocked Account Agreement
Exhibit F Form of Receivables Activity Report
SCHEDULES
Schedule A Special Concentration Limits
Schedule B Credit and Collection Policies
Schedule C List of Lock-Box Banks
Schedule D List of Blocked Account Banks
Schedule E List of Addresses for the Seller and the Originators
<PAGE>
This TRADE RECEIVABLES PURCHASE AGREEMENT (this "Agreement") is entered
into as of March 29, 1999 by and among COYOTE FUNDING, L.L.C., a Delaware
limited liability company, as Seller (the "Seller"), DIAMOND SHAMROCK REFINING
AND MARKETING COMPANY ("DSRM", but when acting in its capacity as the collection
agent hereunder, the "Collection Agent"), ASSET SECURITIZATION COOPERATIVE
CORPORATION, ("ASCC", or the "Conduit Purchaser"), CANADIAN IMPERIAL BANK OF
COMMERCE, ("CIBC", and together with its successors and assigns, the Back-Stop
Purchaser"), and CIBC as agent (the "Administrative Agent") for the Purchasers.
ARTICLE I: DEFINITIONS
As used in this Agreement, the following terms shall have the specified
meanings and shall include in the singular number the plural and in the plural
number the singular:
"Administration Fee" means the percentage used to determine the fee
payable by the Seller to the Back-Stop Purchaser, as described in Section 5.1.5.
"Administrative Agent" means CIBC and any replacement thereof
under Section 8.1.1.
"Affected Party" has the meaning specified in Section 11.4.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by or is under common control with
such Person or is a director or officer of such Person.
"Aggregate Charge-Offs" means, for any date of determination, the
aggregate outstanding balance of all Receivables that became Charge-Offs during
the preceding period of 12 consecutive calendar months.
"Aggregate Ownership Interest" means at any time, the Ownership
Interests of all Purchasers at such time.
"Agreement" means this Trade Receivables Purchase Agreement, as it may
be amended, restated, supplemented or otherwise modified from time to time.
"Alternative Rate" for any Settlement Period means an interest rate per
annum equal to the sum of (a) the LIBO Rate (Reserve Adjusted) plus (b) 0.50%;
provided, however, that (i) in the case of any Settlement Period of less than
one month, the LIBO Rate (Reserve Adjusted) under clause (a) above shall be
calculated as if such Settlement Period has a duration of one month unless the
Administrative Agent and the Collection Agent agree in writing to a different
<PAGE>
rate; (ii) if it shall become unlawful for CIBC to obtain funds in the London
interbank market in order to make, fund or maintain any Purchase hereunder or
deposits in dollars (in the applicable amounts) are not being offered by CIBC in
the London interbank market then the "Alternative Rate" for any Settlement
Period shall be calculated using an interest rate per annum equal to the Base
Rate; and (iii) following the occurrence of an Event of Liquidation, the
"Alternative Rate" for each Payment Period shall be the sum of the applicable
interest rate per annum determined pursuant to provisions set forth above plus
2.0% per annum.
"Back-Stop Purchaser" means CIBC and its successors and assigns.
"Base Rate" means, on any date, a fluctuating rate of interest per
annum equal to the higher of (a) the Prime Rate and (b) the Federal Funds Rate
plus 1.0%.
"Blocked Account" means any blocked account established in the name of
the Seller to which the Collection Agent shall deposit Collections or to which
the Collection Agent shall cause Collections to be electronically transferred
directly in accordance with the terms of this Agreement.
"Blocked Account Agreement" means the agreement in the form of Exhibit
E hereto executed among the Seller, DSRM, the Administrative Agent and a Blocked
Account Bank.
"Blocked Account Bank" means any bank listed on Schedule D.
"Business Day" means a day other than a Saturday or a Sunday on which
each of the Conduit Purchaser, the Back-Stop Purchaser, the Administrative
Agent, the Collection Agent and the Seller is open for business.
"Charge-Off" means any receivable that has been or should have been
charged-off in conformity with the then current Credit and Collection Policies.
"Charge-Off Ratio" means, as of any date of determination, a fraction,
expressed as a percentage, the numerator of which is the Aggregate Charge-Offs
and the denominator of which is the aggregate outstanding balance of the
Receivables as of the last day of the month most recently completed.
"CIBC" means Canadian Imperial Bank of Commerce.
"Code" means the Internal Revenue Code of 1986, as amended.
<PAGE>
"Collections" means, with respect to any Receivable, all funds which
are received by the Seller or the Collection Agent in payment of any amounts
owed in respect of such Receivable (including, without limitation, finance
charges, interest and all amounts received by the Seller pursuant to Section
7.3(b)(i) hereof), applied to amounts owed in respect of such Receivable
(including, without limitation, insurance payments and net proceeds of the sale
or other disposition of repossessed goods or other collateral or property of the
related Obligor or any other Person directly or indirectly liable for the
payment of such Receivable and available to be applied thereon).
"Collection Agent" means DSRM or any replacement thereof under
Section 8.2.1.
"Collection Agent Fee" means the percentage used to determine the fee
payable by the Purchasers to the Collection Agent, as described in Section
5.1.4.
"Commencement Date" means the date following the Conduit Purchaser's
election not to make any further purchases under this Agreement, provided that
no Event of Liquidation has occurred.
"Concentration Limit" means, with respect to any Obligor, the Standard
Concentration Limit or the Special Concentration Limit, as applicable.
"Conduit Lender" has the meaning specified in Section 11.3.
"Conduit Purchaser" means Asset Securitization Cooperative Corporation,
a California cooperative corporation, and its successors and assigns.
"Credit and Collection Policies" means the written Credit and
Collection Policies utilized by the Seller and the Originators, attached hereto
as Schedule B, as the same shall be supplemented or otherwise modified in strict
compliance with this Agreement.
"Credit Card Receivables Purchase Agreement" means the Credit Card
Receivables Purchase Agreement of even date herewith among the Seller, DSRM, the
Conduit Purchaser, the Back-Stop Purchaser and the Administrative Agent relating
to a portfolio of credit card receivables originated by certain Affiliates of
the Seller and serviced by DSRM.
"Credit Card Receivables Sale Agreement" means the Credit Card
Receivables Sale Agreement of even date herewith between DSRM and the Seller, as
amended, restated, supplemented or otherwise modified from time to time.
<PAGE>
"Credit Facilities" means each of the committed loan facilities, lines
of credit, letters of credit, surety bonds and other forms of credit enhancement
available to the Conduit Purchaser to support the Conduit Purchaser's commercial
paper and which are not Liquidity Facilities.
"Days Sales Outstanding" means, in respect of any month, a number of
days equal to the product of (a) the number of days in such month and (b) (i)
the aggregate outstanding balance of all Receivables as of the end of such
month, divided by (ii) the aggregate outstanding balance of all Receivables
generated during such month.
"Default Ratio" means, as of any date of determination, a fraction,
expressed as a percentage, the numerator of which is (A) the sum of (i) the
aggregate outstanding balance of all Receivables that became Defaulted
Receivables during the month most recently ended and (ii) the Aggregate
Charge-Offs, and (B) the denominator of which is the aggregate outstanding
balance of all Receivables on the last Business Day of the month most recently
ended.
"Defaulted Receivable" means any Receivable (the amount of which shall
be determined from the Seller's aged trial balance) which, without duplication:
(1) all or any portion of which remains unpaid more than 30 but
fewer than 61 days past the date on which it was due; or
(2) is owed by an Obligor that is in bankruptcy, reorganization,
insolvency or similar proceedings.
"Delinquency Ratio" means, as of any date of determination, a fraction,
expressed as a percentage, the numerator of which is the aggregate outstanding
balance of all Receivables that were unpaid for more than 21 days but fewer than
30 days past the dates on which they were due as of the end of the month most
recently ended, and the denominator of which is the aggregate outstanding
balance of all Receivables as of such date.
"Diamond Shamrock Entity" has the meaning specified in Section 10.1(m).
"DSRM" means Diamond Shamrock Refining and Marketing Company, a
Delaware corporation, and its successors.
"Dilution Ratio" means, as of the last day of any month, a fraction,
expressed as a percentage, the numerator of which is the aggregate amount of
Dilutions for the most recently completed calendar month and the denominator of
which is the aggregate outstanding balance of all Receivables as of such day.
<PAGE>
"Dilution Reserve" means, as of any date of determination, an amount
equal to (a) the product of (1) the outstanding balance of Eligible Receivables
as at the end of the calendar month most recently ended and (2) 2.00 times the
greatest of the Dilution Ratios determined for each calendar month during the
period of twelve (12) months preceding such date of determination less (b) the
Standard Concentration Limit.
"Dilutions" means the aggregate amount of any reductions and
cancellations of Receivables which have been reduced or canceled, respectively,
by reason of return, discount (including, without limitation, early payment
discounts) or other adjustment.
"Eligible Receivable" means any Receivable:
(1) which is not unpaid for more than 20 days past the date on
which it was due;
(2) which is required to be paid in full within no more than 30
days of the date on which it was billed;
(3) which is payable only in U.S. dollars;
(4) which is not a Defaulted Receivable or a Charge-Off;
(5) the Obligor of which has not been at any time during the
period of 12 consecutive months ending on the date of
determination, (A) the Obligor of a Charge-Off in conformity
with the then current Credit and Collections Policies or (B)
in bankruptcy, reorganization, insolvency or similar
proceedings.
(6) the Obligor of which is a U.S. resident and is not an
Affiliate of the Originators or the Seller;
(7) which is not subject to any dispute, claim, defense or offset;
(8) which is an "account" or a "general intangible" within the
meaning of the Uniform Commercial Code of the State in which
is located the Seller's place of business or, if the Seller
has more than one place of business, the Seller's chief
executive office;
(9) which arose from a bona fide sale of merchandise or the
rendering of services accepted by the Obligor of that
Receivable and was acquired from DSRM pursuant to the Trade
Receivables Sale Agreement;
<PAGE>
(10) in which the applicable Purchaser shall, upon the Purchase of
an Ownership Interest therein, acquire good and marketable
title to the Ownership Interest therein, free and clear of all
liens, security interests and encumbrances other than any in
favor of any Purchaser that may be created under this
Agreement;
(11) that is the legal, valid and binding payment obligation of the
Obligor thereon;
(12) which does not contravene any applicable law, rule or
regulation in any material respect;
(13) which is not subject to any restrictions on the transfer,
assignability or sale thereof;
(14) the terms of which satisfy all applicable provisions of the
Credit and Collection Policies current at the time of the
origination thereof;
(15) which was generated in the ordinary course of the Originators'
business and acquired by Seller from the Originators pursuant
to the terms of the Transfer Agreement; and
(16) which the Administrative Agent has not designated, upon thirty
(30) days' notice to the Seller, as no longer eligible for
transfer hereunder.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
the rules and regulations thereunder, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer with the Seller under Section
414 of the Code.
"Event of Liquidation" means any one or more of the following
events:
(a) the Parent's long-term unsecured private debt or public debt
rating falls below BBB- from S&P or Baa3 from Moody's; the
Performance Support Agreement shall cease to be in full force
and effect; or the Parent shall have disaffirmed or otherwise
repudiated its obligations under the Performance Support
Agreement or notified the Administrative Agent or any Pur-
chaser of its intention to do so;
<PAGE>
(b) Either of DSRM or the Seller shall no longer be a wholly-owned
direct or indirect subsidiary of the Parent;
(c) the Seller shall cease to be a member of the Conduit
Purchaser;
(d) the Seller or the Collection Agent (if it is DSRM or any
Diamond Shamrock Entity) shall fail to make any payment when
due to any of the Purchasers under any of the Sale Documents;
(e) any Diamond Shamrock Entity shall breach any representation or
warranty or fail to perform or observe any term, covenant or
agreement applicable to it which is contained in any Sale
Document to which it is a party other than one covered by
clause (d) above, and such breach or failure is likely to have
a material adverse effect on the collectibility of the
Receivables;
(f) (i) the Seller, DSRM, or the Parent shall be in bankruptcy,
reorganization, insolvency or similar proceedings or (ii) any
other Diamond Shamrock Entity shall be in bankruptcy,
reorganization, insolvency or similar proceedings and any such
proceeding has had or can reasonably be expected to have a
material adverse effect on the collectibility of the
Receivables, the ability of any of the Diamond Shamrock
Entities to perform their respective obligations under the
Sale Documents or the legality, validity or enforceability of
any Sale Document or of the Ownership Interest;
(g) the Aggregate Ownership Interest shall exceed the Maximum
Ownership Interest and the Seller shall have failed to make
the payment required under Section 3.3;
(h) on any Settlement Date the Delinquency Ratio shall be greater
than the Historical Delinquency Ratio;
(i) on any Settlement Date the average of the Days Sales
Outstanding for the most recently ended month and each of the
two immediately preceding months exceeds 40 days;
(j) on any Settlement Date the Default Ratio shall be greater than
the lesser of 14% or the Historical Default Ratio;
<PAGE>
(k) the occurrence of any event which has had or can reasonably be
expected to have a material adverse effect on (i) the
collectibility of the Receivables, or (ii) the legality,
validity or enforceability of any Sale Document or of the
Ownership Interest;
(l) on any Settlement Date, the Dilution Ratio exceeds the product
of 1.5 and the greatest of the Dilution Ratios for each month
during the period of twelve months preceding such Settlement
Date;
(m) the Charge-Off Ratio shall at any time exceed 1.00%; or
(n) The Parent, DSRM or the Seller shall default in the payment
when due (whether at scheduled maturity, required prepayment,
demand or otherwise) with respect to any indebtedness of the
Parent, DSRM or the Seller, the outstanding principal amount
of which indebtedness, in the aggregate, is $25,000,000 or
higher; or the Parent, DSRM or the Seller shall default in the
performance or observance of any other obligation or condition
with respect to any such indebtedness or any other event shall
occur or condition exist, if, as a result, such indebtedness
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.
