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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 1, 1998
Clark USA, Inc.
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
1-13514 43-1495734
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(Commission File Number) (IRS Employer Identification No.)
8182 Maryland Avenue
St. Louis, Missouri 63105-3721
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 854-9696
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On July 1, 1998, Clark Refining & Marketing, Inc. ("Clark R&M"), a
wholly-owned subsidiary of Clark USA, Inc. (the "Company"), entered into a
purchase and sale agreement (the "Purchase Agreement") with BP Exploration & Oil
Inc., The Standard Oil Company, BP Oil Pipeline Company and BP Chemicals Inc.
(collectively, "BP") for the purchase of BP's Lima, Ohio refinery, its Buckeye
Road crude oil terminal and Vine Street products terminal (collectively, the
"Lima Refinery"), for a purchase price of $175 million plus inventory. For a
more detailed description of the Lima Refinery and the Purchase Agreement, as
well as a summary of Company estimates regarding the Lima Acquisition and the
opinion and report of Turner, Mason & Company, consulting engineers, see Exhibit
99.1.
In connection with the acquisition of the Lima Refinery, the Company
is soliciting consents to amend certain provisions of the Company's 10 7/8%
Notes due 2005 and 11 1/2% Senior Cumulative Exchangeable Preferred Stock in
order to allow Clark R&M to incur the indebtedness to finance the acquisition of
the Lima Refinery. The Consent Soliciation Statement has been filed as Exhibit
99.1 hereto. The Consent Solicitation Statement includes a discussion of recent
developments, including recent financial results.
ITEM 7. EXHIBITS
Exhibit 99.1 Consent Solicitation Statement of the Company dated
July 6, 1998.
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SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CLARK USA, INC.
July 7, 1998 By: /s/ Maura J. Clark
- ---------------------------------- ----------------------------------
Executive Vice President--
Corporate Development
and Chief Financial Officer
INDEX TO EXHIBITS
Exhibit Number Exhibit Page
99.1 Consent Solicitation Statement of the Company, dated July 6, 1998
<PAGE>
EXHIBIT 99.1
CONSENT SOLICITATION STATEMENT
CLARK USA, INC.
SOLICITATION OF CONSENTS RELATING TO
10 7/8% SERIES B SENIOR NOTES DUE 2005 AND
11 1/2% SENIOR CUMULATIVE
EXCHANGEABLE PREFERRED STOCK
LOGO
---------------
Clark USA, Inc. (the "Company") hereby solicits consents (the "Consents"),
upon the terms and subject to the conditions set forth in this Consent
Solicitation Statement and in the accompanying Letter of Consent (the "Consent
Letter" and, together with this Consent Solicitation Statement, the "Consent
Solicitation"), to certain amendments (the "Proposed Amendments") to the terms
of (i) the indenture (the "10 7/8% Notes Indenture") dated as of December 1,
1995 between the Company and The Chase Manhattan Bank, N.A., as trustee (the
"Trustee") governing the Company's 10 7/8% Series B Senior Notes Due December
1, 2005 (the "Notes") and (ii) the certificate of designations (the
"Certificate of Designations") of the powers, preferences and relative,
participating, optional and other special rights of the Company's 11 1/2%
Senior Cumulative Exchangeable Preferred Stock, par value $.01 per share (the
"Preferred Stock"), for which First Chicago Trust Company of New York is the
registrar and paying agent (the "Registrar and Paying Agent"). The Consents
are being solicited from holders of record of the Notes and the Preferred
Stock as of 5:00 p.m., New York City time, on July 2, 1998 (the "Record
Date"). Consents to the Proposed Amendments to the Certificate of Designations
shall be deemed to be Consents to the corresponding provisions of the
Indenture dated as of October 1, 1997 between the Company and Bankers Trust
Company, as trustee (the "Exchange Indenture"), governing the 11 1/2%
Subordinated Exchange Debentures Due October 1, 2009 (the "Exchange
Debentures"), for which the Preferred Stock is exchangeable, which Consents
shall be deemed to have been given at such time that Consents to the Proposed
Amendments to the Certificate of Designations are received. The Proposed
Amendments would amend certain provisions of the 10 7/8% Notes Indenture, the
Certificate of Designations and the Exchange Indenture (collectively, the
"Governing Documents"), in order to allow the Company's subsidiary, Clark
Refining & Marketing, Inc. ("Clark R&M"), to incur the indebtedness to finance
the Lima Acquisition (as defined herein) and to conform the exception for
indebtedness under the Clark R&M Credit Agreement to the proposed amendment to
such Credit Agreement.
In the event that Consents from holders of record representing not less than
(i) a majority in principal amount of outstanding Notes and (ii) a majority of
issued and outstanding shares of Preferred Stock (collectively, the "Requisite
Consents") are received on or prior to the expiration of the Solicitation
Period (as defined herein), the Company will pay, upon the terms and subject
to the conditions set forth in this Consent Solicitation, to registered
holders of Notes and Preferred Stock (each a "Holder" and collectively, the
"Holders") as of the Record Date as to which a valid and unrevoked Letter of
Consent consenting to the Proposed Amendments has been received, (i) with
respect to the Notes, $7.50 for each $1,000 in principal amount of Notes so
validly consenting held by each Holder thereof as of the Record Date and (ii)
with respect to the Preferred Stock, $7.50 for each share ($1,000 in
liquidation preference) of Preferred Stock so validly consenting held by each
Holder thereof as of the Record Date (the "Consent Fee"). IT IS A CONDITION TO
THE PAYMENT OF A CONSENT FEE TO ANY HOLDER AND TO THE ADOPTION OF ANY PROPOSED
AMENDMENTS THAT (I) THE PROPOSED AMENDMENTS BE APPROVED AS TO ALL OF THE
GOVERNING DOCUMENTS, (II) WITH RESPECT TO THE NOTES AND THE EXCHANGE
DEBENTURES, SUPPLEMENTAL INDENTURES BE EXECUTED BY THE COMPANY AND THE
APPLICABLE TRUSTEE, (III) WITH RESPECT TO THE PREFERRED STOCK, THE AMENDMENT
TO THE CERTIFICATE OF DESIGNATIONS TO EFFECT THE PROPOSED AMENDMENTS BE
APPROVED BY HOLDERS OF A MAJORITY OF THE VOTING POWER OF THE COMMON STOCK OF
THE COMPANY AND FILED WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE AND
(IV) THE FINANCING AND THE LIMA ACQUISITION AS CURRENTLY CONTEMPLATED BE
CONSUMMATED IN ALL MATERIAL RESPECTS. Only Holders as of the Record Date who
consent to the Proposed Amendments on or prior to the expiration of the
Solicitation Period will be eligible to receive the Consent Fee. HOLDERS AS OF
THE RECORD DATE WHO DISAPPROVE OR ABSTAIN FROM CONSENTING TO THE PROPOSED
AMENDMENTS WILL NOT BE ENTITLED TO RECEIVE ANY CONSENT FEE. IN ADDITION, IF
THE PROPOSED AMENDMENTS ARE ADOPTED, EACH HOLDER WILL BE BOUND BY THE PROPOSED
AMENDMENTS, WHETHER OR NOT SUCH HOLDER DELIVERED A CONSENT.
Promptly following the expiration of the Solicitation Period and the receipt
of the Requisite Consents, the Company shall deposit with the Trustee, in the
case of the Notes, and with the Registrar and Paying Agent, in the case of the
Preferred Stock, funds in an amount sufficient to pay the Consent Fee to all
validly consenting Holders who have delivered (and have not revoked) their
Consents, pursuant to escrow agreements (the "Escrow Agreements"). Thereafter,
upon the consummation of the transactions contemplated by the financing and
the Lima Acquisition and the satisfaction or waiver of the other conditions
contained herein, the Company shall (i) execute the supplemental indentures
(the "Supplemental Indentures") with the applicable trustees, (ii) execute and
file the amendment to the Certificate of Designations relating to the Proposed
Amendments and (iii) instruct the Trustee, in the case of the Notes, and the
Registrar and Paying Agent, in the case of the Preferred Stock, to promptly
release the amounts subject to the Escrow Agreements and pay the Consent Fee
to the eligible Holders. For information concerning the terms and conditions
of the consent solicitation, see "The Consent Solicitation."
THE CONSENT SOLICITATION COMMENCES ON JULY 6, 1998 AND WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON JULY 15, 1998, UNLESS OTHERWISE EXTENDED (THE
"SOLICITATION PERIOD"). CONSENTS MAY BE REVOKED AT ANY TIME ON OR PRIOR TO THE
EXPIRATION OF THE SOLICITATION PERIOD ON THE TERMS AND CONDITIONS SET FORTH
HEREIN. SEE "REVOCATION OF CONSENTS."
---------------
If either your Notes or your shares of Preferred Stock are held on your
behalf by a bank or broker, please handle this matter through your bank or
broker. For further information relating to the Consent Solicitation, please
telephone either the Solicitation Agents or the Information Agent at the
telephone numbers set forth on the back cover page of this Consent
Solicitation Statement. To obtain copies of this Consent Solicitation
Statement, please contact Morrow & Co., as Information Agent (the "Information
Agent") at the telephone number set forth on the back cover page hereof.
---------------
The Solicitation Agents for the Consent Solicitation are:
GOLDMAN, SACHS & CO.
The date of this Consent Solicitation Statement is July 6, 1998.
<PAGE>
Only Holders (or their respective legal representatives) as of the Record
Date may execute Consents, and such Consents will be binding on all subsequent
transferees of the Notes and the Preferred Stock. Any beneficial owner of
Notes or shares of Preferred Stock who is not a Holder of such Notes or shares
of Preferred Stock, as the case may be, must arrange with the person who, on
the Record Date, was the Holder or such Holder's assignee or nominee to
execute and deliver a Consent on its behalf. THE COMPANY ANTICIPATES THAT THE
DEPOSITORY TRUST COMPANY ("DTC"), AS NOMINEE HOLDER OF NOTES AND PREFERRED
STOCK, WILL EXECUTE AN OMNIBUS PROXY IN FAVOR OF ITS RESPECTIVE PARTICIPANTS
("DTC PARTICIPANTS") WHICH WILL AUTHORIZE EACH DTC PARTICIPANT TO VOTE THE
NOTES AND SHARES OF PREFERRED STOCK OWNED BY IT AND HELD IN DTC'S NAME.