"Extension Date" means the last day of each calendar quarter commencing
June 30, 1999.
"Facility Limit" means the excess of $250,000,000 over the aggregate
outstanding "Investment" under and as defined in this Agreement; provided,
however, that on and after the Termination Date, the "Facility Limit" shall
equal the outstanding Investment from time to time.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to (a) the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the immediately preceding Business Day)
by the Federal Reserve Bank of New York, or (b) if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent from three Federal
funds brokers of recognized standing selected by it.
<PAGE>
"Fee Letter" means the letter agreement of even date herewith between
the Administrative Agent and the Seller relating to fees.
"Governmental Obligor" means any obligor that is a government,
a government subdivision or an agency of a government,
"Historical Default Ratio" means, as of any date of determination, a
percentage equal to the product of (i) 1.50 and (ii) the greatest of the
fractions determined for each month during the period of 12 months preceding the
date of determination obtained by dividing (A) the sum of (i) the aggregate
amount of all Defaulted Receivables and (ii) the Aggregate Charge-Offs by (B)
the outstanding balance of Receivables as at the end of each such month.
"Historical Delinquency Ratio" means, as of any date of determination,
a percentage equal to the product of (i) 1.50 and (ii) the greatest of the
fractions determined for each month during the period of 12 months preceding the
date of determination obtained by dividing (A) the aggregate amount of all
Receivables that were unpaid for more than 21 days but fewer than 30 days past
the dates on which they were due as at the end of each such month by (B) the
outstanding balance of Receivables as at the end of each such month.
"Incremental Purchase" means any Purchase (other than an Initial
Purchase) which causes the amount of the Investment to increase.
"Initial Purchase" means, with respect to a Purchaser, the first
Purchase by such Purchaser under this Agreement.
"Investment" means the sum of:
(1) the aggregate amount of cash paid by the Purchasers to the
Seller for their respective Initial Purchases and all
Incremental Purchases, less the amount of all Collections
received and applied pursuant to Sections 7.2.1(b) and
7.2.2(b) and of all payments made by the Seller and applied
under Sections 3.3, 6.2(c) and 7.3; and
(2) any amounts owed by the Seller to the Purchasers under Article
XI.
"LIBO Rate" means, for any Settlement Period, the rate of interest
determined by the Administrative Agent to be the average (rounded upwards, if
necessary, to the nearest 1/16 of 1%) of the rates per annum at which U.S.
dollar deposits in immediately available funds are offered by CIBC two (2)
Business Days prior to the beginning of such Settlement Period to prime banks in
<PAGE>
the interbank eurodollar market as at or about 10:00 A.M. New York time, for
delivery on the first date of such Settlement Period, for a one month period and
in an amount equal to the amount of the Investment to be funded at the LIBO Rate
as of such second Business Day prior to the beginning of such Settlement Period.
"LIBO Rate (Reserve Adjusted)" means, relative to any Purchase for any
Settlement Period, a rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) determined pursuant to the following formula:
LIBO Rate = LIBO Rate
----------
(Reserve Adjusted) 1-LIBOR
Reserve
Percentage
The Administrative Agent shall determine the LIBO Rate (Reserve Adjusted) for
each Settlement Period applicable to any Purchase and promptly provide a
certificate of such calculation to the Seller thereof (which determination
shall, in the absence of manifest error, be conclusive on the Seller).
"LIBOR Reserve Percentage" means, relative to each Settlement Period, a
percentage (expressed as a decimal) equal to the daily average during such
Settlement Period of the percentages in effect on each day of such Settlement
Period, as prescribed by the Board of Governors of the Federal Reserve System
(or any successor thereof) for determining the maximum reserve requirements
applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other
applicable regulation which prescribes reserve requirements applicable to such
"Eurocurrency Liabilities".
"Liquidity Facilities" means each of the committed loan facilities,
lines of credit and other financial accommodations available to the Conduit
Purchaser to support the liquidity of the Conduit Purchaser's commercial paper
notes and medium term notes.
"Lock-Box" means any lock-box(es) or account(s) to which the Obligors
remit Collections.
"Lock-Box Agreement" means each agreement in the form of Exhibit D
hereto executed by the Seller, the Collection Agent, the Administrative Agent
and each Lock-Box Bank.
"Lock-Box Bank" means any institution at which a Lock-Box is
established and maintained.
"Loss Reserve" means, on any date of determination, the product of two
(2) times the highest Default Ratio occurring during the twelve months most
recently completed on such date.
<PAGE>
"Maximum Ownership Interest" means 100%.
"Moody's" means Moody's Investors Service, Inc. and any
successor thereto.
"Net ER" has the meaning set forth in Section 3.1(a).
"Obligor" means any Person that is obligated to make payment on a
Receivable.
"Operating Expense Fee" means the percentage used to determine the fee
payable by the Seller to the Conduit Purchaser, as described in Section 5.1.3.
"Originator" means each of DSRM, TPI Petroleum, Inc., Ultramar, Inc.
and Diamond Shamrock Refining Company, L.P.
"Other Taxes" has the meaning specified in Section 11.5(b).
"Ownership Interest" means, at any time, the undivided percentage
ownership interest of a Purchaser in the Receivables and related Collections as
determined pursuant to Section 3.1(a).
"Parent" means Ultramar Diamond Shamrock Corporation, a Delaware
corporation or any successor.
"PBGC" means the Pension Benefit Guaranty Corporation and any
successor thereto.
"Performance Support Agreement" means the Performance Support Agreement
of even date herewith executed by the Parent in favor of the Administrative
Agent and the Purchasers, as amended, restated, supplemented or otherwise
modified from time to time.
"Person" means any corporation, natural person, firm, joint venture,
partnership, limited liability company, trust, unincorporated organization,
enterprise, government or any department or agency of any government.
"Plan" means each employee benefit plan (as defined in Section 3(3) of
ERISA) currently sponsored, maintained or contributed to by the Seller or any
ERISA Affiliate or with respect to which the Seller or any ERISA Affiliate has
any liability.
"Prime Rate" means the rate announced by CIBC from time to
time as its prime rate in the United States, such rate to change as and when
such designated rate changes. The Prime Rate is not intended to be the lowest
rate of interest charged by CIBC in connection with extensions of credit to
debtors.
<PAGE>
"Purchase" means any purchase by a Purchaser of an Ownership Interest
from the Seller under this Agreement, and includes such Purchaser's Initial
Purchase, any Incremental Purchase and any
Reinvestment Purchase by such Purchaser.
"Purchase Discount" means the percentage used to determine the amount
payable by the Seller to the Purchasers to cover the Purchasers' cost of funding
the Purchases, as described in Section 5.1.1.
"Purchase Premium" means the percentage used to determine the amount
payable by the Seller to the Purchasers, as described in Section 5.1.2.
"Purchaser" means each of the Conduit Purchaser and the Back-
Stop Purchaser.
"Receivable" means the obligation of an Obligor to pay for merchandise
sold or services rendered by the Originators as shown from time to time on the
aged trial balance maintained by the Collection Agent in connection with the
wholesale refining and marketing business of the Originators, including all
rights to payment of any interest or finance charges and in the merchandise
(including returned goods) and contracts relating to such Receiv able, all
security interests, guaranties and property securing or supporting payment of
such Receivable, all books and records relating to the Receivables and all
proceeds of the foregoing.
"Receivables Activity Report" means the report in the form of Exhibit F
hereto to be provided by the Collection Agent to the Administrative Agent in
accordance with Sections 6.4 and 7.4 of this Agreement.
"Receivables Systems" has the meaning specified in Section 9.1.(q).
"Reinvestment Purchase" means any Purchase made with Collections.
"Reserve" means, as of any date, an amount equal to the Investment on
such date multiplied by a fraction, the numerator of which equals the sum of the
items set forth below (each expressed as a percentage), and the denominator of
which equals 100% minus such sum:
(1) the Loss Reserve;
(2) the Standard Concentration Limit;
(3) the Collection Agent Fee; and
(4) the Yield Reserve Percentage.
<PAGE>
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., and any successor thereto.
"Sale Documents" means this Agreement, the Transfer Agreement, the
Trade Receivables Sale Agreement, the Performance Support Agreement, the
Exhibits hereto to which the Seller is a party, the Lock-Box Agreements, the
Blocked Account Agreements and all other certificates, agreements and documents
executed from time to time by the Seller in connection with the transactions
contemplated in this Agreement.
"Seller" means Coyote Funding, L.L.C., a Delaware limited liability
company, and its successors and permitted assigns.
"Settlement Date" means any date, as described in Section 7.1 of this
Agreement, on which the Collection Agent is required to remit specified payments
to the Purchasers.
"Settlement Period" means the period from (and including) a Settlement
Date (or, in the case of the initial Settlement Period under this Agreement,
from the date of the earliest Initial Purchase) to (but excluding) the
immediately succeeding Settlement Date.
"Special Concentration Limit" means, with respect to any Obligor having
a long-term unsecured private or public debt rating from either or both of
Moody's and S&P, the amount corresponding to such ratings as set forth on
Schedule A; provided, however, that the Administrative Agent may, at any time in
its discretion, reduce the Special Concentration Limit for any Obligor
notwithstanding the ratings applicable to such Obligor's long-term unsecured
public or private debt.
"Standard Concentration Limit" means, at any time with respect to all
of the Receivables owing from a single Obligor (except for an Obligor listed on
Schedule A), together with Receivables owing from its Affiliates or
subsidiaries, an amount equal to 2% of the Investment at such time; provided
that the Administrative Agent may, at any time in its discretion, reduce or
increase the Standard Concentration Limit for any Obligor through the delivery
of a notice by the Administrative Agent to the Seller.
"Taxes" has the meaning specified in Section 11.5(a).
"Termination Date" means the earlier of (a) March 27, 2000, as such
date may be extended pursuant to Section 2.2 and (b) the date on which an Event
of Liquidation occurs.
<PAGE>
"Trade Receivables Sale Agreement" means that certain Trade Receivables
Sale Agreement between DSRM and the Seller dated as of the date hereof, as the
same may be amended, restated, supplemented or otherwise modified from time to
time.
"Transfer Agreement" means that certain Transfer Agreement of even date
herewith among TPI Petroleum, Inc., Ultramar, Inc. and Diamond Shamrock Refining
Company, L.P., as sellers, and DSRM, as buyer, as the same may be amended,
restated, supplemented or otherwise modified from time to time.
"Unused Facility Fee" has the meaning specified in Section 5.2.
"Year 2000 Compliant" has the meaning specified in Section 9.1(q).
"Yield Reserve Percentage" means, for any Settlement Period (A) the sum
of (i) the Purchase Premium, (ii) the Purchase Discount multiplied by 1.3 and
(iii) the Operating Expense Fee (B) multiplied by 75/360.
ARTICLE II: PURCHASE FACILITY
SECTION 2.1. Purchase Facility. On the terms and conditions described
in this Agreement, the Conduit Purchaser may, in its sole discretion, purchase
an Ownership Interest in the Receivables offered for sale from time to time by
the Seller. The Back-Stop Purchaser, if so requested by the Seller, will
purchase during the period on and after the Commencement Date until (but
excluding) the Termination Date, an Ownership Interest in Receivables offered
for sale from time to time (provided that no Event of Liquidation has occurred
and is continuing) by the Seller. Nothing herein shall be construed as
constituting a commitment on the part of the Seller to sell an Ownership
Interest in Receivables or on the Conduit Purchaser to make any Purchases. In no
event shall the Back-Stop Purchaser's share of the Investment exceed the excess
of the Facility Limit over the outstanding Investment of the Conduit Purchaser's
Ownership Interest.