HOLDERS OF NOTES AND PREFERRED STOCK AS OF THE RECORD DATE WHO WISH TO
CONSENT SHOULD MAIL, HAND DELIVER OR SEND BY OVERNIGHT COURIER OR FACSIMILE
(CONFIRMED BY PHYSICAL DELIVERY) THEIR PROPERLY COMPLETED AND EXECUTED CONSENT
LETTERS TO THE INFORMATION AGENT AT THE ADDRESS SET FORTH ON THE BACK COVER
PAGE HEREOF AND IN THE CONSENT LETTER ON OR PRIOR TO THE EXPIRATION OF THE
SOLICITATION PERIOD IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH HEREIN AND
THEREIN. CONSENTS SHOULD BE DELIVERED TO THE INFORMATION AGENT, NOT TO THE
COMPANY, ANY TRUSTEE OR THE SOLICITATION AGENTS. HOWEVER, THE COMPANY RESERVES
THE RIGHT TO ACCEPT ANY CONSENT RECEIVED BY THE COMPANY, ANY TRUSTEE OR THE
SOLICITATION AGENTS.
Questions and requests for assistance or additional copies of this Consent
Solicitation Statement and the Consent Letter may be directed to the
Information Agent or the Solicitation Agents as set forth on the back cover of
this Consent Solicitation Statement.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS CONSENT SOLICITATION STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS CONSENT SOLICITATION IS NOT BEING MADE TO, AND NO CONSENTS ARE
BEING SOLICITED FROM, HOLDERS OF NOTES OR PREFERRED STOCK IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH SOLICITATION OR GRANT SUCH CONSENT. THE
DELIVERY OF THIS CONSENT SOLICITATION STATEMENT AT ANY TIME DOES NOT IMPLY
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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FORWARD-LOOKING STATEMENTS
THE STATEMENTS IN THIS CONSENT SOLICITATION STATEMENT THAT ARE NOT
HISTORICAL INFORMATION ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. WORDS SUCH AS "EXPECTS," "INTENDS," "PLANS," "PROJECTS,"
"BELIEVES," "ESTIMATES" AND SIMILAR EXPRESSIONS ARE USED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. ANY FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES
OF FUTURE PERFORMANCE, INVOLVE SIGNIFICANT RISKS AND UNCERTAINTIES AND ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF VARIOUS FACTORS.
AMONG THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY ARE
CHANGES IN INDUSTRY-WIDE REFINING MARGINS, CHANGES IN CRUDE OIL AND OTHER RAW
MATERIAL COSTS, AND WORLD AND REGIONAL EVENTS THAT COULD SIGNIFICANTLY
INCREASE VOLATILITY IN THE MARKETPLACE. THE COMPANY'S CRUDE OIL SUPPLY COULD
BE AFFECTED BY FACTORS BEYOND ITS CONTROL, SUCH AS EMBARGOES, THE CONTINUED
DISCOVERY AND PRODUCTION OF LIGHT SWEET CRUDE OIL, OR MILITARY CONFLICTS
BETWEEN (OR INTERNAL INSTABILITY IN) ONE OR MORE OIL-PRODUCING COUNTRIES. THE
COMPANY'S BUSINESS IS ALSO AFFECTED BY THE CONTINUED AVAILABILITY OF DEBT AND
EQUITY FINANCING, CHANGES IN LABOR RELATIONS, GENERAL ECONOMIC CONDITIONS
(INCLUDING RECESSIONARY TRENDS, INFLATION AND INTEREST RATES), MARKET SUPPLY
AND DEMAND FOR THE COMPANY'S PRODUCTS, THE RELIABILITY AND EFFICIENCY OF THE
COMPANY'S OPERATING FACILITIES, THE LEVEL OF OPERATING EXPENSES AND HAZARDS
COMMON TO OPERATING FACILITIES (INCLUDING EQUIPMENT MALFUNCTIONS, PLANT
CONSTRUCTION/REPAIR DELAYS, EXPLOSIONS, FIRES, OIL SPILLS AND SEVERE WEATHER
EFFECTS), ACTIONS TAKEN BY COMPETITORS (INCLUDING BOTH PRICING AND EXPANSION
AND RETIREMENT OF REFINERY CAPACITY IN RESPONSE TO MARKET CONDITIONS), AND
CIVIL, CRIMINAL, REGULATORY OR ADMINISTRATIVE ACTIONS, CLAIMS OR PROCEEDINGS
(INCLUDING DOMESTIC AND INTERNATIONAL POLITICAL, LEGISLATIVE, REGULATORY AND
LEGAL ACTIONS AND REGULATIONS DEALING WITH PROTECTION OF THE ENVIRONMENT,
INCLUDING GASOLINE COMPOSITION AND CHARACTERISTICS). UNPREDICTABLE OR UNKNOWN
FACTORS NOT DISCUSSED HEREIN COULD ALSO HAVE MATERIAL ADVERSE EFFECTS ON
FORWARD-LOOKING STATEMENTS.
ALTHOUGH THE COMPANY BELIEVES THAT ITS EXPECTATIONS REGARDING FUTURE EVENTS
ARE BASED ON REASONABLE ASSUMPTIONS, IT CAN GIVE NO ASSURANCE THAT THESE ARE
ALL THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS OR THAT ITS EXPECTATIONS REGARDING FUTURE
DEVELOPMENTS WILL PROVE TO BE CORRECT.
3
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission (the "Commission") are hereby incorporated by reference:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997; and
(ii) the Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1998.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Consent Solicitation
Statement and prior to the termination of the Solicitation Period shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Consent
Solicitation Statement to the extent that a statement contained herein or in
any other subsequently filed document which is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Consent Solicitation Statement.
The Company will provide without charge to each Holder, including any
beneficial Holder, to whom this Consent Solicitation Statement is delivered,
upon the written or oral request of any such person, a copy of any or all of
the documents relating to the Company that are incorporated herein by
reference (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be directed to Clark USA, Inc., 8182 Maryland Avenue, St. Louis,
Missouri 63105-3721 (telephone number (314) 854-9804), Attention: Investor
Relations Department.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange Act
and in accordance therewith files reports, proxy and information statements
and other information with the Commission. Such reports, proxy and information
statements and other information may be inspected and copied at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, or at its regional offices located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies
of such material can be obtained from the Commission by mail at prescribed
rates, or in certain cases by accessing the Commission's World Wide Web site
at http://www.sec.gov. Requests should be directed to the Commission's Public
Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
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SUMMARY
The following summary is not intended to be complete. Holders are urged to
read the more detailed information set forth elsewhere in this Consent
Solicitation Statement or incorporated by reference herein. Capitalized terms
used herein but not otherwise defined herein shall have their respective
meanings given to them in the respective Governing Documents. Unless otherwise
specified herein, or the context otherwise requires, all information relating
to the Lima Refinery and its historical operations is based on information
supplied to the Company by the seller, which has not been independently
verified. Certain other information relating to the Lima Refinery is based on
the Company's best estimates of operating results it would have achieved at the
Lima Refinery had the Company purchased the Lima Refinery on January 1, 1997
and operated it and the related assets in the proposed manner from January 1,
1997 through December 31, 1997. See "Risk Factors--Company Estimates Regarding
the Lima Acquisition" elsewhere herein.
THE COMPANY
Overview. The Company is the sixth largest independent refiner and marketer
of petroleum products in the United States ("U.S."), with one Texas Gulf Coast
refinery and two Illinois refineries representing over 370,000 barrels per day
("bpd") of rated crude oil throughput capacity. The Company is also currently
one of the ten largest direct operators of gasoline and convenience stores in
the U.S. with 731 retail outlets in 10 Midwestern states (as of March 31,
1998). The Company also distributes its products through an additional 129
independently operated Clark branded outlets. Substantially all of the
Company's operations are conducted through its subsidiary, Clark R&M. Clark
R&M's retail network has conducted operations under the Clark brand name for
over 65 years. Clark R&M also markets gasoline, diesel fuel and other petroleum
products on a wholesale unbranded basis.
The Company has focused its business objectives with an entrepreneurial
orientation towards cost reduction, productivity improvements, selective
capital investments and growth through acquisitions. Important initiatives
include the acquisition of Chevron U.S.A. Inc.'s ("Chevron") Port Arthur,
Texas, refinery and certain other assets (the "Port Arthur Refinery"); retail
acquisitions and divestitures intended to strengthen the Company's position in
core markets; the marketing division's store re-imaging program; and the
refining division's productivity enhancement programs. The Company believes it
is well positioned to benefit from improving refining industry fundamentals and
to take advantage of growth opportunities in the refining and marketing
sectors.
The Company was formed in November 1988 by Trizec Hahn Corporation (formerly
The Horsham Corporation, "TrizecHahn") and a minority shareholder to acquire
substantially all of the assets of Apex Oil Company, Inc. and its subsidiaries.
On November 3, 1997, Blackstone Capital Partners III Merchant Banking Fund L.P.
and its affiliates ("Blackstone") acquired all of the 13,500,000 shares of the
Company's common stock previously held by TrizecHahn and certain of its
subsidiaries. As a result, Blackstone obtained a 68.0% equity interest (78.5%
voting interest) in the Company. The Company's other principal shareholder is
Occidental Petroleum Corporation with a 30.7% equity interest (19.9% voting
interest).
Refining. The Company currently operates three refineries and 16 product
terminals located in its Midwest and Gulf Coast market areas, a crude oil and
LPG terminal associated with the Port Arthur refinery and has minority equity
interests in certain crude oil and product pipelines. See "--Pipeline Sales."