SECTION 2.2. Extension or Acceleration of the Termination Date.
(a) Prior to the occurrence of an Event of Liquidation, the Seller may,
on a quarterly basis at least fifteen (15) days prior to any Extension Date,
request by notice to the Back-Stop Purchaser that the date specified in clause
(a) of the definition of "Termination Date" be extended (any such request being
<PAGE>
an "Extension Notice"). The Back-Stop Purchaser shall not have a commitment or
obligation to extend the Termination Date. If the Back-Stop Purchaser, in its
sole discretion, agrees to accept any request on the part of the Seller to
extend the Termination Date, it shall so advise the Seller in writing by not
later than five (5) Business Days prior to such Extension Date. In the event
Back-Stop Purchaser shall fail to advise the Seller in response to any Extension
Notice, such request for extension shall be deemed to have been declined. Upon
acceptance in writing by the Back-Stop Purchaser of any request set forth in an
Extension Notice, the Termination Date shall thereupon become the date which is
360 days following such Extension Date. As of no date during the term of this
Agreement shall the period from such date to the Termination Date then in effect
exceed a period of 360 days.
(b) Notwithstanding the provisions of Section 2.2(a), the Seller may
accelerate the Termination Date by notifying the Purchasers and the
Administrative Agent to such effect. Such notice shall be given by no later than
1:00 p.m. New York time on the third Business Day preceding the date on which
Seller intends the Termination Date to occur.
ARTICLE III: SALE OF OWNERSHIP INTEREST
SECTION 3.1. Determination of Ownership Interest.
(a) When a Purchaser accepts an offer from the Seller to purchase an
interest in the Receivables, such Purchaser shall have acquired, in exchange for
the purchase price paid, an undivided percentage ownership interest in the
Receivables and any Collections relating thereto. The undivided percentage
interest of a Purchaser in all Receivables and related Collections purchased
hereunder shall be referred to in this Agreement as such Purchaser's "Ownership
Interest." The Ownership Interests of all of the Purchasers on any date shall be
referred to herein as the "Aggregate Ownership Interest" on such date, and,
except as provided in paragraphs (b) and (c) of this Section 3.1, is equal to
the following fraction (expressed as a percentage):
I + R
-----
Net ER
where: I = the Investment on such date
R = the Reserve on such date
Net ER = the outstanding balance of all Eligible
Receivables on such date, less the Dilution
Reserve on such date, less the aggregate amount
by which the outstanding balance of Eligible
Receivables of each Obligor exceeds its Concen-
tration Limit on such date and less the aggregate
amount by which the outstanding balance of all
Eligible Receivables owing from a Governmental
Obligor exceeds 5.00% of the Investment on such
date.
<PAGE>
The Ownership Interest will change from time to time, except as provided in
paragraphs (b) and (c) of this Section 3.1, whenever the Investment, Reserve or
Net ER changes.
(b) During any period when the Investment is being reduced, the
Aggregate Ownership Interest will remain fixed at the percentage in effect as of
the close of business on the Business Day immediately preceding the commencement
of that period.
(c) The Aggregate Ownership Interest will be reduced to zero when the
Purchasers receive the following amounts:
(1) their respective shares of the Investment;
(2) as further provided in Section 7.2.2(b)(i), their
respective shares of the accrued and unpaid portion
of the Purchase Discount, Purchase Premium, Unused
Facility Fee, Collection Agent Fee (if not payable to
a Diamond Shamrock Entity), Operating Expense Fee and
Administration Fee; and
(3) all other fees, expenses and amounts payable to the
Purchasers under this Agreement.
When the Aggregate Ownership Interest in the Receivables is reduced to zero, the
Purchasers shall not be entitled to receive any additional Collections from the
Receivables.
(d) The Administrative Agent shall maintain books and records (which
shall be presumed accurate absent manifest error) reflecting the respective
shares of the Purchasers in the Aggregate Ownership Interest based upon the
aggregate amount of cash paid by each Purchaser to the Seller for the Initial
Purchase by such Purchaser and all Incremental Purchases by such Purchaser, less
the amount of all Collections received and applied pursuant to Section
7.2.2(b)(ii)(A) and of all payments made by the Seller and applied under
Sections 3.3 , 6.2(c) and 7.3. The Administrative Agent shall allocate amounts
paid by the Seller hereunder in respect of the Aggregate Ownership Interest
accordingly, taking into account the differing rates for determining Purchase
Discount for each Purchaser.
<PAGE>
(e) Subject to the provisions of Section 8.2(d), upon any Purchaser's
purchase of an Ownership Interest, the Administrative Agent shall be entitled to
(i) endorse all drafts, checks and other forms of payment on account of the
Receivables and to settle, adjust and forgive any amounts payable on the
Receivables and (ii) exercise all other incidents of ownership in the
Receivables.
(f) The Seller hereby assigns to the Administrative Agent, for the
benefit of the Purchasers, all rights of the Seller against DSRM under the Trade
Receivables Sale Agreement and agrees that (i) the Administrative Agent and the
Purchasers shall be third party beneficiaries of the Seller's rights under the
Trade Receivables Sale Agreement, (ii) the Seller will enforce its rights under
the Trade Receivables Sale Agreement on behalf of the Administrative Agent and
the Purchasers and (iii) the Administrative Agent, on behalf of the Purchasers
shall be entitled to enforce such rights against DSRM if the Seller does not
enforce such rights following notice from the Administrative Agent, as if the
Administrative Agent and the Purchasers had been parties to the Trade
Receivables Sale Agreement.
SECTION 3.2. Frequency of Determining Aggregate Ownership Interest. The
Collection Agent shall determine or be deemed to determine the Aggregate
Ownership Interest and report it to the Administrative Agent at the following
times:
(a) on the date of each Initial Purchase;
(b) on each Settlement Date;
(c) on the date of each Incremental Purchase;
(d) on the Business Day immediately preceding any period during which
the Investment is being reduced;
(e) on the Business Day on which the Investment ceases being
reduced;
(f) when the Collection Agent has reason to believe that the Maximum
Ownership Interest has been exceeded; and
(g) at the request of any Purchaser.
SECTION 3.3. Maximum Ownership Interest. If during any Settlement
Period, the Aggregate Ownership Interest at the end of such Settlement Period
exceeds the Maximum Ownership Interest, the Seller shall immediately make a
payment to the Collection Agent in an amount sufficient to reduce the Aggregate
Ownership Interest to the Maximum Ownership Interest but not to exceed the
portion of Collections paid to Seller during such Settlement Period. Any such
payment will be used to reduce the Investment and shall be applied ratably to
the Ownership Interests of the Purchasers according to their respective shares
of the Investment.
<PAGE>
SECTION 3.4. Lock Boxes, Blocked Accounts and Collections. In order to
secure the prompt and complete payment, observance and performance of this
Agreement, the Seller hereby assigns and pledges to the Administrative Agent,
for the benefit of the Purchasers, and grants a security interest thereto in,
all of Seller's right title and interest in the Lock-Boxes and the Blocked
Accounts, including, without limitation, any deposits or sums at any time held
in each Lock-Box and each Blocked Account. Upon the occurrence and during the
continuation of an Event of Liquidation, the Administrative Agent may take
control of the Lock-Boxes and Blocked Accounts or any of them and either the
Administrative Agent or any Purchaser may notify the Obligors that the
Receivables have been assigned to the Purchasers, and either in its own name,
and/or the name of Originators and/or the Seller, as applicable, demand,
collect, receive, receipt for, sue for, compound and discharge any or all
amounts due or to become due thereon, and, in the Administrative Agent's or
Purchasers' discretion (and without creating any obligation of the Purchasers or
Administrative Agent), file any claim or take any other action or proceeding
which the Administrative Agent or the Purchasers may deem necessary or
appropriate to protect and realize upon the Receivables.
ARTICLE IV: PURCHASE PRICE
The purchase price payable by a Purchaser for its Ownership Interest in
the Receivables and any Collections shall be comprised of a cash component and a
deferred payment component.
SECTION 4.1. Determination of Cash Component of Purchase Price. When a
Purchaser accepts an offer from the Seller to make a Purchase, such Purchaser
will pay the following amounts in cash to the Seller:
(a) for any Initial and any Incremental Purchases, the amount
specified in the notice required to be delivered by the Seller under Section
6.2(a); or
(b) for a Reinvestment Purchase, the amount obtained by multiplying
(i) the dollar amount of the Collections received on the date of such Purchase
by (ii) such Purchaser's Ownership Interest on that date, and subtracting from
such amount any amounts then payable to the Administrative Agent under Section
7.2.2(b)(i); provided that the payment of any amount described in (a) or (b)
above would not cause (and such amount shall be reduced so as not to cause)
either:
<PAGE>
(1) the Investment at any time to exceed the Facility Limit;
or
(2) the Aggregate Ownership Interest to exceed the Maximum
Ownership Interest.
SECTION 4.2. Determination of Deferred Payment Component of Purchase
Price. Upon and after the reduction of the Aggregate Ownership Interest to zero
as described in Section 3.1(c), all Collections or other cash received by the
Administrative Agent or any Purchaser on account of Receivables and the interest
of the Purchasers therein and all Receivables held by or on behalf of the
Purchasers will be transmitted in the form received by such Purchaser or the
Administrative Agent to the Seller. The transmission of such amount by such
Purchaser or the Administrative Agent shall be deemed to satisfy the payment of
the deferred payment component of the purchase price under this Article IV.
ARTICLE V: FEES AND EXPENSES
SECTION 5.1. Settlement Date Payments. The Administrative Agent will
notify the Seller and the Collection Agent on the last Business Day of each
calendar month of the Purchase Discount, Purchase Premium, Operating Expense
Fee, the Unused Facility Fee, the Administration Fee and Collection Agent Fee.
On each Settlement Date, the Seller will pay to the Purchaser the following, in
accordance with Section 7.2.2.
SECTION 5.1.1 Purchase Discount. A Purchase Discount equal to, for each
day in any Settlement Period, the weighted average of the following:
(i) the weighted average determined on each such day of the discount
rates on all commercial paper notes issued by the Conduit Purchaser at a
discount on such day (other than commercial paper notes the proceeds of which
are used by the Conduit Purchaser to (x) purchase receivables, or extend
financing secured thereby, at a fixed interest rate or (y) conduct any arbitrage
activities of the Conduit Purchaser) converted to an annual yield-equivalent
rate on the basis of a 360-day year;
(ii) the weighted average determined on each such day of the annual
interest rates payable on all interest-bearing commercial paper notes issued by
the Conduit Purchaser on such day (other than the commercial paper notes
described in clauses (x) and (y) of paragraph (i) above), on the basis of a
360-day year;
<PAGE>
(iii) the Alternative Rate for the Settlement Period relating to the
Settlement Date to the extent that the ConduitPurchaser has borrowed money
during such Settlement Period (which money shall be borrowed only after a
determination by the Conduit Purchaser that financing its activities during such
period by issuing commercial paper notes would not be practicable or
cost-efficient); and
(iv) the Alternative Rate for the Settlement Period relating to such
Settlement Date in respect of that portion of the Investment, if any, allocable
to the Ownership Interest of the Back-Stop Purchaser.
SECTION 5.1.2. Purchase Premium. In respect of the Ownership Interest
of the Conduit Purchaser, a Purchase Premium equal to the rate per annum
specified as such in the Fee Letter.
SECTION 5.1.3. Operating Expense Fee. In respect of the Ownership
Interest of the Conduit Purchaser, an Operating Expense Fee to cover routine
operating expenses of the Conduit Purchaser incurred during the immediately
preceding Settlement Period, including fees payable to commercial paper dealers,
issuing and paying agents, rating agencies, printers and auditors; provided that
(i) the Operating Expense Fee in respect of commercial paper dealer commissions
shall not exceed a rate per annum equal to 0.05% and (ii) the Operating Expense
Fee in respect of issuing and paying agent fees, rating agency fees, printing
and all other routine operating expenses shall not exceed a rate per annum equal
to 0.01%. If the amount of any Operating Expense Fee paid for any Settlement
Period exceeds the actual amount of the operating costs and expenses of the
Conduit Purchaser incurred during such period, then the Conduit Purchaser will
remit on an annual basis the excess to the Seller in the form of a patronage
distribution.