The refining division is the largest business division of the Company in terms
of total assets and has significant operating leverage to crack spreads and
crude oil differentials, which provides the potential for the Company to
significantly increase its operating cash flow if these variables continue to
5
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improve. The Company's refining division reported a record contribution to
operating income of $169.9 million in fiscal 1997, excluding certain inventory
and other related special items ("Operating Contribution").
Marketing. The Company markets gasoline and convenience products in ten
Midwestern states through a retail network of Company-operated stores and also
markets refined petroleum products through a wholesale program to distributors,
chain retailers and industrial consumers. The Company's wholesale operation
markets petroleum products in both the Midwest and Gulf Coast regions of the
U.S. Clark R&M's retail presence is focused in the Great Lakes region of the
U.S. where Company-operated stores market value-oriented gasoline products,
cigarettes and a unique mix of On The Go(R) (non-tobacco) convenience products.
As noted above, the Company operates a high proportion of Clark-branded retail
locations, which the Company believes enables it to respond more quickly and
uniformly to changing market conditions than many of its competitors, including
major oil companies that generally operate their stores through dealer or
jobber networks. Of the Company-operated retail locations, approximately 76%
are located on Company-owned real estate and 24% are leased locations.
Business Strategy. The Company's business strategy focuses on improving
productivity, selectively adding scale through the acquisition of low-cost,
quality assets and disciplined capital investments, promoting an
entrepreneurial culture where all employees can benefit from incentive
opportunities, and maintaining strong liquidity and financial flexibility.
RECENT FINANCIAL RESULTS
After a seasonally weak first quarter of 1998, strong refining operations and
improved market conditions during the two months ended May 31, 1998 resulted in
an improved Operating Contribution. For such two-month period, Operating
Contribution was $42.5 million compared to $52.1 million in the comparable two-
month period of 1997. Operating income for the two months ended May 31, 1998
was $39.6 million compared to $45.4 million in the comparable period of 1997.
Net income for the two months ended May 31, 1998 was $29.0 million compared to
$31.9 million in the comparable period of 1997. Refining production was strong
in April and May, averaging 366,200 bpd as compared to 378,400 bpd in the same
period of 1997, despite the Blue Island refinery undergoing a planned
maintenance turnaround during the first two weeks of April 1998.
Key market indicators for the quarters ended March 31, 1997 and 1998 and for
the months ended April 30, 1997 and 1998 and May 31, 1997 and 1998 were as
follows:
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE ONE MONTH FOR THE ONE MONTH
ENDED MARCH 31, ENDED APRIL 30, ENDED MAY 31,
--------------- ----------------- -----------------
1997 1998 1997 1998 1997 1998
------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gulf Coast 3/2/1......... $ 3.15 $ 2.39 $ 3.74 $ 2.86 $ 3.47 $ 3.77
Midwest 3/2/1............ 3.42 2.60 5.18 4.26 5.67 5.42
Heavy/Light.............. 6.26 7.03 5.38 6.00 5.70 5.53
Sweet/Sour............... 2.22 2.00 2.03 2.08 1.49 1.44
</TABLE>
As of May 31, 1998, the Company had total cash, cash equivalents and short-
term investments of $211.5 million, which was approximately $30 million higher
than normalized levels due to lower than normal inventories at the end of May.
Capital and turnaround expenditures for the five months ended May 31, 1998
totaled $36.4 million as compared to $67.3 million in the same period of 1997.
Capital expenditures in 1997 included turnaround costs associated with the
major Port Arthur refinery turnaround. The Company has received year to date
proceeds of $13.5 million from the sale of non-core retail stores through May
31, 1998.
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PIPELINE SALES
In 1997, the Company determined that its minority interests in the Southcap
Pipe Line Company, Chicap Pipe Line Company, Wolverine Pipe Line Company and
Westshore Pipe Line Company (collectively, the "Offered Pipelines") were not
strategic since the Company's shipping rights are assured due to the pipelines'
operation as common carrier pipelines and the Company's historical throughput.
In 1998, the Company signed a definitive agreement to sell one of such Offered
Pipelines and a letter of intent to sell the remaining three, subject to due
diligence and rights of first refusal by existing pipeline owners, for
aggregate net proceeds of approximately $74 million that, if consummated, would
result in an after-tax book gain estimated at approximately $68 million. The
Offered Pipelines contributed approximately $8 million of EBITDA for the fiscal
year ended December 31, 1997. Although the Company expects to close these
transactions by September 1998, there can be no assurance that it will be able
to do so by such time or at all.
PORT ARTHUR UPGRADE PROJECT
In March 1998, the Company announced that it had entered into a long-term
crude oil supply agreement with P.M.I. Comercio Internacional, S.A. de C.V., an
affiliate of Petroleos Mexicanos, the Mexican state oil company. The terms of
the contract provide the Company with the foundation necessary to continue
developing a project to upgrade the Port Arthur refinery to process primarily
lower-cost, heavy sour crude oil. Under the agreement, the Company expects to
purchase in the range of 150,000 to 210,000 bpd of heavy, sour Maya crude oil
for use at the Port Arthur refinery. The supply contract would assist in
stabilizing earnings and cash flows from the project. The contract period would
run for a minimum of eight years from the completion of the project, which
could be as early as January 2001. The Port Arthur refinery has several
important characteristics that make it attractive for this type of arrangement.
Its Gulf Coast location provides excellent access to waterborne Mexican crude
oil. Additionally, the refinery already has much of the infrastructure and
processing capability necessary to support an upgraded operation.
The project, which the Company expects to generate compelling returns, is
projected to cost approximately $600-$700 million and is currently expected to
be financed on a non-recourse basis to the Company and Clark R&M. The project
will include construction of an 80,000 bpd delayed coker and a 35,000 bpd
hydrocracking unit and expansion of the crude unit capacity to approximately
250,000 bpd. If the project is completed, the Port Arthur refinery will have
the ability to process heavy, sour crude oil up to an estimated 80% of its
capacity. The implementation of the project is subject to certain conditions,
such as final determination of economic and technical feasibility, arrangement
of suitable financing, and securing appropriate tax abatements. The Company
currently expects to begin construction of the project in the fourth quarter of
1998 and to have the financing in place early in 1999.
THE LIMA ACQUISITION
On July 1, 1998, Clark R&M entered into a purchase and sale agreement (the
"Purchase Agreement") with BP Exploration & Oil Inc., The Standard Oil Company,
BP Oil Pipeline Company and BP Chemicals Inc. (collectively, "BP") for the
purchase of BP's Lima, Ohio refinery, its Buckeye Road crude oil terminal and
Vine Street products terminal (collectively, the "Lima Refinery") for a
purchase price of $175 million plus the market value of the hydrocarbon
inventory at the Lima Refinery at the closing of such transaction (the
"Closing"), which is currently estimated to be approximately $60 million (the
"Lima Acquisition"). In addition, an estimated $50 million will be paid for
crude oil in transit
7
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currently owned by BP, the payment for which will occur over the two months
following the consummation of the Lima Acquisition as the crude oil is
delivered to the Lima Refinery. The Lima Refinery is being purchased with
limited representations, warranties and closing conditions. Subject to the
terms and limitations set forth in the Purchase Agreement, BP has agreed to
indemnify Clark R&M and the Company for all environmental and other liabilities
and obligations arising from the ownership and operation of the Lima Refinery
prior to Closing. See "The Lima Acquisition--The Purchase Agreement." The
Company believes the purchase price is attractive based on recent comparable
refinery acquisitions. The Company also believes the Lima Acquisition will
offer an opportunity to improve the Company's results of operations and cash
flow and that the Lima Refinery has the potential for improved productivity.
The Lima Refinery is a single train, fully integrated coking refinery that
has a rated crude oil throughput capacity of approximately 170,000 bpd which is
expected to increase the Company's crude oil throughput capacity from its
current 370,000 bpd to approximately 540,000 bpd. The Lima Refinery is a highly
automated, modern oil refinery with a Nelson complexity rating of 8.7 and an
estimated replacement cost of $1.2 billion. The Midwest location of the Lima
Refinery has historically provided it with a transportation cost advantage and
less gross margin volatility than refineries in other regions since demand for
refined products has exceeded supply in the region. The Lima Refinery
complements the Company's existing assets in the region as it is located in
existing core retail and wholesale markets where the Company already has
distribution capability.
The Lima Refinery, which is located on a 650 acre site, was designed to
process light sweet crude oil and has historically run a predominantly domestic
sweet crude oil slate. In addition to over five million barrels of on-site
storage and a rail products loading and unloading system, the Lima Refinery
also has access to a system of crude oil and product pipelines and terminals.
At approximately 170,000 bpd, the Lima Refinery is large enough to realize
economies of scale, resulting in consistently high operating efficiency and low
unit costs. According to a 1994 industry study, the Lima Refinery ranked in the
2nd quartile in terms of fixed costs and in the 1st quartile in operational
availability, turnaround index and maintenance index.
THE FINANCING
The Company expects to obtain financing for the purchase of the Lima Refinery
as described below. The closing of the Lima Acquisition is currently expected
to occur simultaneously with the closing of the financing transactions.
However, the Company may instead choose to close the financing transactions
prior to the Lima Acquisition and deposit the proceeds from the financing
transactions into escrow pending the consummation of the Lima Acquisition. The
closing of the financing transactions will be conditioned upon the successful
completion of the Consent Solicitation and, except as described above, upon the
closing of the Lima Acquisition. There can be no assurance that the Company
will complete the Lima Acquisition.
The Company currently expects that the financing will consist of $225 million
of new indebtedness to be incurred by Clark R&M. Although the principal amount
and other definitive terms of any such financing have not yet been determined,
the Company currently expects that the financing will be in the form of (i)
$150 million aggregate principal amount of fixed rate senior notes due 2008 of
Clark R&M (the "Fixed Rate Senior Notes") and (ii) $75 million aggregate
principal amount of floating rate senior indebtedness of Clark R&M, which may
take the form of floating rate senior notes due 2005 or a term loan maturing in
2004 (the "Floating Rate Senior Notes", and together with the Fixed Rate Senior
Notes, the "New Clark R&M Notes"). In the event the new floating rate senior
indebtedness takes the form of a term loan, the Company expects to amend the
1997 Term Loan Agreement (as defined) to increase the borrowings thereunder by
the applicable amount.