SECTION 5.1.4. Collection Agent Fee. A Collection Agent Fee equal to
1.00% per annum on the Purchaser's average outstanding Investment, which fee
shall be remitted by the Purchasers to the Collection Agent. If a Diamond
Shamrock Entity is acting as the Collection Agent, then the Collection Agent
shall retain an amount equal to the Collection Agent Fee (in full satisfaction
of the payment of such fee to the Collection Agent) out of amounts required to
be remitted by the Collection Agent in accordance with Section 7.2.2(b)(i).
<PAGE>
SECTION 5.1.5. Administration Fee. In respect of the Ownership Interest
of the Back-Stop Purchaser outstanding during the immediately preceding
Settlement Period, if any, an Administration Fee of up to 0.01% to cover routine
operating expenses of the Back-Stop Purchaser incurred during such immediately
preceding Settlement Period.
SECTION 5.2. Unused Facility Fee. On each Settlement Date, in addition
to the amounts payable pursuant to Section 5.1, the Seller shall pay to the
Back-Stop Purchaser an "Unused Facility Fee" for the period from the immediately
preceding Settlement Date (or, in the case of the initial payment of such fee,
from the date hereof) to such Settlement Date equal to (i) the rate per annum
specified in the Fee Letter for computing the Unused Facility Fee, multiplied by
(ii) an amount, if positive, equal to the Facility Limit minus the average daily
amount of the outstanding Investment (calculated without regard to any amounts
then owed by the Seller under Article XI of this Agreement or under any similar
provision in any other Sale Document). The Unused Facility Fee shall be
calculated on the basis of a year of 360 days for actual days elapsed, and shall
be payable by the Seller from sources other than Collections allocable to the
Purchasers. There shall be credited against the Unused Facility Fee payable
hereunder, the actual amount of any "Unused Facility Fee" (as defined in the
Credit Card Receivables Purchase Agreement) actually paid under the Credit Card
Receivables Purchase Agreement.
SECTION 5.3. Structuring Fee. The Seller will pay a structuring fee
to the Administrative Agent on the date on which this Agreement is executed as
set forth in the Fee Letter.
SECTION 5.4. Legal Fees and Expenses. In addition to all other amounts
payable by the Seller under this Agreement, the Seller agrees to pay to the
Purchasers by no later than 30 days after presentation of a bill therefore, (i)
the reasonable fees and expenses of counsel for the Purchasers in connection
with the negotiation, preparation, execution, amendment and enforcement of the
Sale Documents and advice with respect to the Purchasers' rights and remedies
thereunder and (ii) all reasonable and documented out-of-pocket costs and
expenses of the Purchasers and the Administrative Agent incurred in connection
with this Agreement not otherwise provided for in this Agreement which are
accrued and owing to a Purchaser or the Administrative Agent, including, without
limitation, expenses in connection with due diligence activities of the
Purchasers as to the Diamond Shamrock Entities after the date hereof, such as
the costs of travel and lodging, but excluding any expenses associated with the
replacement of the Administrative Agent.
SECTION 5.5. Interest on Unpaid Amounts. To the extent that the Seller
or Collection Agent fails to pay when due to a Purchaser or the Administrative
Agent any fee, expense or other amount payable hereunder or under any Sale
Document, interest shall be due and payable on such unpaid amount, for each day
until paid in full, at the rate of 2.00% in excess of the Base Rate in effect
from time to time.
<PAGE>
SECTION 5.6. Audits. In addition to all other amounts payable by the
Seller hereunder (including, without limitation, under Sections 5.1.3 and 5.4
above), the Seller shall reimburse the Purchasers and the Administrative Agent
in respect of all reasonable out-of-pocket costs and expenses incurred by them
in the conduct of any audit or inspection of the Seller or the Collection Agent
in connection with the Sale Documents.
ARTICLE VI: PURCHASE PROCEDURES
SECTION 6.1. Types of Purchases. The three types of Purchases which can
be made under this Agreement are an Initial Purchase, an Incremental Purchase
and a Reinvestment Purchase. The first Purchase made by each Purchaser under
this Agreement is the Initial Purchase with respect to such Purchaser. Any
Purchase (other than the Initial Purchase) made by a Purchaser which causes the
amount of the Investment to increase is an Incremental Purchase. The amount of
each Incremental Purchase shall be $5,000,000 or greater. Any Purchase made by a
Purchaser with Collections is a Reinvestment Purchase.
SECTION 6.2. Notice Requirements.
(a) In the case of the Initial Purchase with respect to any Purchaser
or any Incremental Purchase, the Seller will give the Administrative Agent three
(3) Business Days' written notice of its offer to sell an Ownership Interest in
the Receivables to such Purchaser. The notice will be in the form of Exhibit A,
and will include the amount of the new Investment requested and the Business Day
on which the Purchase will be made. The Conduit Purchaser will notify the Seller
within one Business Day after the receipt of such notice from the Seller whether
it intends to accept or reject the offer.
(b) Each of the Seller and the Conduit Purchaser may elect not to make
Reinvestment Purchases by notifying the other parties hereto to such effect.
Such notice shall be given by no later than 1:00 P.M. New York time on the third
Business Day preceding the date on which the Reinvestment Purchase was
contemplated to be made. The notice will be in the form of Exhibit B-1, and will
specify (i) the date on which Reinvestment Purchases shall cease and (ii) the
amount to which the Investment shall be reduced before Reinvestment Purchases
will recommence. No such notice shall be required if an Event of Liquidation
occurs, and no further Reinvestment Purchases by any Purchaser shall be made
upon the occurrence of an Event of Liquidation.
<PAGE>
(c) The Seller may, on any Business Day (provided that notice has been
given to the Administrative Agent in the form of Exhibit B-2 by no later than
1:00 P.M. New York City time on the third Business Day prior thereto), reduce
the dollar amount of the Investment in lieu of the application of Collections to
the amount of such reduction by paying to the Administrative Agent, for the
ratable account of the Purchasers based upon their respective shares of the
Investment, by 12:00 Noon New York City time on the Business Day of the
contemplated reduction, the dollar amount by which the Investment is to be
reduced after giving effect to the application of Collections received and
applied to the reduction of the Investment on such Business Day.
SECTION 6.3. Conditions Precedent to Initial Purchase. The following
conditions must be satisfied before the first Initial Purchase hereunder,
whether made by the Conduit Purchaser, in its sole discretion, or the Back-Stop
Purchaser:
SECTION 6.3.1. Membership in the Purchaser. The Seller will have joined
the Conduit Purchaser as a member by delivering to the Conduit Purchaser an
executed Membership Agreement in the form of Exhibit C, together with the sum of
$10,000 as an investment in the Conduit Purchaser. Such investment will be
refunded by the Conduit Purchaser to the Seller when the Aggregate Ownership
Interest is reduced to zero and no further Purchases are to be made.
SECTION 6.3.2. Fees and Expenses. The Administrative Agent and each
Purchaser will have received all fees and expenses due hereunder or in
connection herewith on or prior to the date of such first Initial Purchase
hereunder.
SECTION 6.3.3. Absence of Liens. The Administrative Agent will have
received evidence acceptable to it (including Uniform Commercial Code search
reports) that all Receivables and all proceeds thereof are free and clear of
liens, security interests, claims and encumbrances other than those created
pursuant to this Agreement, the Trade Receivables Sale Agreement and the
Transfer Agreement.
SECTION 6.3.4. Financing Statements. The Administrative Agent will have
received acknowledgment copies of UCC-1 financing statements, and all other
documents reasonably requested by the Administrative Agent, to evidence the
perfection of the Purchasers' Ownership Interests in the Receivables.
SECTION 6.3.5. Trade Receivables Sale Agreement; Transfer Agreement.
The Administrative Agent shall have received an executed copy of the Trade
Receivables Sale Agreement, the Transfer Agreement and the written
acknowledgment of each Originator referred to in Section 2.1(b) of the Trade
Receivables Sale Agreement.
<PAGE>
SECTION 6.3.6. Receivables Activity Report. The Administrative Agent
will have received a Receivables Activity Report in the form of Exhibit F
covering the calendar month ending most recently prior to the date of the first
Initial Purchase hereunder.
SECTION 6.3.7. Resolutions. The Administrative Agent will have re-
ceived a certificate of each of the Seller's, the Originators' and the Parent's
secretary or assistant secretary attesting to:
(a) the resolutions of such Person's Board of Directors authorizing the
execution by such Person of the Sale Documents to be executed by such Person;
(b) the names and signatures of the officers of such Person authorized
to execute the Sale Documents to be executed by such Person; and
(c) the completeness and correctness of the attached constitutional
documents (certified by the appropriate governmental officer) and by-laws of
such Person.
SECTION 6.3.8. Legal Opinion of Seller's and DSRM's and the Parents's
Counsel. The Administrative Agent will have received one or more opinions from
counsel to each of the Seller, DSRM and the Parent satisfactory in form and
substance to the Administrative Agent.
SECTION 6.3.9. Good Standing Certificates. The Administrative Agent
will have received certificates of recent date issued by the Secretary of State
of the States of Delaware and Texas with respect to each of the Seller, DSRM and
the Parent, as to the legal existence and good standing of the Seller, DSRM and
the Parent, respectively.
SECTION 6.3.10. Performance Support Agreement. The Administrative
Agent will have received a duly executed Performance Support Agreement
satisfactory in form and substance to the Administrative Agent.
SECTION 6.3.11. Lock-Box and Blocked Account Agreements. The
Administrative Agent will have received original Lock-Box Agreements in the form
of Exhibit D and original Blocked Account Agreements in the form of Exhibit E,
in each case, executed by the Seller, DSRM, the Administrative Agent, the
Originators and each Lock-Box Bank and Blocked Account Bank, as applicable.
<PAGE>
SECTION 6.4. Condition Precedent to All Incremental Purchases. Before
any Purchaser will consider making an Incremental Purchase, the Administrative
Agent will have received a Receivables Activity Report in the form of Exhibit F
covering the period from the date on which the last such report was delivered
under Section 7.4 and the Business Day preceding the date of the Incremental
Purchase.
SECTION 6.5. Conditions Precedent to All Purchases. The following
conditions must be satisfied before any Purchaser will consider making any
Purchase:
SECTION 6.5.1. Representations and Covenants. On and as of the date of
such Purchase (i) the representations of the Seller in Article IX shall be true
and correct with the same effect as if made on such date and (ii) the Seller
shall be in compliance with the covenants set forth in this Agreement.
SECTION 6.5.2. Notice. The Administrative Agent shall have received
from the Seller, in fully completed form, a notice under Section 6.2(a) as to
the offer to sell an Ownership Interest in the Receivables (if it is the Initial
Purchase or an Incremental Purchase).
SECTION 6.5.3. Other Documents. The Administrative Agent and each of
the Purchasers will have received all other documents that any of them had
reasonably requested from the Seller.
ARTICLE VII: SETTLEMENT PROCEDURES
SECTION 7.1. Settlement Date. Each of the following shall
constitute a Settlement Date:
(a) the first Business Day of each month;
(b) each day designated as a Settlement Date by the Administrative
Agent; provided, however, that Administrative Agent shall not cause Settlement
Dates to occur on a basis more frequent than weekly unless either an Event of
Liquidation has occurred or
a Purchaser is itself being liquidated;
(c) each Business Day on which the Investment is reduced in accordance
with Section 3.1 or 6.2;
(d) any date on which a reduction in the Investment is required to
prevent the Aggregate Ownership Interest from exceeding the Maximum Ownership
Interest; and
<PAGE>
(e) each date on which any payment due to a Purchaser from the Seller
under Article XI has not been made.
SECTION 7.2. Application of Collections. The Collection Agent will
apply the Collections as provided in Sections 7.2.1 and 7.2.2, as applicable.
SECTION 7.2.1. Application of Collections on Days That Are Not
Settlement Dates. The Collection Agent will, by 2:00 P.M. (New York City time)
on any Business Day (other than a Settlement Date), since the preceding
Settlement Date, from Collections received on such day:
(a) first, pay to the Seller for its share of ownership in the
Collections an amount equal to the product of: (i) 1 minus the
Aggregate Ownership Interest and (ii) total Collections; and
(b) second, pay to the Seller for a Reinvestment Purchase an
amount equal to the product of: (i) the Aggregate Ownership
Interest and (ii) total Collections less the amounts described
in Section 7.2.2(b)(i).