Holders should note that the principal amounts discussed above and in the
Sources and Uses table below, along with the other expected terms of the New
Clark R&M Notes described below, are
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<PAGE>
preliminary and therefore subject to change, including increases or decreases
in principal amounts. Accordingly, the Proposed Amendments will not specify the
particular provisions of such indebtedness to be incurred and will instead
provide for a general exception for indebtedness to finance the Lima
Acquisition in an amount not to exceed $250 million.
It is expected that the Fixed Rate Senior Notes will be redeemable at the
option of Clark R&M, in whole or in part, at any time on and after a specified
date in 2003 at specified declining redemption prices, plus accrued and unpaid
interest, if any, to the date of redemption. In addition, it is expected that
up to 35% in aggregate principal amount of the Fixed Rate Senior Notes
originally issued will be redeemable at the option of Clark R&M out of the net
cash proceeds of one or more equity offerings at any time prior to a specified
date in 2002 at a specified redemption price approximately equal to par plus
the coupon rate, plus accrued and unpaid interest, if any, to the redemption
date.
It is expected that 25% of the aggregate principal amount of the Floating
Rate Senior Notes will be subject to mandatory redemption in the year prior to
maturity and that the Floating Rate Senior Notes will be redeemable at the
option of Clark R&M, in whole or in part, at any time at specified declining
redemption prices, plus accrued and unpaid interest, if any, to the date of
redemption.
It is expected that upon the occurrence of a change of control that results
in a rating decline, Clark R&M will be required to offer to purchase all of the
New Clark R&M Notes at 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase.
The New Clark R&M Notes will rank pari passu with all unsubordinated
indebtedness of Clark R&M, including indebtedness under Clark R&M's credit
agreement (the "Credit Agreement"). The obligations of the Company under the
Credit Agreement, however, are secured by a lien on substantially all of Clark
R&M's cash and cash equivalents, receivables, crude oil, refined product and
other inventories and trademarks and other intellectual property and,
accordingly, such indebtedness will effectively rank senior in right of payment
to the New Clark R&M Notes to the extent of such assets. Because the Company is
a holding company, the Notes and the Preferred Stock will be structurally
subordinated to the New Clark R&M Notes.
It is expected that the Indentures relating to the New Clark R&M Notes will
contain certain covenants that, among other things, will limit the ability of
Clark R&M to incur or guarantee additional indebtedness, pay dividends on and
redeem capital stock, sell assets and capital stock, enter into transactions
with affiliates, create liens, engage in mergers and consolidations or transfer
substantially all of its assets to another person. However, all of these
covenants will be subject to a number of important qualifications and
exceptions.
Further, after the occurrence of an investment grade rating event, it is
expected that certain of the covenants described in the preceding paragraph
will cease to exist or will be modified. The Indentures at such time will
contain covenants that, among other things, will limit Clark R&M's ability to
create liens with respect to certain assets, enter into sale-leaseback
transactions and engage in mergers and consolidations.
It is expected that Clark R&M will agree to use its reasonable best efforts
to file a registration statement relating to an exchange offer pursuant to
which another series of unsecured debt securities of Clark R&M with
substantially the same terms as the applicable series of New Clark R&M Notes
will be offered in exchange for each series of New Clark R&M Notes. The
interest rate on the New Clark R&M Notes is expected to be subject to increase
and such additional interest will be payable in certain circumstances,
including if an exchange of the New Clark R&M Notes is not registered with the
Commission within the prescribed time periods.
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<PAGE>
In 1997, Clark R&M entered into the Credit Agreement with a group of banks
led by Bankers Trust Company, as Administrative Agent and Collateral Agent. The
Credit Agreement provides for both letters of credit and revolving credit
borrowings, secured by all of Clark R&M's current assets and certain
intangibles as described above, which will terminate on December 31, 1999. The
amount of the facility is currently the lesser of $400 million or the amount
available under a Borrowing Base, as defined in the Credit Agreement,
representing specified percentages of cash, investments, receivables, inventory
and other working capital items. Upon the consummation of the Lima Acquisition
and the new financing, the Company expects to amend the facility to, among
other things, extend the maturity thereof and increase the total amount of
availability thereunder up to the lesser of $700 million or the amount
available under the Borrowing Base (as defined in the Credit Agreement), with a
sub-limit of $100-$150 million (increased from $50 million) for direct cash
revolving credit borrowings, all of which would continue to be secured.
The net proceeds from the financing will be used to pay the purchase price
for the Lima Refinery and certain related inventory to be acquired from BP as
described herein.
The following table illustrates the anticipated sources and uses of funds
related to the Lima Acquisition.
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
New Floating Rate Notes of Clark R&M........................... $ 75.0
New Fixed Rate Notes of Clark R&M.............................. 150.0
Available cash................................................. 25.0(a)
------
Total...................................................... $250.0
======
USES OF FUNDS:
Purchase of Lima Refinery assets............................... $175.0
Purchase of Lima Refinery hydrocarbon inventory................ 60.0(a)
Fees and expenses.............................................. 15.0
------
Total...................................................... $250.0
======
</TABLE>
- --------
(a) In addition, an estimated $50 million will be paid for crude oil in transit
currently owned by BP, the payment for which will occur over the two months
following the consummation of the Lima Acquisition as the crude oil is
delivered to the Lima Refinery. Such $50 million will be substantially
funded through proceeds from the sale of finished products over the same
period.
THE CONSENT SOLICITATION
The existing debt incurrence covenant, together with its related definitions,
in each of the Governing Documents (the "Existing Debt Incurrence Provisions")
currently prohibit Clark R&M from incurring indebtedness in an amount
sufficient to consummate the Lima Acquisition. The Existing Debt Incurrence
Provisions generally provide that, subject to certain exceptions, neither the
Company nor Clark R&M may incur any indebtedness, unless, after giving pro
forma effect to such incurrence and acquisitions of material assets, the
Consolidated Operating Cash Flow Ratio of the Company for the most recent four
quarters would be greater than 2.0 to 1. After giving effect to the incurrence
of the New Clark R&M Notes and to the Lima Acquisition, the Company's
Consolidated Operating Cash Flow Ratio would be approximately 1.8 to 1 for the
four quarters ended March 31, 1998, compared to 1.6 to 1 for the four quarters
ended March 31, 1998 without giving effect thereto. Accordingly, the Proposed
Amendments would add an express exception for the incurrence of the
indebtedness to be incurred in order to finance the Lima Acquisition in an
aggregate amount not to exceed $250 million.
10
<PAGE>
In addition, the Proposed Amendments would conform the exception for
indebtedness under the Credit Agreement to the proposed amendment thereto
described under "--The Financing." The existing exceptions in the Governing
Documents generally allow indebtedness under the Credit Agreement in an
aggregate principal amount not to exceed the greater of $500 million, in the
case of the Preferred Stock and the Exchange Debentures, and $400 million in
the case of the Notes, and the Borrowing Base (as defined in the Governing
Documents). The amendment to the Credit Agreement would increase the total
amount of availability thereunder up to the lesser of $700 million and the
Borrowing Base (as defined in the Credit Agreement). Accordingly, such Proposed
Amendment would change such $500 million and $400 million amounts contained in
the Governing Documents to $700 million. However, Holders should note that
because the exceptions in the Governing Documents will be based on the greater
of such amount and the Borrowing Base after giving effect to the Lima
Acquisition, such Proposed Amendment would not by itself result in any
significantly greater ability of Clark R&M to incur indebtedness.
The Proposed Amendments would also add an exception in the definition of
"Permitted Liens" in the 10 7/8% Notes Indenture for liens securing obligations
under the Credit Agreement to clarify that the full amount of borrowings under
the Credit Agreement are secured.
The Company is unable to predict the effect, if any, that the Proposed
Amendments would have on the market price of the Notes or the Preferred Stock.
However, the Company believes that the potential benefit to Holders of the
Notes and the Preferred Stock of the Company's opportunity for enhanced
earnings and cash flow as a result of the Lima Acquisition more than offsets
any potential adverse effects of the Proposed Amendments.
If the Requisite Consents for the Proposed Amendments are received (and not
revoked) prior to the expiration of the Solicitation Period and the other
conditions set forth herein are satisfied or waived, the Company will, after
the expiration of the Solicitation Period, the execution of the Supplemental
Indentures, the filing of an amendment to the Certificate of Designations that
will document the Proposed Amendments, the consummation of the transactions
contemplated by the financing and the Lima Acquisition and the satisfaction of
the other conditions, instruct the Trustee, in the case of the Notes, and the
Registrar and Paying Agent, in the case of the Preferred Stock, to release the
amounts subject to the Escrow Agreements and pay the Consent Fee to each Holder
of the Notes and the Preferred Stock as of the Record Date who has delivered
(and has not revoked) a valid Consent on or prior to such expiration of the
Solicitation Period. NO ACCRUED INTEREST WILL BE PAID ON THE CONSENT FEE DURING
THE PERIOD SUCH FUNDS ARE HELD IN ESCROW.
The following is a summary of certain terms of the Consent Solicitation:
Title of Securities and
Consent Fees............. The securities subject to this Consent
Solicitation are the Company's (i) 10 7/8% Series
B Senior Notes Due 2005 (the "Notes") and (ii) 11
1/2% Senior Cumulative Exchangeable Preferred
Stock (the "Preferred Stock"). The Consent Fee
payable to Holders who have delivered (and have
not revoked) a valid Consent on or prior to the
expiration of the Solicitation Period is (i) with
respect to the Notes, $7.50 for each $1,000 in
principal amount of Notes so validly consenting
held by each Holder thereof as of the Record Date
and (ii) with respect to the Preferred Stock,
$7.50 for each
11
<PAGE>
share ($1,000 in liquidation preference) of
Preferred Stock so validly consenting held by
each Holder thereof as of the Record Date (the
"Consent Fee").
Record Date............... 5:00 p.m., New York City time, on July 2, 1998.