SECTION 7.2.2. Application of Collections on Settlement Dates. The
Collection Agent will, by 3:00 P.M. (New York City time) on each Settlement
Date, from Collections received since the preceding Settlement Date:
(a) first, pay to the Seller for its share of ownership in the
Collections an amount equal to the product of: (i) 1 minus the
Aggregate Ownership Interest and (ii) total Collections; and
(b) second, from the Purchasers' Aggregate Ownership Interest in
the Collections, pay:
(i) first, to the Administrative Agent for the account of
the Purchasers according to their respect interests
therein an amount equal to the sum of the following
amounts for each day in the Settlement Period:
[(PD + PP + OEF + CAF) x CPI] + [(PD +AA + CAF) x BPI]
------------------- --------------
360 360
where PD = Purchase Discount
PP = Purchase Premium
OEF = Operating Expense Fee
CAF = Collection Agent Fee
AA = Administration Fee
CPI = the Conduit Purchaser's Investment
BPI = the Back-Stop Purchaser's Investment
(ii) second,
(A) if Reinvestment Purchases have been suspended,
then all remaining Collections will be paid to
the Purchasers ratably according to their
respect Investments as a return thereof; or
(B) if Reinvestment Purchases have not been sus-
pended, then all remaining Collections shall be
paid to the Seller for Reinvestment Purchases.
SECTION 7.3. Adjustments, Etc.
(a) The Collection Agent shall not include any Receivable as an
Eligible Receivable if (i) the representation and warranty contained in Section
9.1(f) is no longer true with respect to any Receivable in which any Purchaser
has an Ownership Interest or (ii) the Seller or Collection Agent proposes to (x)
reduce or cancel the outstanding balance of any Receivable in which a Purchaser
has an Ownership Interest as a result of defective, rejected or returned
merchandise or services or in connection with a claim, dispute, or offset
asserted against such Receivable by an Obligor or (y) otherwise amend, modify or
waive any term or condition of such Receivable (other than in a manner that does
not affect the aging or impair the collectibility of such Receivable and
otherwise is in accordance with the Credit and Collection Policies).
(b) On or before the Settlement Date next succeeding the date on which
any Receivable is affected as described in the preceding clause (a), the Seller
shall either:
(i) pay to the Collection Agent to be applied in accordance with
Section 7.2 an amount equal to the outstanding balance of such Receivable
(or any affected portion thereof); or
<PAGE>
(ii) adjust the Aggregate Ownership Interest in effect on such date by
decreasing "Net ER" in the denominator of the fraction described in Section
3.1(a) by the outstanding balance of the affected Receivable (or any
affected portion thereof) so long as the Aggregate Ownership Interest would
not, as a result, exceed the Maximum Ownership Interest.
SECTION 7.4. Receivables Activity Report. The Collection Agent will
provide the Administrative Agent with a Receivables Activity Report no later
than three (3) Business Days following each Settlement Date. The Receivables
Activity Report will be in the form of Exhibit F and will cover the most
recently completed Settlement Period.
ARTICLE VIII: ADMINISTRATIVE AGENT AND COLLECTION AGENT
SECTION 8.1. Appointment of Administrative Agent. Each Purchaser has
appointed CIBC as its Administrative Agent. The Administrative Agent is
responsible for administering and enforcing this Agreement and fulfilling all
other duties expressly assigned to it in this Agreement. Each Purchaser has
granted the Administrative Agent the authority to take all actions necessary to
assure the Seller's compliance with the terms of this Agreement and to take all
actions required or permitted to be performed by such Purchaser under this
Agreement.
SECTION 8.1.1 Replacement of Administrative Agent. Either Purchaser
may, at any time in its discretion, upon 120 days prior written notice to the
Administrative Agent and the Seller, remove the Administrative Agent and appoint
a new Administrative Agent acceptable to all Purchasers, which shall have the
duties described in Section 8.1. Such appointment of a successor Administrative
Agent shall be effective upon the acceptance by such successor Administrative
Agent of all of the duties and obligations of the Administrative Agent under
this Agreement. The appointment of a new Administrative Agent shall not increase
any of the fees payable under this Agreement and any expenses associated with
such appointment shall be paid by the Purchasers and/or the Administrative
Agent.
SECTION 8.2. Appointment of Collection Agent.
(a) Each Purchaser appoints DSRM as its Collection Agent and the
Collection Agent accepts such appointment. The Collection Agent shall be
responsible for collecting the Receivables, tracking, holding and remitting the
Collections and fulfilling all other duties expressly assigned to it in this
Agreement.
(b) The Collection Agent shall, on each day on which Collections are
received by it, set aside and hold in trust for the Purchasers their share of
such Collections.
<PAGE>
(c) Each Purchaser grants the Collection Agent the authority necessary
to carry out its duties under this Agreement for so long as it is acting as
Collection Agent.
(d) Each Purchaser grants to each Collection Agent, for so long as it
is acting in that capacity, an irrevocable power of attorney to endorse all
drafts, checks and other forms of payment made out in the name of the Seller or
any other Diamond Shamrock Entity and to settle, adjust and forgive any
Receivable, subject to the provisions of Section 10.3(b) hereof. Upon any
replacement of the Collection Agent, such power of attorney in favor of the
replaced Collection Agent will terminate and have no further force or effect.
(e) The Collection Agent shall exercise reasonable care in the
performance of its duties under this Agreement and shall use the same degree of
care and skill which it applies to its own property.
(f) The Collection Agent may delegate its duties hereunder to such
Person as may be approved by the Administrative Agent upon receipt of 120 days'
prior written notice, such approval not to be unreasonably withheld, but such
delegation shall neither affect the obligations of the Collection Agent under
any of the Sale Documents nor the rights of any Purchaser or the Administrative
Agent under any of the Sale Documents, including, without limitation, the right
to replace the Collection Agent pursuant to Section 8.2.1.
SECTION 8.2.1. Replacement of Collection Agent; Notification of
Obligors.
(a) Upon the occurrence of any Event of Liquidation, the Administrative
Agent or any Purchaser may upon the provision of three (3) Business Days prior
written notice to DSRM remove DSRM as its Collection Agent, appoint a new
Collection Agent, take control of the Lock-Boxes and Blocked Accounts (by
delivering to the LockBox Banks and Blocked Account Banks, notice in the form
attached to Exhibit D and Exhibit E, as applicable), notify Obligors of the
Aggregate Ownership Interest in the Receivables and exercise all other incidents
of ownership in the Receivables.
(b) The Administrative Agent and the Purchasers shall have the right to
remove any successor Collection Agent to DSRM and to take the other actions
described in (a) above at any time in their sole discretion.
<PAGE>
(c) If DSRM is removed as Collection Agent, DSRM shall transfer and
cause any Person to whom duties of the Collection Agent have been delegated by
DSRM pursuant to Section 8.2(f), to transfer, to the Administrative Agent or any
successor servicer designated by the Administrative Agent all records,
correspondence and documents (including computer tapes or other back-up media)
requested by the Administrative Agent or such successor and to permit such
persons to have access to, and to copy, all data and information used by DSRM in
the collection, administration or monitoring of the Receivables. In addition,
the Seller or DSRM, as applicable, will grant or cause to be granted to the
Administrative Agent or its designee an irrevocable, non-exclusive license to
use, without royalty or payment of any kind, all software used by the Seller,
DSRM or any of their Affiliates, as applicable, to account for the Receivables,
to the extent necessary to administer the Receivables, whether such software is
owned by the Seller, DSRM or any such Affiliate, as applicable, or is owned by
others and used by the Seller, DSRM or any such Affiliate, as applicable, under
license agreements with respect thereto, provided, that should the consent of
any licensor of the Seller, DSRM or any such Affiliate, as applicable, to such
grant of the license described herein be required, each of the Seller and DSRM
hereby agrees, upon the request of the Administrative Agent, to use its best
efforts to obtain the consent of such third-party licensor. Any license granted
hereby shall be irrevocable, and shall terminate on the date after the
Termination Date on which the Aggregate Ownership Interest shall have been
reduced to zero.
ARTICLE IX: REPRESENTATIONS AND WARRANTIES
SECTION 9.1. Representations and Warranties of the Seller and the
Collection Agent. Each of the Seller and the Collection Agent makes, with
respect to itself, the following representations and warranties to the
Purchasers and the Administrative Agent:
(a) The Seller is a limited liability company and the Collection Agent
is a corporation duly organized, validly existing and in good standing under the
laws of their respective jurisdiction of organization and each is duly qualified
in good standing in each jurisdiction where the failure to be so qualified could
materially adversely affect its ability to perform its obligations hereunder.
(b) The execution, delivery and performance by the Seller and the
Collection Agent of the Sale Documents to which they are party, and the Seller's
use of the proceeds of the Purchases, are within the Seller's and the Collection
Agent's respective company or corporate powers, have been duly authorized by all
necessary corporate or company action, do not contravene (i) the Seller's
certificate of formation or operating agreement, or the Collection Agent's
certificate of incorporation or by-laws, or (ii) applicable law or any material
contractual restriction binding on the Seller or the Collection Agent, and do
not result in or require the creation of any lien (other than pursuant hereto)
upon or with respect to any of their respective properties; and no transaction
contemplated hereby requires compliance with any bulk sales act or similar law.
<PAGE>
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Seller or the Collection
Agent of the Sale Documents, or for the perfection of the Purchasers' Aggregate
Ownership Interest in the Receivables, or exercise by the Seller, of the
Seller's rights and remedies under the Trade Receivables Sale Agreement, except
for the filing of the financing statements referred to in Section 6.3.4.
(d) The Sale Documents, when executed and delivered by the Seller and
the Collection Agent, will be the legal, valid and binding obligation of the
Seller and the Collection Agent, respectively, enforceable in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect affecting the enforcement of creditors' rights generally and
except as may be limited by general principles of equity (whether considered in
a suit at law or in equity).
(e) There is no pending, or to the knowledge of the Seller, threatened,
action or proceeding affecting the Seller or the Collection Agent or any of its
subsidiaries before any court, governmental agency or arbitrator which is
reasonably likely to materially adversely affect (i) its financial condition or
operations or (ii) its ability to perform its obligations under the Sale
Documents, or which is reasonably likely to affect the legality, validity or
enforceability of any Sale Document or of the Aggregate Ownership Interest.
(f) The Seller is the legal and beneficial owner of the Receivables
free and clear of any lien, security interest, claim or encumbrance, except as
created by this Agreement or the Trade Receivables Sale Agreement; upon each
Purchase, the Administrative Agent, on behalf of the applicable Purchaser, will
acquire a valid and perfected first priority ownership interest in the
Receivables, then existing or thereafter arising and in the Collections with
respect thereto, free and clear of any lien, security interest, claim or
encumbrance, except as created by this Agreement and the Trade Receivables Sale
Agreement.
<PAGE>
(g) The information provided by the Seller to the Collection Agent for
use in each Receivables Activity Report prepared under Section 7.4 and all
written information and Sale Documents furnished or to be furnished at any time
by the Seller to the Administrative Agent in connection with this Agreement is
or will be accurate in all material respects as of their respective dates, and
no such document will contain any untrue statement of a material fact or will
omit to state a material fact necessary to make any such statement not
materially misleading.
(h) Each Receivables Activity Report and any other report prepared by
the Collection Agent pursuant to this Agreement will be accurate in all material
respects as of its date, and no such document will contain any untrue statement
of a material fact or will omit to state a material fact necessary to make any
such report not materially misleading.
(i) The chief place of business and chief executive office of the
Seller and the office where the Seller keeps its records concerning the
Receivables and the chief place of business and chief executive offices of the
Originators and the offices where the Originators keep their records concerning
the Receivables are located at the addresses specified on Schedule E.
(j) The names and addresses of the Lock-Box Banks and Blocked Account
Banks, together with the account numbers of each related Lock-Box and Blocked
Account are specified in Schedule C and Schedule D hereto (or at such other
Lock-Box Banks or Blocked Account Banks as have been notified to the
Administrative Agent).
(k) The Parent, the Seller and DSRM are treating the conveyance of the
Aggregate Ownership Interest in the Receivables and the Collections under the
Sale Documents as a sale for purposes of generally accepted accounting
principles.
(l) Each Plan is in compliance with all of the applicable material
provisions of ERISA and each Plan intended to be qualified under Section 401(a)
of the Code is so qualified. No Plan has incurred an "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or Section 412 of the
Code) whether or not waived. Neither the Seller nor any ERISA Affiliate: (i) has
incurred or expects to incur any liability under Title IV of ERISA, with respect
to any Plan, which could give rise to a lien in favor of the PBGC, other than
liability for the payment of premiums, all of which have been timely paid when
due in accordance with Section 4007 of ERISA, (ii) has incurred or expects to
incur any withdrawal liability, within the meaning of Section 4201 of ERISA,
(iii) is subject to any lien under Section 412(n) of the Code or Sections 302(f)
or 4068 of ERISA or arising out of any action brought under Sections 4070 or
4301 of ERISA, or (iv) is required to provide security to a Plan under Section
401(a)(29) of the Code. The PBGC has not instituted proceedings to terminate any
Plan or to appoint a trustee or administrator of any such Plan and no
circumstances exist that constitute grounds under Section 4042 of ERISA to
commence any such
proceedings.