Solicitation Period....... The Consent Solicitation commences on July 6,
1998 and will expire at 5:00 p.m., New York City
time, on July 15, 1998, unless otherwise
extended.
Requisite Consents........ Holders as of the Record Date must deliver (and
not revoke) valid Consents in respect of a
majority in aggregate principal amount of the
Notes and a majority of issued and outstanding
shares of Preferred Stock in order to approve the
Proposed Amendments. For purposes of the
foregoing calculation, any Notes or shares of
Preferred Stock held by the Company or any of its
affiliates will not be counted as being
outstanding.
Consequences of Non-
Consenting Holders....... If the Requisite Consents are obtained and the
Proposed Amendments become effective, non-
consenting Holders will be bound by the Proposed
Amendments but will not receive the Consent Fee.
Procedure for Delivery of
Consents................. Consents must be received by the Information
Agent on or prior to the expiration of the
Solicitation Period. Only Holders of Notes or
Preferred Stock as of the Record Date are
eligible to consent to the Proposed Amendments.
See "The Consent Solicitation--Consent
Procedures."
Revocation of Consents.... Revocation of Consents may be made at any time on
or prior to 5:00 p.m., New York City time, on
July 15, 1998, unless the Solicitation Period is
extended, but Consents may only be revoked by the
Holder of the Notes or Preferred Stock, as
applicable, as of the Record Date. See "The
Consent Solicitation--Revocation of Consents."
Escrow of Consent Fees.... Promptly following the expiration of the
Solicitation Period and the receipt of the
Requisite Consents, the Company shall, pursuant
to the Escrow Agreements, deposit with the
Trustee, in the case of the Notes, and with the
Registrar and Paying Agent, in the case of the
Preferred Stock, funds in an amount sufficient to
pay the Consent Fee to all validly consenting
Holders who have delivered (and have not revoked)
their Consents. Thereafter, upon the consummation
of the transactions contemplated by the financing
and the Lima Acquisition and the satisfaction or
waiver of the other conditions contained herein,
the Company shall (i) execute the Supplemental
Indentures with the applicable trustees, (ii)
file the amendment to the Certificate of
Designations relating to the Proposed Amendments
and (iii) instruct the Trustee, in
12
<PAGE>
the case of the Notes, and the Registrar and
Paying Agent, in the case of the Preferred Stock,
to promptly release the amounts subject to the
Escrow Agreements and pay the Consent Fee to the
eligible Holders. For information concerning the
terms and conditions of the consent solicitation,
see "The Consent Solicitation."
Effectiveness............. The Proposed Amendments will become effective
upon the consummation of the transactions
contemplated by the financing and the Lima
Acquisition following the end of the Solicitation
Period, upon execution by the Company and the
applicable trustee of the Supplemental Indentures
and the filing of the amendment to the
Certificate of Designations pursuant to which the
Proposed Amendments will be documented. The
Supplemental Indentures are expected to be
executed, and the amendment to the Certificate of
Designations is expected to be filed, after the
end of the Solicitation Period and upon receipt
of the Requisite Consents, but not prior to the
consummation of the transactions contemplated by
the financing and the Lima Acquisition and the
satisfaction or waiver of the other conditions
contained herein.
Federal Income Tax
Consequences............. For a discussion of certain federal income tax
considerations relating to the Consent
Solicitation, see "Certain Federal Income Tax
Consequences."
Solicitation Agents....... Goldman, Sachs & Co. are serving as Solicitation
Agents in connection with the Consent
Solicitation.
Information Agent......... Morrow & Co. is serving as Information Agent in
connection with the Consent Solicitation.
Stock Exchange Listing.... Neither the Notes nor the Preferred Stock is
currently listed on any stock exchange and it is
not contemplated that they will be so listed
after the consummation of the Consent
Solicitation.
RISK FACTORS
Prior to deciding whether to consent to the Proposed Amendments, each Holder
should carefully consider all of the information contained in this Consent
Solicitation Statement. See "Risk Factors" for a discussion of certain
important factors that should be considered in evaluating the terms of the
Consent Solicitation Statement. Each Holder is urged to read carefully all of
the discussion under "Risk Factors."
13
<PAGE>
RISK FACTORS
Holders of Notes and Preferred Stock should carefully consider the factors
set forth below as well as the other information set forth in this Consent
Solicitation Statement prior to marking and returning a Consent.
SUBSTANTIAL LEVERAGE, HISTORY OF NET LOSSES AND INSUFFICIENCY OF EARNINGS TO
COVER FIXED CHARGES
The Company has consolidated indebtedness that is substantial in relation to
its stockholders' equity. As of March 31, 1998, the Company had outstanding
long-term indebtedness (including current portions) of approximately $761.4
million. As of March 31, 1998, on a pro forma basis after giving effect to the
consummation of the offering of the New Clark R&M Notes (the "Offering") and
the application of the net proceeds therefrom, and the sale of the Offered
Pipelines, the Company would have had outstanding long-term indebtedness
(including current portions) of approximately $986.4 million and stockholders'
equity of approximately $56.7 million. The Company has no significant
independent operations and relies on receipt of funds from Clark R&M to meet
its debt and dividend obligations. Failure of the Company to meet its debt and
dividend obligations could have a material adverse effect on the Company.
The Company had net losses before extraordinary items of $37.1 million,
$56.2 million and $87.4 million for the years ended December 31, 1995,
December 31, 1996 and December 31, 1997, respectively. As a result of these
losses, earnings were insufficient to cover fixed charges by $61.8 million,
$60.5 million and $84.3 million for such periods, respectively. The Company
may experience net losses in the future.
The level of the Company's consolidated indebtedness could have several
important consequences for Holders of the Notes and Preferred Stock,
including, but not limited to, the following: (i) a significant portion of the
Company's cash flow will be dedicated to debt service and dividend payments
and will not be available for other purposes; (ii) the Company's ability to
obtain additional financing in the future for capital expenditures,
acquisitions, general corporate or other purposes may be limited; (iii) the
Company's leveraged position and the covenants contained in the 10 7/8% Notes
Indenture, the Exchange Indenture and the Certificate of Designations could
limit the Company's ability to compete, as well as its ability to expand and
make capital improvements; and (iv) the Company's level of indebtedness could
make it more vulnerable to economic downturns and more sensitive to volatility
in the petroleum industry, limit its ability to withstand competitive
pressures and reduce its flexibility in responding to changing business and
economic conditions.
The Company's ability to pay interest on the Notes, dividends on the
Preferred Stock and to satisfy its debt obligations will depend upon the
future operating performance of Clark R&M, which will be affected by
prevailing economic factors, certain of which are beyond its control. The
Company anticipates that available cash and other sources of liquidity
(primarily dividends and distributions from its subsidiaries) will be adequate
to meet the Company's anticipated requirements for interest payments and
dividend payments. There can be no assurance, however, that the Company will
continue to generate sufficient cash flow in the future to service its debt
and dividend obligations and make necessary capital expenditures. If unable to
do so, the Company may be required to reduce or delay planned capital
expenditures, seek additional financing, dispose of certain assets and/or seek
to refinance some or all of its debt. There can be no assurance that any of
these alternatives could be effected, if at all, on satisfactory terms.
LIQUIDITY
The Company's cash, cash equivalents and short-term investments as of March
31, 1998 totalled $148.3 million. In addition, Clark R&M had $400.0 million
available (subject to customary borrowing
14
<PAGE>
conditions) under the Clark R&M Credit Agreement for the issuance of letters
of credit and short-term cash borrowings (subject to a $50.0 million
sublimit). On a pro forma basis after giving effect to the Lima Acquisition,
the Offering, the application of the net proceeds therefrom and the payment of
fees and expenses in connection therewith and this Consent Solicitation, and
the sale of the Offered Pipelines, the Company's cash and short-term
investments as of such date would have been $197.3 million. As a result of the
increased consolidated indebtedness of the Company resulting from the
Offering, annual interest expense will increase. There are a number of other
factors which may have a material effect on the Company's liquidity, including
the following:
The Company's short-term working capital requirements (primarily letter of
credit issuances at Clark R&M to support crude oil requirements) fluctuate
with the pricing and sourcing of crude oil. Historically, Clark R&M's
internally generated cash flows have been sufficient to meet its needs. Clark
R&M's Credit Agreement is a revolving line of credit for short-term cash
borrowings and for the issuance of letters of credit in an amount equal to the
lesser of $400.0 million or a borrowing base calculated with reference to cash
and cash equivalents, eligible investments, eligible receivables and eligible
petroleum inventories. As of March 31, 1998, the maximum commitment under
Clark R&M's Credit Agreement was $400.0 million, of which $164.2 million was
used for letters of credit; there were no direct borrowings as of such date.
The Credit Agreement will expire December 31, 1999. To the extent Clark R&M is
unable to refinance its working capital facility on a timely basis and on
satisfactory terms, there can be no assurance that the Company will have
adequate liquidity. In addition, Clark R&M is required to comply with certain
financial covenants contained in the Credit Agreement. There can be no
assurance that Clark R&M will remain in compliance with such covenants if
industry conditions weaken and continue for an extended period of time, which
would have a direct impact on the Company. Upon the consummation of the Lima
Acquisition and the new financing, the Company expects to amend the facility
to, among other things, extend the maturity thereof and increase the total
amount of availability thereunder up to the lesser of $700 million or the
amount available under the Borrowing Base, with a sub-limit of $100-$150
million (increased from $50 million) for direct cash revolving credit
borrowings, all of which would continue to be secured.
The Company also has a number of longer term needs for cash. The Company
estimates that mandatory capital expenditures, including environmental and
regulatory expenditures and other nondiscretionary expenditures, from 1998
through 2000 will be approximately $65.0 million per year. While the Company
expects that internally generated cash flows will be sufficient to support
such capital expenditures, there can be no assurance in this regard. The
Company links discretionary capital spending to cash flow generated and, as of
March 31, 1998, did not have any material long-term commitments for
discretionary capital expenditures. If internally generated cash flows are
insufficient to support such mandatory and discretionary capital expenditures,
the Company may be required to seek additional financing or postpone such
capital expenditures. There can be no assurance that any such additional
financing could be obtained or, if obtained, that the terms of any such
financing would be satisfactory to the Company.
The Lima Refinery will also require significant capital expenditures. See
"Summary of Company Estimates Regarding the Lima Acquisition."
THE LIMA ACQUISITION
The Lima Acquisition will have significant effects on all of the Company's
operations. The Lima Acquisition is expected to increase the Company's
refining capacity from 370,000 bpd to 540,000 bpd. As a result, the Company
will experience corresponding increases in (i) working capital requirements,
(ii) demands on management resources, (iii) requirements for crude oil
feedstock supply and (iv) quantities of refined product output which must be
stored, transported and marketed by the Company. There can be no assurance,
however, that the Company will be able to successfully implement its business
strategy with respect to the Lima Refinery.
15
<PAGE>
The Lima Refinery is being purchased on an "as is" basis, with limited
representations, warranties and closing conditions. While BP will indemnify
Clark R&M and the Company for all liabilities and obligations arising from the
ownership and operation of the Lima Refinery prior to Closing subject to
certain terms and limitations contained in the Purchase Agreement (including
the requirement that certain environmental indemnity claims be made within 17
years of Closing), the ownership and operation of the facility post-Closing
may subject Clark R&M and the Company in the future to risks of substantial
liability for environmental matters, for which Clark R&M has agreed to
indemnify BP.
COMPANY ESTIMATES REGARDING THE LIMA ACQUISITION
The Company's estimates for the Lima Refinery included herein represent the
Company's best estimates of the operating results it would have achieved at
the Lima Refinery, had the Company purchased the Lima Refinery on January 1,
1997 and operated it and the related assets in the proposed manner from
January 1, 1997 through December 31, 1997. The estimates are based upon a
number of assumptions, some of which may not materialize. Other assumptions
may materialize but in a subsequent period. Unanticipated events may occur
which could affect actual results achieved by the Company after the Lima
Acquisition. The Lima Refinery's actual results after the Lima Acquisition
will vary from the estimates and these variations may be material. Prospective
investors are cautioned not to place undue reliance on the estimates. The
Company does not intend to update or otherwise revise the estimates to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. The estimates were not prepared with a view toward
compliance with published guidelines of the American Institute of Certified
Public Accountants or generally accepted accounting principles and have not
been examined, reviewed or compiled by the Company's independent public
accountants. See "Summary of Company Estimates Regarding the Lima
Acquisition."
CONSEQUENCES TO NON-CONSENTING HOLDERS
Holders who do not timely consent to the Proposed Amendments will not be
eligible to receive a Consent Fee even though the Proposed Amendments, if
approved through the receipt of the Requisite Consents, will be binding upon
them.
16
<PAGE>
THE LIMA ACQUISITION
OVERVIEW
On July 1, 1998, Clark R&M entered into the Purchase Agreement for the
purchase of the Lima Refinery for a purchase price of $175 million plus the
market value of the hydrocarbon inventory at the Lima Refinery at Closing,
which is currently estimated to be approximately $60 million. In addition, an
estimated $50 million will be paid for crude oil in transit currently owned by
BP, the payment for which will occur over the two months following the
consummation of the Lima Acquisition as the crude oil is delivered to the Lima
Refinery. Such $50 million will be substantially funded through proceeds from
the sale of finished products over the same period. The Lima Refinery is being
purchased with limited representations, warranties and closing conditions.
Subject to the terms and limitations set forth in the Purchase Agreement
(including the requirement that certain environmental claims be made within 17
years after Closing), BP will indemnify Clark R&M and the Company for all
environmental and other liabilities and obligations arising from the ownership
and operation of the Lima Refinery prior to Closing. The Company believes the
purchase price for the Lima Refinery is attractive based on recent comparable
refinery acquisitions. The Company also believes the Lima Acquisition will
offer an opportunity to improve the Company's results of operations and cash
flow and that the Lima Refinery has the potential for improved productivity.
The Lima Refinery is a single train, fully integrated coking refinery that
has a rated crude oil throughput capacity of approximately 170,000 bpd, which
is expected to increase the Company's crude oil throughput capacity from its
current 370,000 bpd to approximately 540,000 bpd. The Lima Refinery is a
highly automated, modern oil refinery with a Nelson complexity rating of 8.7
and an estimated replacement cost of $1.2 billion. The Midwest location of the
Lima Refinery has historically provided it with a transportation cost
advantage and less gross margin volatility than refineries in other regions
since demand for refined products has exceeded supply in the region. The Lima
Refinery complements the Company's existing assets in the region as it is
located in existing core retail and wholesale markets where the Company
already has distribution capability.
HISTORY
Originally known as the Solar Refinery, the first refinery on the Lima
Refinery's site was constructed in 1886 by The Standard Oil Company in order
to take advantage of what was to become the world's greatest oil producing
area until 1910. Following the break-up of Standard Oil in 1911 by the U.S.
anti-trust litigation, the Standard Oil Company of Ohio (Sohio as it was known
in the Midwest) did not own the Lima Refinery. However, in 1931, Sohio
acquired the Lima Refinery and invested heavily to ensure that it would remain
a technologically modern refinery. Most of the processing units in the Lima
Refinery have been rebuilt since 1970, making the Lima Refinery relatively
young among Midwest refineries. BP gained control of the Lima Refinery when
Standard Oil merged with BP in 1987.
In 1996, BP announced its intention to sell the Lima Refinery. The Company
participated in BP's sale process at such time and performed extensive due
diligence during 1996, including the review of information provided by BP,
presentations from BP's management, interviews of key Lima Refinery personnel,
a visit to the Lima Refinery and the modification of BP's linear programming
model of the Lima Refinery. However, the Company did not make an offer to
purchase the Lima Refinery at that time. In late 1996, BP announced that it
could not locate a suitable buyer for the Lima Refinery and would close the
Lima Refinery in two years. Despite such announcement, BP continued to invest
at near historical levels for maintenance operating expenses and mandatory
capital expenditures at the Lima Refinery during 1997. In May 1998, the
Company expressed an interest to BP to purchase the Lima Refinery and was
provided with updated operating information on the Lima Refinery.
17
<PAGE>
THE LIMA REFINERY
The Lima Refinery, which is located on a 650 acre site, was designed to
process light sweet crude oil and has historically run a predominately
domestic sweet crude oil slate. In addition to over five million barrels of
on-site storage and a rail products loading and unloading system, the Lima
Refinery also has access to a system of crude oil and product pipelines and
terminals. At approximately 170,000 bpd, the Lima Refinery is large enough to
realize economies of scale, resulting in consistently high operating
efficiency and low unit costs. According to a 1994 industry study, the Lima
Refinery ranked in the 2nd quartile in terms of fixed costs and in the 1st
quartile in operational availability, turnaround index and maintenance index.
The Lima Refinery's major processing units and associated current
capabilities are listed below:
<TABLE>
<CAPTION>
CAPACITY (BARRELS PER DAY,
PROCESSING UNIT EXCEPT AS NOTED)
--------------- --------------------------
<S> <C>
Crude unit...................................... 170,000
Vacuum unit..................................... 54,000
FCC unit........................................ 40,000
Coker unit...................................... 22,500
Reformer........................................ 56,000
HDS............................................. 60,000
Isocracker...................................... 26,000
Isomerization................................... 18,500
Aromatics....................................... 25,500
Trolumen........................................ 1,200
Hydrogen purification unit...................... 1.2 mm scfh 90% H2
Sulfur recovery unit............................ 54 long tons
</TABLE>
CRUDE OIL SUPPLY AND REFINED PRODUCT DISTRIBUTION
Crude oil for the Lima Refinery can be obtained from a variety of sources
and transported through several crude oil pipelines. The Lima Refinery
receives 100% of its crude oil supply via pipeline. Delivery routes include
the Mid-Valley, Salem-Stoy-Lima (SSL) and the Marathon pipeline systems as the
three crude pipeline systems with final delivery capability to the refinery,
with connections to Capline, Mobil, Ozark, IPL and other pipeline systems.
Historically, the Lima Refinery has been supplied by domestic crude oil moving
via the Mesa and West Texas Gulf pipeline into the Mid-Valley pipeline system.
Gulf Coast sourced foreign crude oil can be supplied to the Lima Refinery via
the LOOP/LOCAP system into Capline and then into the Lima Refinery either
through the SSL or Marathon pipeline systems. Canadian crude oil can be
supplied to the refinery through the IPL system which connects to the Marathon
pipeline system.
The Lima Refinery distributes products through several refined product
pipeline systems and by rail, truck or the adjacent Vine Street terminal. Most
refinery products are distributed by using the Buckeye or Inland Pipeline
Systems. The Buckeye Pipeline System is a publicly held, common carrier,
interstate pipeline system with connections throughout the Midwest. Through
Buckeye, the Lima Refinery has access to markets in Northern/Central Ohio,
Indiana, Michigan and Western Pennsylvania. The Inland Pipeline System is a
private intra-state system jointly owned by BP, Shell, Unocal and Sun and
available solely for their use.
THE MIDWEST MARKET
The Lima Refinery is located in the U.S. Midwest PADD II (Petroleum Area for
Defense District), where demand for light products (gasoline and distillates)
has historically exceeded the region's refining production by approximately
800,000 bpd. This light products shortfall has historically been even more
acute in Ohio. Ohio refining capacity is approximately 500,000 bpd. However,
even with this refining capacity, there are movements of approximately 130,000
bpd of light products into the state. Some of this additional light product
supply comes from refineries in adjoining states, including Michigan and
Kentucky. Historically there has been strong enough demand in Ohio to justify
the cost
18
<PAGE>
of importing production from other markets. Transportation costs for refined
products from the Gulf Coast to the Ohio market have averaged approximately
$1.10 per barrel.