<PAGE>
(m) Prior to a transfer pursuant to the Trade Receivables Sale
Agreement, DSRM shall be the legal and beneficial owner of the Receivables sold
by DSRM to the Seller pursuant to the Trade Receivables Sale Agreement free and
clear of any lien, security interest or encumbrance except as created by the
Transfer Agreement, and the Trade Receivables Sale Agreement is effective to,
and shall, transfer to the Seller (and the Seller shall acquire) from DSRM all
right, title and interest of DSRM in each such Receivable and Collections with
respect thereto free and clear of any lien, security interest or encumbrance
except as created by the Transfer Agreement.
(n) Each of Originators have complied in all material respects with the
Credit and Collection Policies with respect to any Receivable sold by DSRM to
the Seller pursuant to the Trade Receivables Sale Agreement.
(o) With respect to each Receivable sold by DSRM to the Seller, the
Seller shall have paid or promised to pay to DSRM at the time of such sale
reasonably equivalent value in consideration of the transfer of such Receivable.
(p) The Collection Agent (i) has completed a review and assessment of
all computer applications (including, but not limited to those of its suppliers,
vendors, customers and any third party servicers), which are related to or
involved in the origination, collection, management or servicing of the
Receivables (the "Receivable Systems") and (ii) has determined that such
Receivable Systems are (or will be on or before November 30, 1999) able to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999 ("Year 2000 Compliant"). The costs
of all assessment, remediation, testing and integration related to the
Collection Agent's plan for becoming Year 2000 Compliant will not have
materially and adversely affect the collectibility of the Receivables or the
business or operations of the Seller, DSRM or the Parent.
ARTICLE X: COVENANTS
SECTION 10.1. Affirmative Covenants of the Seller and the Collection
Agent. Until the Aggregate Ownership Interest is reduced to zero as described in
Section 3.1(c) and no further Purchases are to be made, each of the Seller and
the Collection Agent (with respect to itself) will, unless the Administrative
Agent on behalf of the Purchasers, has otherwise consented in writing:
<PAGE>
(a) Comply in all material respects with all applicable laws, rules,
regulations and orders with respect to it, its business and properties and all
Receivables and Collections.
(b) Maintain its existence as a limited liability company (in the case
of the Seller) or corporation (in the case of the Collection Agent) in the State
of Delaware, and qualify and remain qualified in good standing in each
jurisdiction where the failure to be so qualified could materially adversely
affect its ability to perform its obligations hereunder.
(c) At any reasonable time, subject to reasonable prior notice of not
less than two (2) Business Days (or one Business Day if the Administrative Agent
is investigating a potential Event of Liquidation), permit any Purchaser or its
agents or representatives to visit and inspect any of its properties, to examine
its books of account and other records and files relating to Receivables
(including, without limitation, computer tapes and disks) and to discuss its
affairs, business, finances and accounts as they relate to the Receivables with
its officers and employees.
(d) Maintain and implement administrative and operating procedures
(including, without limitation, an ability to recreate records evidencing the
Receivables in the event of the destruction of the originals thereof), and keep
and maintain all records and other information, reasonably necessary or
advisable for the collection of Receivables (including, without limitation,
records adequate to permit the daily identification of Receivables and all
Collections and adjustments to Receivables).
(e) At its expense timely and fully perform and comply in all material
respects with all material provisions and covenants required to be observed by
the Seller under the contracts related to the Receivables.
(f) Keep the Seller's places of business and chief executive office (if
the Seller has more than one place of business) and the office where it keeps
the originals of its records concerning the Receivables at the addresses listed
on Schedule E or, upon thirty (30) days prior written notice to the
Administrative Agent, at any other location in a jurisdiction where all UCC
financing statements, and such other instruments and documents, that may be
necessary or desirable, or any Purchaser or that the Administrative Agent may
reasonably request, to perfect, protect or evidence the Aggregate Ownership
Interest have been filed.
(g) Comply in all material respects with the Credit and Collection
Policies in regard to each Receivable and any contract related to such
Receivable.
<PAGE>
(h) Instruct all Obligors to cause all Collections to be deposited or
electronically transferred directly into a Lock-Box or a Blocked Account.
(i) File and maintain in effect all filings, and take all such other
actions, as may be necessary to protect the validity and perfection of the
Aggregate Ownership Interest in Receivables.
(j) Cause each Plan to comply with all applicable provisions of ERISA.
(k) Not (i) permit any accumulated funding deficiency (as defined in
Section 302 of ERISA or Section 412 of the Code) to exist with respect to any
Plan, whether or not waived, (ii) fail, or permit any ERISA Affiliate to fail,
to pay any required installment or any other payment required under Section 412
of the Code with respect to any Plan on or before the due date for such
installment or other payment, (iii) terminate, or permit any ERISA Affiliate to
terminate, any Plan which would result in any liability of the Seller or any
ERISA Affiliate under Title IV of ERISA, (iv) take any action or fail to take
any action, or permit any ERISA Affiliate to take any action or fail to take any
action, with respect to any multiemployer plan (as defined in Section 3(37) of
ERISA) that will result in withdrawal liability of the Seller or any ERISA
Affiliate, or (v) amend, or permit any ERISA Affiliate to amend, a Plan
resulting in an increase in liabilities such that the Seller or any ERISA
Affiliate is required to provide security to such Plan under Section 401(a)(29)
of the Code.
(l) Treat the conveyance of the Aggregate Ownership Interest in the
Receivables and the Collections under this Agreement and the other Sale
Documents as a sale for purposes of generally accepted accounting principles.
(m) The Seller hereby acknowledges that the Purchasers are entering
into the transactions contemplated by this Agreement in reliance upon the
Seller's identity as a separate legal entity from the DSRM, the Parent or any
Diamond Shamrock Entity (as defined below). Therefore, from and after the date
of execution and delivery of this Agreement, the Seller shall take all
reasonable steps including, without limitation, all steps that any Purchaser or
the Administrative Agent may from time to time reasonably request to maintain
the Seller's identity as a separate legal entity and to make it manifest to
third parties that the Seller is an entity with assets and liabilities distinct
from those of DSRM, the Parent and any Affiliates (other than the Seller)
thereof (individually a "Diamond Shamrock Entity" and collectively the "Diamond
Shamrock Entities"), and not just a division of any Diamond Shamrock Entity.
Without limiting the generality of the foregoing and in addition to and
consistent with the covenant set forth in paragraph (b) above, the Seller shall:
<PAGE>
(i) require that all full-time employees of the Seller identity
themselves as such and not as employees of any Diamond Shamrock Entity
(including, without limitation, by means of providing appropriate
employees with business or identification cards identifying such
employees as the Seller's employees);
(ii) compensate all employees, consultants and agents for services
provided to the Seller by such employees, consultants and agents and,
to the extent any employee, consultant or agent of the Seller is also
an employee, consultant or agent of any Diamond Shamrock Entity,
allocate the compensation of such employee, consultant or agent between
the Seller and such Diamond Shamrock Entity on a basis which reflects
the services rendered to the Seller and such Diamond Shamrock Entity;
(iii) clearly identify its offices (by signage or otherwise) as its
offices;
(iv) allocate all overhead expenses (including, without limitation,
telephone and other utility charges) for items shared between the
Seller and any Diamond Shamrock Entity on the basis of actual use to
the extent practicable and, to the extent such allocation is not
practicable, on a basis reasonably related to actual use;
(v) ensure that all material company actions are duly authorized by its
Board of Management;
(vi) maintain the Seller's books and records separate from the
individual books and records of any other Diamond Shamrock Entity;
(vii) if required by generally accepted accounting principles, prepare
its financial statements separately from those of other Diamond
Shamrock Entities and, to the extent included in the consolidated
financial statements of the Diamond Shamrock Entities, indicate that
the Seller is a limited liability company separate from the other
Diamond Shamrock Entities included in such consolidated financial
statements; and
(viii) not commingle funds or other assets of the Seller with those of
any other Diamond Shamrock Entity and not maintain bank accounts
or other depository accounts to which any other Diamond Shamrock Entity
is an account party, into which any other Diamond Shamrock Entity makes
deposits or from which any other Diamond Shamrock Entity has the power
to make withdrawals.
<PAGE>
(n) With respect to each Receivable sold by DSRM to the Seller, pay to
DSRM reasonably equivalent value in consideration of the transfer of such
Receivable.
(o) Request that DSRM hold in trust and promptly turn over to the
Collection Agent any Collections received by DSRM on the Seller's behalf.
(p) The Collection Agent will promptly notify the Administrative Agent
in the event the Collection Agent discovers or determines that any computer
application (including those of its suppliers, vendors and customers) that is
necessary for the origination, collection, management, or servicing of the
Receivables will not be Year 2000 Compliant on or before November 30, 1999.
Further, the Collection Agent will deliver simultaneously with any quarterly or
annual financial statements or reports to be delivered under this Agreement, a
report signed by an appropriate officer that no material event, problems or
conditions have occurred which in the opinion of management would prevent or
materially delay the Collection Agent's plan to become Year 2000 Compliant.
SECTION 10.2. Reporting Requirements of the Seller. Until the Aggregate
Ownership Interest is reduced to zero and no further Purchases are to be made,
the Seller will, unless the Purchasers shall otherwise consent in writing,
furnish to the Administrative Agent for each Purchaser (or, in the case of (f)
below, assist the Collection Agent in furnishing to the Administrative Agent for
each Purchaser):
(a) (i) promptly and in any event within 30 Business Days after the
Seller or any ERISA Affiliate knows or has reason to know that a "reportable
event" (as defined in Section 4043 of ERISA) has occurred with respect to any
Plan and for which notice to the PBGC has not been waived by regulations, a
statement of an officer of the Seller setting forth details as to such
reportable event and the action that the Seller or an ERISA Affiliate proposes
to take with respect thereto, together with a copy of the notice of such
reportable event, if any, given to the PBGC, the Internal Revenue Service or the
Department of Labor; (ii) promptly and in any event within ten (10) Business
Days after receipt thereof, a copy of any notice the Seller or any ERISA
Affiliate may receive from the PBGC relating to the intention of the PBGC to
terminate any Plan or to appoint a trustee to administer any such Plan; (iii)
promptly and in any event within ten (10) Business Days after a filing with the
PBGC pursuant to Section 412(n) of the Code of a notice of failure to make a
required installment or other payment with respect to a Plan, a statement of an
<PAGE>
officer of the Seller setting forth details as to such failure and the action
that the Seller or an ERISA Affiliate proposes to take with respect thereto,
together with a copy of such notice given to the PBGC; and (iv) promptly and in
any event within thirty (30) Business Days after receipt thereof by the Seller
or any ERISA Affiliate from the sponsor of a multiemployer plan (as defined in
Section 3(37) of ERISA), a copy of each notice received by the Seller or any
ERISA Affiliate concerning the imposition of withdrawal liability or a
determination that a multiemployer plan is, or is expected to be, terminated or
reorganized;
(b) as soon as possible and in any event within three (3) Business Days
after the occurrence of any Event of Liquidation, written notice of such event;
(c) as soon as possible and in any event with five (5) days after the
occurrence thereof, written notice of any material change in the Credit and
Collection Policies;
(d) such other information, documents, records or reports respecting
(i) the Receivables as the Purchaser may from time to time reasonably request or
(ii) in connection with any of the transactions contemplated by this Agreement
or the administration of this Agreement, the condition or operations, financial
or otherwise, of the Seller or any of its subsidiaries as the Purchaser may from
time to time reasonably request; and
(e) together with each Receivables Activity Report, commencing with the
Receivables Activity Report to be delivered in the month of June, 1999, and
continuing until such time as all Receivables Systems are Year 2000 Compliant, a
report setting in forth in reasonable detail the status of efforts to cause all
Receivables Systems to be Year 2000 Compliant; and
(f) the Receivables Activity Report as required under Section 7.4,
together with a certificate of an officer of the Seller to the effect that all
of the representations and warranties contained in Section 9.1 are true and
correct in all material respects as of the date of delivery of each Receivables
Activity Report.