THE PURCHASE AGREEMENT
The Purchase Agreement provides that BP will sell all of the following to
Clark R&M: (i) the Lima Refinery, including all machinery and equipment used
in the operation of the Lima Refinery; (ii) the real property on which the
Lima Refinery is located, and certain related leased property; (iii) four
crude oil storage and blending tanks and the real property situated thereon;
(iv) all hydrocarbon and non-hydrocarbon inventories at the Lima Refinery; (v)
a paid-up, nonexclusive, royalty free license to use certain technology and
intellectual property of BP and its affiliates in the operation of the Lima
Refinery; and (vi) certain other assets as described in the Purchase Agreement
(collectively, the "Purchased Assets"). The purchase price for the Purchased
Assets equals $175 million plus the market value of the hydrocarbon inventory
at the Lima Refinery at Closing, which is currently estimated will be
approximately $60 million. In addition, an estimated $50 million will be paid
for crude oil in transit currently owned by BP, the payment for which will
occur over the two months following the consummation of the Lima Acquisition
as the crude oil is delivered to the Lima Refinery. Such $50 million will be
substantially funded through proceeds from the sale of finished products over
the same period. Clark R&M has also agreed to assume and indemnify BP for all
liabilities arising from the ownership and operation of the Lima Refinery
after the Closing. Upon the execution of the Purchase Agreement, Clark R&M
made a $17.5 million deposit which will be deducted from the final purchase
price at Closing.
The Purchase Agreement provides for the Lima Refinery to be purchased with
limited representations, warranties and closing conditions. Subject to certain
terms and limitations set forth in the Purchase Agreement, BP has agreed to
indemnify Clark R&M and the Company for all environmental and other
liabilities and obligations arising from the ownership and operation of the
Lima Refinery prior to the Closing or from the breach by BP of any
representation, warranty or covenant contained in the Purchase Agreement.
Indemnity claims for breaches of representations and warranties (other than
environmental matters) and certain pre-Closing covenants must be brought
within one year after the Closing. Certain environmental indemnity claims
(including for breaches of representations and warranties) must be brought
within 17 years after the Closing. Except for environmental matters, Clark R&M
will not have a claim against BP for breaches of representations and
warranties and certain pre-Closing covenants until the aggregate of all losses
for such matters exceeds $3.5 million and BP's aggregate liability for such
losses will not exceed $25 million. The Purchase Agreement provides that,
subject to the satisfaction or waiver of the conditions precedent set forth
therein, the Closing will occur five business days after the expiration of the
waiting period, or any extension thereof, under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), unless the
Closing would occur prior to August 7, 1998, in which event Clark R&M has the
option to postpone the Closing until any business day not later than August 7,
1998.
Clark R&M has agreed to offer employment to the employees of the Lima
Refinery. However, because BP had previously announced that the Lima Refinery
was to be closed, many of such employees have accepted offers of employment
with other operations of BP. While BP has agreed to assist Clark R&M in its
efforts to retain the Lima Refinery's employees, Clark R&M will assume the
risks associated with attracting and retaining an appropriate work force.
Clark R&M has agreed to convey to BP Chemicals Inc. ("BP Chemicals") 15
acres of the Lima Refinery's property in order to permit BP Chemicals to
proceed with the previously announced construction of a 1:4 Butanediol Plant
("BDO Plant") at the Lima Refinery site. The specific location of the BDO
Plant will be mutually agreed upon by Clark R&M and BP Chemicals. In addition,
Clark R&M will assume certain agreements with BP Chemicals and BP Oil Pipeline
Company providing for the purchase and sale by the Lima Refinery of propylene
and certain other chemicals. Clark R&M and the parties to such agreements have
agreed to negotiate in good faith to seek to enter into new long-term
agreements for the purchase and sale of propylene and such other chemicals.
19
<PAGE>
SUMMARY OF COMPANY ESTIMATES REGARDING THE LIMA ACQUISITION
INTRODUCTION
BP has historically operated the Lima Refinery as a component of its
integrated global system and especially its Midwest refining and marketing
system. As a result, the Company believes that decisions such as those
relating to crude slate, yield, total throughput and capital expenditures were
likely made to optimize the performance of BP's entire integrated system, as
opposed to that of the Lima Refinery specifically. The Company is not
acquiring the Lima Refinery's sources of crude oil and other feedstocks, sales
force, customer base or trade names. There are no historical financial
statements covering the Lima Refinery on a stand-alone basis. Further, the
Company believes any such financial statements would not be meaningful for the
reasons set forth above.
COMPANY ESTIMATES
The Company believes that the Lima Acquisition will provide an opportunity
to improve the Company's operating results and cash flow. The Company and
Turner, Mason & Company, an independent energy consulting firm, ("Turner,
Mason") reviewed the historical and proposed operation of the Lima Refinery.
The Company's estimates represent the operating results of the Lima Refinery
as if the Company had acquired the assets on January 1, 1997 and operated it
during 1997 based on the Company's proposed operation of the Lima Refinery.
The Company believes 1997 market prices are appropriate since it is the last
full year for which market prices are available.
The Company's estimates, set forth below, were developed as follows: (i)
feedstocks and refined product yields were based on BP's linear program and
modified by the Company during due diligence based on the assets being
acquired, and results of the linear program were then compared to actual
charges and yield data (which resulted in higher crude oil throughput, but
yields which were more conservative than the actual yields generated by BP in
1997), (ii) gross margin was calculated using the applicable 1997 market
prices, (iii) operating expenses were based on actual historical performance
with adjustments for higher crude oil throughput and the Company's expected
mode of operation and (iv) general and administrative costs were estimated for
those services previously provided by BP's corporate staff. As discussed above
under "The Lima Acquisition--The Purchase Agreement," because BP had
previously announced that the Lima Refinery was to be closed, many employees
have accepted offers of employment with other operations of BP. While BP has
agreed to assist Clark R&M in its efforts to retain the LIma Refinery's
employees, Clark R&M will assume the risks associated with attracting and
retaining an appropriate workforce and may thus incur higher employment-
related costs initially.
The Company's estimates for the Lima Refinery included herein were not
prepared with a view toward compliance with published guidelines of the
American Institute of Certified Public Accountants or generally accepted
accounting principles and have not been examined, reviewed or compiled by the
Company's independent accountants and, accordingly, such independent
accountants do not express an opinion or any other form of assurance with
respect thereto. These figures represent the Company's best estimates of the
operating and financial results of the Lima Refinery had the Company operated
it and the related assets in 1997 and assuming the Company had been successful
in implementing its anticipated changes and expected mode of operation.
The Company's estimates and underlying assumptions were independently
reviewed and confirmed by Turner, Mason. Turner, Mason was furnished with
information concerning the Lima Refinery available to the Company, conducted a
site visit and discussed the operations of the Lima Refinery with management
of BP and of the Company. The Company did not place any limitations upon
Turner, Mason with respect to procedures followed or factors considered by
Turner, Mason in rendering its opinion. In Turner, Mason's opinion, the
assumptions underlying the Company's estimates provide a reasonable basis for
the Company's estimates, and the Company's estimates are reasonable. Turner,
Mason's opinion and summary report are included herein (see Appendix 2).
20
<PAGE>
The success of the Company's planned operation of the Lima Refinery is
subject to uncertainties and contingencies beyond the Company's control,
including business, economic, regulatory and competitive uncertainties and
contingencies. No assurance can be given that the planned operations and
anticipated benefits would have been realized had the Company actually
operated the Lima Refinery in 1997. The gross margin and operating expense
estimates are based on various assumptions. Some of these assumptions may not
materialize. Other assumptions may materialize but in a subsequent period.
Unanticipated events may occur subsequent to the date of this document. The
actual results achieved by the Company at the Lima Refinery will vary from
those set forth below and the variations may be material. Consequently, the
inclusion of the estimates herein should not be regarded as a representation
by the Company, Turner, Mason or any other person that the estimates would
have been achieved in 1997 or will be achieved in the future. Holders are
cautioned not to place undue reliance on these estimates.
The Company does not intend to update or otherwise revise the estimates to
reflect circumstances existing after the date hereof or to reflect the
occurrence of unanticipated events, even in the event that any or all of the
assumptions are shown to be in error. Furthermore, the Company does not intend
to update or revise the estimates to reflect changes in general economic or
industry conditions. The Company's regular quarterly and annual financial
statements will be included in the Company's Quarterly Reports on Form 10-Q
and Annual Reports on Form 10-K, which will be filed with the Securities and
Exchange Commission. Information contained in such financial statements will
be deemed to supersede the estimates.
ESTIMATED 1997 LIMA REFINERY EBITDA
The Company estimates that the Lima Refinery would have generated $64.6
million of earnings before interest, taxes, depreciation and amortization
("EBITDA") in 1997 after giving effect to the estimated processing rates,
yields and operating expenses. This estimate was based on (i) 1997 spot market
prices for crude oil and refined products adjusted for transportation
differentials, (ii) feedstocks and refined product yields based on the
modification of BP's linear programming model (which resulted in higher crude
oil throughput, but yields which were more conservative than the actual yields
generated by BP in 1997), (iii) actual historical operating expenses adjusted
for higher throughput and the Company's mode of operation and (iv) general and
administrative costs estimated for those services previously provided by BP's
corporate staff.
21
<PAGE>
The Company's estimates for the Lima Refinery based on 1997 market prices
are as follows:
<TABLE>
<CAPTION>
1997 ESTIMATE
----------------
($ IN MILLIONS,
EXCEPT AS NOTED)
<S> <C>
Crude oil throughput (m bbls/day)......................... 160.5
Production (m bbls/day)................................... 165.0
Gross margin ($/bbl of production)........................ $ 2.82
Operating expenses ($/bbl of production).................. 1.73
Gross margin.............................................. 170.1
Operating expenses........................................ 104.3
General and administrative costs.......................... 1.2
Refinery EBITDA (a)....................................... $ 64.6
</TABLE>
- --------
(a) A $0.10 per barrel change in the realized gross margin or operating
expenses would have increased or decreased estimated operating cash flow
by approximately $6 million.