SECTION 10.3. Negative Covenants of the Seller and the Collection
Agent. Until the Aggregate Ownership Interest is reduced to zero and no further
Purchases are to be made, neither the Seller nor the Collection Agent, as
applicable, will, unless the Purchasers have has otherwise consented in writing:
(a) Except as provided herein, sell, assign (by operation of law or
otherwise) or otherwise dispose of, or create or suffer to exist any
security interest, lien or encumbrance upon or with respect to Re-
ceivables, Collections or any Lock-Box or Blocked Account or assign any
right to receive income in respect thereof.
<PAGE>
(b) Amend or otherwise modify the terms of any Receivable, or amend,
modify or waive any term or condition of any contract related thereto
other than in accordance with the Credit and Collection Policies and
this Agreement.
(c) Make any change in the character of its business or in the Credit
and Collection Policies which would, in either case, be reasonably
likely to impair the collectibility or credit quality of any
Receivables.
(d) Add or terminate any bank as a Lock-Box Bank or Blocked Account
Bank from those listed on Schedule C and D hereto, or make any change
in its instructions to Obligors regarding payments to be made to the
Seller or payments to be made to any Lock-Box Bank or Blocked Account
Bank, unless the Purchaser shall have received notice of such addition,
termination or change, and with respect to the addition of any Lock-Box
Bank, a Lock-Box Bank Agreement in the form of Exhibit D or with
respect to the addition of any Blocked Account Bank, a Blocked Account
Agreement in the form of Exhibit E executed by, as applicable, the
Seller, DSRM, the Administrative Agent and such Lock-Box Bank or
Blocked Account Bank shall have been delivered to the Administrative
Agent, in each case not later than the Settlement Date immediately
following the end of the calendar quarter in which such event occurred.
(e) Deposit or otherwise credit, or cause or permit to be so deposited
or credited, to any Lock-Box or Blocked Account cash or cash proceeds
other than Collections.
(f) Amend or waive any provision of the Transfer Agreement or the Trade
Receivables Sale Agreement.
(g) In the case of the Seller, enter into or be a party to any
agreement or instrument, other than in the ordinary course of business,
and other than this Agreement, the Transfer Agreement, the Trade
Receivables Sale Agreement, the Credit Card Receivables Sale Agreement,
the Credit Card Receivables Purchase Agreement, and each "Revolving
Note" (as defined in the Trade Receivables Sale Agreement and the
Credit Card Receivables Sale Agreement, respectively), or amend, modify
or waive any provision in any thereof, or give any approval or consent
or permission provided for in any thereof;
<PAGE>
(h) In the case of the Seller, engage in any business or enterprise or
enter into any transaction other than as contemplated by this
Agreement, the Transfer Agreement, the Trade Receivables Sale
Agreement, the Credit Card Receivables Sale Agreement and the Credit
Card Receivables Purchase Agreement; or
(i) Amend the Certificate of Formation or Limited Liability Agreement
of the Seller in any manner which requires unanimous consent of the
Board of Management thereof or which causes any other material change
therein.
ARTICLE XI: INDEMNIFICATIONS; INCREASED COSTS; TAX MATTERS
SECTION 11.1. Indemnification by Seller of the Purchasers, etc. Without
limiting any other rights which the Purchasers, the Administrative Agent and
their respective officers, directors, employees, agents, affiliates, successors
and assigns may have hereunder or under applicable law, the Seller hereby
indemnifies such parties (each an "Indemnified Person") and holds them harmless
from and against any and all damages, losses, claims, liabilities and related
costs and expenses (including reasonable attorneys' fees and disbursements)
incurred by any of them arising out of or resulting from this Agreement or the
purchase by any Purchaser of any Ownership Interest in Receivables, including,
without limitation:
(a) the reliance by the Administrative Agent or the Purchasers on any
representation or warranty made by the Seller (or any of its officers) or any
Originator (or any of its officers) under or in connection with this Agreement,
the Trade Receivables Sale Agreement or any Sale Document, which was incorrect
in any material respect when made;
(b) the failure by the Seller or the Collection Agent to comply with
any covenant set forth in this Agreement, the failure by DSRM to comply with any
covenant set forth in the Trade Receivables Sale Agreement, whether as Seller,
Collection Agent or otherwise and the failure by any Originator to comply with
any
covenant set forth in the Transfer Agreement;
(c) the failure to vest and maintain in each Purchaser, or to transfer
to the Purchasers, legal and equitable title to, and ownership of, an undivided
percentage ownership interest (to the extent of the Ownership Interest) in the
Receivables, free and clear of any security interest, lien, claim or encumbrance
other than any in favor of the Administrative Agent or any Purchaser that may be
created under this Agreement;
<PAGE>
(d) the transfer by the Seller of an undivided percentage ownership
interest in any Receivables other than the Ownership Interest;
(e) the Seller's use of proceeds of the Purchases;
(f) the return or transfer by the Collection Agent of any portion of
Collections allocable to the Ownership Interest to the Seller or any other
person for any reason whatsoever, which Collections belong to each Purchaser;
(g) the failure timely to file financing statements or other similar
instruments or documents under the Uniform Commercial Code of any applicable
jurisdiction or other applicable laws with respect to any Receivables, whether
at the time of a Purchase or otherwise;
(h) any dispute, claim, offset or defense of any Obligor to the payment
of any Receivable (including a defense based on such Receivable's or the related
contract's not being a legal, valid and binding obligation of such Obligor
enforceable against it in accordance with its terms), or any other claim
resulting from the sale, use, operation or ownership of or defects in or
breaches of warranties with respect to, the merchandise or services relating to
such Receivable or the furnishing or failure to furnish such merchandise or
services;
(i) the Seller's or any Originators' failure to pay when due any taxes,
(including sales, excise or personal property taxes) payable in connection with
the Receivables;
(j) the commingling of Collections with other funds of the Seller;
(k) the failure by the Seller or the Originators to comply with any
applicable law, rule or regulation with respect to any Receivable, or the
nonconformity of any Receivable with any such applicable law, rule or
regulation; or
(l) the failure to vest in the Seller all right, title and interest in
the Receivables purchased by the Seller from DSRM pursuant to the Trade
Receivables Sale Agreement, free and clear of any security interest, lien, claim
or encumbrance.
If and to the extent that the foregoing undertaking may be unenforceable for any
reason, the Seller hereby agrees to make the maximum contribution to the payment
of the amounts indemnified against in this Section 11.1 which is permissible
under applicable law. The obligation of Seller to indemnify as set forth above
shall not include damages, losses, claims, liabilities or related costs or
expenses, arising solely from (i) except as otherwise provided in this
Agreement, Receivables becoming Defaulted Receivables pursuant to clause (2) or
(3) of the definition of "Defaulted Receivable", or (ii) the gross negligence or
willful misconduct of an Indemnified Person seeking indemnification.
<PAGE>
SECTION 11.2. Indemnification Due to Failure to Consummate Purchase.
The Seller will indemnify each Purchaser on demand and hold it harmless against
all costs (including, without limitation, breakage costs) and expenses resulting
from any failure by the Seller (i) to consummate a Purchase after each Purchaser
has accepted an offer from the Seller to make such Purchase or (ii) to fulfill
its obligations pursuant to Section 6.3, and each Purchaser will indemnify the
Seller on demand and hold it harmless against all costs (including, without
limitation, breakage costs) and expenses resulting from any failure by (i) the
Conduit Purchaser to pay the required purchase price after it has accepted an
offer to Purchase from the Seller, (ii) the Conduit Purchaser to fulfill its
obligations pursuant to Section 6.2 or (iii) the BackStop Purchaser to pay the
required purchase price after a proper request from the Seller for such
Purchase.
SECTION 11.3. Increased Costs. If due to either: (i) the introduction
of or any change (including, without limitation, any change by way of imposition
or increase of reserve requirements) in or in the interpretation by any
governmental or regulatory authority or agency of any law or regulation (other
than laws or regulations relating to taxes) or (ii) the compliance by any
Purchaser or any lender under any Liquidity Facility or Credit Facility (each, a
"Conduit Lender") with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), (1) there shall
be an increase in the cost to the Purchaser or such Conduit Lender of accepting,
funding or maintaining any Purchase hereunder, (2) there shall be a reduction in
the amount receivable with regard to any Purchase or (3) such Purchaser or
Conduit Lender shall be required to make a payment calculated by reference to
the Purchases made hereunder or Purchase Discount received by it, then the
Seller shall, from time to time, within thirty (30) days from the date the
Administrative Agent makes demand therefor, pay the Administrative Agent for the
account of the applicable Purchaser or Conduit Lender (as a third party
beneficiary in the case of any Conduit Lender), that portion of such increased
costs incurred, amounts not received or required payment made or to be made,
which the Administrative Agent reasonably determines is attributable to
accepting, funding and maintaining any Purchase hereunder. In determining such
amount, the Administrative Agent may use any reasonable averaging and
attribution methods. The applicable Purchaser or Conduit Lender shall submit to
the Seller a certificate as to the existence and amounts of such increased costs
incurred, amounts not received or receivable or required payment made or to be
made, which cer tificate shall, in the absence of manifest error, be
presumptively correct for all purposes. Any Affected Party that incurs such
increased costs as described in this Section 11.3 shall use its reasonable
efforts (consistent with its internal policy and legal and regulatory
restrictions) to take such steps as would eliminate or reduce the amount of such
increased costs; provided, that no such steps shall be required to be taken if,
in the reasonable judgment of such Affected Party, such steps would be
disadvantageous to such Affected Party.
<PAGE>
SECTION 11.4. Increased Capital. If either (i) the introduction of or
any change in or in the interpretation by any governmental or regulatory
authority or agency of any law or regulation or (ii) compliance by any
Purchaser, the Administrative Agent, any Conduit Lender or any parent company of
the foregoing (each an "Affected Party") with any guideline or request from any
central bank or other governmental authority (whether or not having the force of
law) affects or would affect the amount of capital required or expected to be
maintained by such Affected Party or such Affected Party reasonably determines
that the amount of such capital is increased by or based upon the existence of
any Purchaser's agreement to make or maintain or to consider making or
maintaining Purchases hereunder and other similar agreements or facilities,
then, within thirty (30) days from the date such Affected Party or the
Administrative Agent makes demand therefor, the Seller shall immediately pay to
such Affected Party (as a third party beneficiary, in the case of any Affected
Party other than a Purchaser or the Administrative Agent) or the Administrative
Agent for the account of such Affected Party from time to time, as specified by
such Affected Party or the Administrative Agent, additional amounts sufficient
to compensate such Affected Party in light of such circumstances, to the extent
that such Affected Party or the Administrative Agent on behalf of such Affected
Party reasonably determines such increase in capital to be allocable to the
existence any agreement of a Purchaser hereunder. A certifi cate as to the
existence and amounts of such increases shall be submitted to the Seller by such
Affected Party or the Administrative Agent, shall, in the absence of manifest
error, be presumptively correct for all purposes. Any Affected Party that is
entitled to compensation for increases in capital as described in this Section
11.4 shall use its reasonable efforts (consistent with its internal policy and
legal and regulatory restrictions) to take such steps as would eliminate or
reduce the amount of such compensation; provided, that no such steps shall be
required to be taken if, in the reasonable judgment of such Affected party, such
steps would be disadvantageous to such Affected Party.
<PAGE>
SECTION 11.5. Taxes. (a) Any and all payments and deposits required
to be made hereunder or under any instrument delivered hereunder by the Seller
shall be made, in accordance with Section 7.2, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding, in
the case of an Affected Party, net income taxes that are imposed by the United
States and franchise taxes and similar taxes and net income taxes, that are
imposed on such Affected Party by the state or foreign jurisdiction under the
laws of which such Affected Party is organized or in which it is otherwise doing
business or any political subdivision thereof (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Seller or the Collection Agent shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder to any Affected Party, (i) the Seller shall make an additional payment
to such Affected Party, in an amount sufficient so that, after making all
required deductions (including deductions applicable to additional sums payable
under this Section 11.5), such Affected Party receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Seller or
the Collection Agent, as the case may be, shall make such deductions and (iii)
the Seller or the Collection Agent, as the case may be, shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, the Seller agrees to pay any present or future stamp
or other documentary taxes or any other excise or property taxes charges or
similar levies which arise from any payment made hereunder or under any
instrument delivered hereunder or from the execution, delivery or registration
of, or otherwise with respect to, this Agreement or any instrument delivered
hereunder (hereinafter referred to as "Other Taxes").
(c) The Seller will indemnify each Affected Party (as a third party
beneficiary, in the case of any Affected Party other than a Purchaser or the
Administrative Agent) for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section 11.5(c)) paid by such Affected Party and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within thirty (30) days
from the date the Affected Party makes written demand therefor. A certificate as
to the existence and amount of such indemnification shall be submitted to the
Seller by such Affected Party, setting forth the calculation thereof, and shall,
in the absence of manifest error, be presumptively correct for all purposes.
<PAGE>
(d) Within thirty (30) days after the date of any payment of Taxes, the
Seller will furnish to the Administrative Agent the original or a certified copy
of a receipt evidencing payment thereof.
(e) Any Affected Party that is entitled to the payment of any
additional amount pursuant to this Section 11.5 shall use its reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to
take such steps as would eliminate or reduce the amount of payment; provided,
that no such steps shall be required to be taken if, in the reasonable judgment
of such Affected party, such steps would be disadvantageous to such Affected
Party.
SECTION 11.6. Notices. Each Purchaser shall notify the Seller within
thirty (30) Business Days of its knowledge of a claim for which it intends to
seek indemnification under Section 11.1 or reimbursement under Section 11.5 from
the Seller. The Seller shall provide reasonable assistance to the parties
indemnified under Section 11.1, to the extent reasonably requested by them, in
any action, suit or proceeding brought by or against them in connection with the
indemnification granted herein. The Seller hereby agrees that if it assumes
control of the defense in any action, suit or proceeding brought by or against
any Indemnified Party, the outcome of any such proceeding will be subject to the
indemnification provisions of Article XI of this Agreement. Each Purchaser shall
notify the Seller of a claim for which it intends to seek reimbursement under
Sections 11.3 or 11.4 from the Seller; provided, however, that in connection
with any such notice, the applicable Purchaser shall not be entitled to receive
reimbursement in respect of any otherwise reimbursable amount under Section 11.3
or 11.4 to the extent that such amount was incurred more than sixty (60) days
prior to the date of such notice.
ARTICLE XII: MISCELLANEOUS
SECTION 12.1. Amendments, Etc. No amendment or waiver of, or consent to
the Seller's departure from, any provision of this Agreement shall be effective
unless it is in writing and signed by the parties hereto and then such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which it was given.
SECTION 12.2. Notices, Etc. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing or
by a telecommunications device capable of creating a written record, and sent,
as to each party hereto, at its address set forth under its name on the
signature pages hereto, or at such other address as shall be designated by such
party in a written notice to the other parties hereto. All such notices and
communications shall be effective (a) upon personal delivery thereof, including,
but not limited to, delivery by overnight mail and courier service, (b) upon
receipt after it shall have been mailed by United States mail, first class or
certified or registered, with postage prepaid, or (c) in the case of notice by
such a telecommunications device, when properly transmitted, except that notices
and communications to an Purchaser pursuant to Section 6.2 shall be effective
when received by such Purchaser.
<PAGE>
SECTION 12.3. [Reserved].
SECTION 12.4. No Waiver; Remedies. No failure on the part of the
Administrative Agent or any Purchaser to exercise, and no delay in exercising,
any right hereunder or under any Sale Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 12.5. Binding Effect; Assignability. (a) This Agreement shall
be binding upon and inure to the benefit of the Seller, each Purchaser, the
Administrative Agent and their respective successors and assigns, except that
the Seller shall not have the right to assign any interest herein without the
prior written consent of each Purchaser and the Administrative Agent, and the
Purchaser shall not have the right to assign any interest herein except in
accordance with paragraph (b) below. This Agreement shall create and constitute
the continuing obligation of the parties hereto in accordance with its terms,
and shall remain in full force and effect until such time as the Ownership
Interest is reduced to zero and no further Purchases are to be made; provided,
however, that rights and remedies of the Purchasers and the Administrative Agent
under Article XI and Section 5.4 and the provisions of Section 12.11 shall
survive any termination of this Agreement.
(b) The Conduit Purchaser may assign its interests hereunder without
the consent of the Seller, to CIBC, any affiliate of CIBC, any financial
institution providing a Liquidity Facility or Credit Facility or any vehicle
organized by CIBC or by any affiliate thereof. Any Purchaser may assign its
interests hereunder to any other Person with the prior written consent of
Seller, such consent not to be unreasonably withheld. Upon any assignment by a
Purchaser, the assignee shall become the owner of the Purchaser's interest in
the Receivables purchased hereunder for all purposes of this Agreement. Upon any
assignment, the assignee thereof shall have all the rights and obligations of a
Purchaser under this Agreement, and shall be subject to the same terms and
conditions of this Agreement. The parties to this Agreement acknowledge that the
Conduit Purchaser has assigned and shall be permitted to continue to assign
(without consent) to CIBC, as collateral agent for the benefit of the holder of
the debt instruments issued by the Conduit Purchaser, a security interest in all
of the Conduit Purchaser's right, title and interest in and to, among other
things, all rights of the Conduit Purchaser in and to this Agreement and other
securitization agreements entered into by the Conduit Purchaser with other
sellers and the assets purchased from or assigned by such other sellers pursuant
thereto.
<PAGE>
SECTION 12.6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 12.7. Construction of the Agreement. The parties hereto intend
that the conveyance of the Ownership Interest in the Receivables by the Seller
to the Purchasers shall be treated as sales for purposes of generally accepted
accounting principles. If, despite such intention, a determination is made that
such transactions shall not be treated as sales, then this Agreement shall be
interpreted to constitute a security agreement and the transactions effected
hereby shall be deemed to constitute a secured financing by the Purchasers to
the Seller under applicable law. For such purpose, the Seller hereby grants to
the Administrative Agent for the benefit of the Purchasers a continuing security
interest to the extent of such Ownership Interest in the Receivables and
Collections to secure the obligations of the Seller to the Purchasers hereunder.
SECTION 12.8. No Proceedings. The Seller, the Back-Stop Purchaser, the
Administrative Agent and the Collection Agent each hereby agrees that it will
not institute against the Conduit Purchaser any bankruptcy, reorganization,
insolvency or similar proceeding under any federal or state bankruptcy or
similar law, for one year and a day after the latest maturing commercial paper
note or other rated indebtedness (whether or not issued to fund the purchase or
maintenance of the Ownership Interest hereunder) issued by the Conduit Purchaser
is paid.
SECTION 12.9. Confidentiality. The Purchasers and the Administrative
Agent agree to maintain the confidentiality of any information regarding the
Seller, the Collection Agent or the Receivables obtained in accordance with the
terms of this Agreement which is not publicly available, but any Purchaser or
the Administrative Agent may reveal such information (a) to applicable rating
agencies, liquidity providers and credit providers, provided that such liquidity
providers and credit providers agree to maintain the confidentiality of such
information on the same terms that Purchaser is required to do so hereunder, (b)
as reasonably necessary or appropriate in connection with the administration or
enforcement of this Agreement, (c) as reasonably necessary or appropriate in
connection with its funding of purchases under this Agreement, provided that any
private third parties to whom such information is disclosed agree to maintain
the confidentiality of such information on the same terms as the Purchaser is
required to do so hereunder, (d) as required by law, government regulation,
court proceeding or subpoena or (e) to bank regulatory agencies and examiners.
SECTION 12.10. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement.
SECTION 12.11. Severability Clause. Any provisions of this Agreement
which are prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 12.12. SUBMISSION TO JURISDICTION; APPOINTMENT OF
AGENT TO ACCEPT SERVICE OF PROCESS.
(A) THE SELLER AND THE COLLECTION AGENT HEREBY SUBMIT TO THE
NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF ANY
FEDERAL COURT LOCATED IN SUCH STATE IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF
THE SELLER AND THE COLLECTION AGENT IRREVOCABLY WAIVES ANY OBJECTION WHICH IT
MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH PROCEEDING AND ANY CLAIM THAT ANY
SUCH PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
<PAGE>
(B) EACH OF THE SELLER AND THE COLLECTION AGENT HAS IRREVOCABLY
APPOINTED CT CORPORATION SYSTEM AS ITS AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE
FOR AND ON ITS BEHALF, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES
AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH PROCEEDING BROUGHT IN ANY SUCH
COURT WHICH MAY BE MADE ON SUCH AGENT. IF FOR ANY REASON SUCH AGENT SHALL CEASE
TO BE AVAILABLE TO ACT AS SUCH, EACH OF THE SELLER AND THE COLLECTION AGENT
AGREES TO DESIGNATE A NEW AGENT IN THE CITY OF NEW YORK ON THE TERMS AND FOR THE
PURPOSES OF THIS SECTION 12.11 SATISFACTORY TO THE PURCHASER.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their duly authorized officers as of the date set forth on the cover page of
this Agreement.
COYOTE FUNDING, L.L.C.,
as Seller
By: /s/ Steve Blank
Name: Steve Blank
Title: Vice President and Treasurer
Address: 6000 North Loop 1604 West
Attention: Treasurer
Telephone No.: (210) 592-2000
Facsimile No.: (210) 592-2010
DIAMOND SHAMROCK REFINING AND MARKETING COMPANY,
as Collection Agent
By: /s/ Steve Blank
Name: Steve Blank
Title: Vice President and Treasurer
Address: 6000 North Loop 1604 West
Attention: Treasurer
Telephone No.: (210) 592-2000
Facsimile No.: (210) 592-2010
<PAGE>
ASSET SECURITIZATION COOPERATIVE CORPORATION,
as Conduit Purchaser
By: /s/ Dean Kurdyla
Name: Dean Kurdyla
Title: Controller
Address: 425 Lexington Avenue
New York, New York 10017
Attention: Asset Securitization Group
Facsimile: (212) 856-3643
CANADIAN IMPERIAL BANK OF COMMERCE,
as Back-Stop Purchaser
By: /s/ John Gevlin
Name: John Gevlin
Title: Authorized Signatory
Address: 425 Lexington Avenue
New York, New York 10017
Attention: Asset Securitization Group
Facsimile: (212) 856-3643
CANADIAN IMPERIAL BANK OF COMMERCE,
as Administrative Agent
By: /s/ John Gevlin
Name: John Gevlin
Title: Authorized Signatory
Address: 425 Lexington Avenue
New York, New York 10017
Attention: Asset Securitization Group
Facsimile: (212) 856-3643
<PAGE>
SCHEDULE A
TO
TRADE RECEIVABLES PURCHASE AGREEMENT
dated as of
March 29, 1999
Special Concentration Limits
----------------------------
Obligor Debt Ratings Special Concentration Limit
-------------------- ---------------------------
Limited to the lesser of A and B:
Moody's S&P (A) (B)
Aa3 or higher AA- or higher $20,000,000 10.00% of Investment
> A3 and < A1 > A- and < A+ $15,000,000 7.50% of Investment
- - - - -
> Baa1 and < Baa3 > BBB- and < BBB+ $8,000,000 4.00% of Investment
- - - - -
In determining Concentration Limits based upon the foregoing chart, the
following rules shall apply:
1. If an Obligor's long-term unsecured private or public debt is
rated below Baa3 by Moody's or below BBB- by S&P, the Standard
Concentration Limit applies to that Obligor.
2. If an Obligor's long-term unsecured private or public debt is
not rated by either Moody's or S&P, the Standard Concentration
Limit applies to that Obligor.
3. If an Obligor's long-term unsecured private or public debt is
rated in one of the ratings categories specified above by
Moody's and in a different ratings category specified above by
S&P, the lower ratings category applies for determining the
Special Concentration Limit (e.g., if an Obligor were rated
AA- by S&P and A1 by Moody's, the applicable Special Concen-
tration Limit would be the lesser of $15,000,000 and 7.50% of
Investment).
4. If an Obligor's long-term unsecured private or public debt is
rated by either Moody's or S&P but not by the other rating
agency, then the Special Concentration Limit will be
determined by reference to the single available rating (e.g.,
if an Obligor were rated A2 by Moody's but not rated by S&P,
the applicable Special Concentration Limit would be the lesser
of $15,000,000 and 7.50% of Investment).
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 108,400
<SECURITIES> 0
<RECEIVABLES> 310,500
<ALLOWANCES> (3,500)
<INVENTORY> 581,800
<CURRENT-ASSETS> 1,126,000
<PP&E> 4,463,700
<DEPRECIATION> (1,208,400)
<TOTAL-ASSETS> 4,963,400
<CURRENT-LIABILITIES> 963,800
<BONDS> 1,762,200
200,000
0
<COMMON> 900
<OTHER-SE> 1,381,200
<TOTAL-LIABILITY-AND-EQUITY> 4,963,400
<SALES> 2,725,700
<TOTAL-REVENUES> 2,725,700
<CGS> 1,547,200
<TOTAL-COSTS> 1,547,200
<OTHER-EXPENSES> 2,658,500
<LOSS-PROVISION> 1,700
<INTEREST-EXPENSE> 38,600
<INCOME-PRETAX> 31,300
<INCOME-TAX> 12,700
<INCOME-CONTINUING> 18,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,000
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