Refinery Feedstocks:
<TABLE>
<CAPTION>
1997 ACTUAL 1997 ESTIMATE
----------- -------------
(THOUSANDS OF BARRELS PER
DAY)
<S> <C> <C>
Light sweet crude oil............................ 140.9 153.5
Light sour crude oil............................. 12.5 7.0
Other............................................ 7.7 3.6
----- -----
Total.......................................... 161.1 164.1
===== =====
</TABLE>
Refinery Production:
<TABLE>
<CAPTION>
1997 ACTUAL 1997 ESTIMATE
----------- -------------
(THOUSANDS OF BARRELS PER
DAY)
<S> <C> <C>
Gasoline......................................... 82.6 81.7
Diesel fuel...................................... 36.9 36.4
Jet fuel......................................... 17.1 20.2
Petrochemical products........................... 7.7 7.7
Other............................................ 18.7 19.0
----- -----
Total.......................................... 163.0 165.0
===== =====
</TABLE>
SUMMARY OF COMPANY ESTIMATE ASSUMPTIONS
In connection with the execution of the Purchase Agreement, the Company
performed limited due diligence on the Lima Refinery, including the review of
information provided by BP, discussions with the Lima Refinery manager and a
preliminary visit to the Lima Refinery. The results of this limited due
diligence, together with the more extensive due diligence performed in 1996,
are the basis for the Company's assumptions. The assumptions underlying the
anticipated changes in processing rates, yields and operating expenses are
described below. The estimates assume that (i) the Lima Acquisition occurred
at January 1, 1997; (ii) the Company successfully implemented its planned
changes in processing rates, yields and operating expenses; and (iii) BP
assumed responsibility for environmental remediation. Pursuant to the terms of
the Purchase Agreement, the Company will be permitted to conduct a more
extensive due diligence review, including visits to the Lima Refinery and
interviews with key Lima Refinery personnel, between July 6 and July 10, 1998.
Feedstocks
The Company assumed that domestic and foreign crude oil would have been
purchased at market prices and transported via available pipeline routes at
published tariff rates for delivery to the Lima Refinery, which is consistent
with historical operation. The mix of foreign and domestic crude oil
feedstocks was consistent with historical throughputs. From 1995 to 1997, the
Lima Refinery averaged
22
<PAGE>
approximately 152,000 bpd of crude oil throughput and approximately 159,000
bpd of total feedstocks. However, the Company believes the processing rates
were limited during this period due to the Lima Refinery's pending sale and
closure. The crude unit has a design capacity of approximately 170,000 bpd and
processed 174,000 bpd for one week in November 1995. Therefore, the Company
believes it can achieve crude oil throughput of 160,500 bpd and total
production of 165,000 bpd.
The Company believes there may be a further opportunity to optimize the
crude oil inputs into the Lima Refinery by selecting more optimal crude oil
types, but such opportunity was not included in the Company's estimates.
Yields
The Lima Refinery has historically been optimized as part of an integrated
system with BP's nearby Toledo refinery, the adjacent BP chemical operation
and the BP light product marketing network. As a result, the Company believes
there is an opportunity to optimize the Lima Refinery as a stand-alone
operation to take full advantage of the Lima Refinery's asset capability. The
Company assumed the products generated according to the linear programming
model were sold at spot market prices. The estimated product yields are more
conservative than the actual yields generated by BP in 1997.
Operating and General and Administrative Expenses
The Company adjusted historical operating expense levels of the Lima
Refinery principally for higher throughput levels and the replacement of self-
insurance with premium-based insurance. Incremental general and administrative
costs were added for functions previously provided by BP's corporate staff and
not allocated to the Lima Refinery.
Capital Investment
From 1991-1997, BP invested an aggregate of approximately $212 million in
the Lima Refinery. Based on initial due diligence, the Company expects
mandatory capital expenditures to average approximately $20 million per year
for the period from 1999 to 2002 and turnaround expenses to cost approximately
$30 million once every five years. The Lima Refinery is scheduled to have the
first such major maintenance turnaround in 1999. The Company expects cash
flows from the Lima Refinery to be adequate to cover incremental financing and
mandatory capital and turnaround costs.
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998, and as adjusted to give effect to the Lima Acquisition, the payment
of fees and expenses associated with the Lima Acquisition and the Consent
Solicitation, the Offering and the application of a portion of the net
proceeds therefrom and the sale of the Offered Pipelines. This table should be
read in conjunction with the Consolidated Financial Statements and related
notes incorporated herein by reference. See "Incorporation of Certain
Documents by Reference."
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
------------------
ACTUAL PRO FORMA
------- ---------
(IN MILLIONS)
<S> <C> <C>
Cash, cash equivalents and short term investments (a)....... $ 148.3 $ 197.3
======= ========
LONG-TERM DEBT (B):
Clark R&M 9 1/2% Notes.................................... $ 175.0 $ 175.0
Clark R&M Term Loan....................................... 125.0 125.0
Clark R&M 8 3/8% Senior Notes............................. 99.3 99.3
Clark R&M 8 7/8% Senior Subordinated Notes................ 173.8 173.8
New Clark R&M Floating Rate Senior Notes.................. -- 75.0
New Clark R&M Fixed Rate Senior Notes..................... -- 150.0
Capital leases and other.................................. 10.1 10.1
------- --------
Total Clark R&M long-term debt.......................... $ 583.2 $ 808.2
------- --------
Company 10 7/8% Notes..................................... 175.0 175.0
Company 11 1/2% Preferred Stock........................... 66.6 66.6
------- --------
Total Company long-term debt and preferred stock........ $ 241.6 $ 241.6
------- --------
Total................................................. $ 824.8 $1,049.8
======= ========
STOCKHOLDERS' EQUITY:
Common, $0.01 par value................................... $ 0.1 $ 0.1
Common, Class F, $0.01 par value.......................... 0.1 0.1
Paid-in-capital........................................... 208.9 208.9
Retained earnings (deficit) (a)........................... (220.2) (152.4)
------- --------
Total stockholders' equity.............................. $ (11.1) $ 56.7
------- --------
Total capitalization.................................... $ 813.7 $1,106.5
======= ========
</TABLE>
- --------
(a) Pro forma amount gives effect to the sale of the Offered Pipelines for net
proceeds of $74.0 million which would result in an after-tax book gain of
$67.8 million.
(b) Does not reflect the utilization of $164.2 million at March 31, 1998 under
the Credit Agreement to support outstanding letters of credit.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The selected consolidated financial data set forth below for the Company as
of December 31, 1996 and 1997 and for each of the three years in the period
ended December 31, 1997 are derived from the audited financial statements
incorporated herein by reference. The selected financial data set forth below
for the Company as of December 31, 1993, 1994, and 1995 and for each of the
two years in the period ended December 31, 1994 are derived from the audited
financial statements not included elsewhere herein. This table should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and related notes incorporated herein by reference. See "Incorporation of
Certain Documents by Reference." The selected historical data for the three-
month periods ended March 31, 1997 and 1998 are unaudited.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ ------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Net sales and operating
revenues............... $2,264.7 $2,441.2 $4,486.8 $5,073.1 $4,336.8 $ 999.2 $ 824.1
Cost of sales........... 1,930.3 2,086.6 4,015.2 4,557.0 3,703.4 892.9 688.7
Operating expenses(a)... 207.5 225.8 375.6 420.0 433.9 107.6 111.1
General and
administrative
expenses(a)............ 43.4 51.3 52.3 59.4 66.9 15.0 18.2
Depreciation and
amortization(b)........ 35.4 37.4 43.5 48.5 61.3 12.5 16.0
Inventory (recovery of)
write-down to market
value.................. 26.5 (26.5) -- -- 19.2 -- 22.7
Recapitalization, asset
writeoffs and other
charges................ -- -- -- -- 51.8 -- --
-------- -------- -------- -------- -------- -------- --------
Operating income
(loss)................. $ 21.6 $ 66.6 $ 0.2 $ (11.8) $ 0.3 $ (28.8) $ (32.6)
Interest and financing
costs, net(c).......... 43.7 53.7 59.2 47.5 80.1 18.6 16.0
Other income
(expense)(d)........... 11.4 (1.1) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) from
continuing operations
before taxes,
extraordinary items and
cumulative effect of
change in accounting
principles............. $ (10.7) $ 11.8 $ (59.0) $ (59.3) $ (79.8) $ (47.4) $ (48.6)
Income tax provision
(benefit).............. (4.2) 4.0 (21.9) (3.1) 7.6 -- 0.1
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) from
continuing operations
before extraordinary
items and cumulative
effect of change in
accounting principles.. $ (6.5) $ 7.8 $ (37.1) $ (56.2) $ (87.4) $ (47.4) $ (48.7)
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Cash, cash equivalents
and short-term
investments............ $ 232.9 $ 155.0 $ 149.8 $ 354.8 $ 251.0 $ 227.0 $ 148.3
Total assets............ 865.4 891.7 1,364.9 1,432.8 1,275.6 1,375.8 1,166.4
Long-term debt.......... 538.1 553.3 765.0 781.4 765.9 785.7 758.2
Exchangeable preferred
stock.................. -- -- -- -- 64.8 -- 66.6
Stockholders' equity.... 49.5 56.2 154.2 214.4 38.4 167.0 (11.1)
SELECTED FINANCIAL DATA:
EBITDA, as adjusted(e).. $ 83.5 $ 77.5 $ 43.7 $ 36.7 61.6 $ (16.3) $ (16.6)
Cash flows from
operating activities... 57.8 56.3 (81.5) 22.4 76.9 (70.1) (91.7)
Cash flows from
investing activities... (40.2) (2.2) (240.1) 218.5 (125.6) (56.7) (3.1)
Cash flows from
financing activities... 29.7 (6.5) 298.9 (4.7) (55.1) (0.9) (7.9)
Ratio of earnings to
fixed charges(f)(g).... -- 1.14x -- -- -- -- --
Expenditures for
turnaround............. $ 20.6 $ 11.2 $ 6.5 $ 13.9 $ 47.4 $ 27.4 $ 3.5
Expenditures for
property, plant and
equipment.............. 68.1 100.4 42.2 45.0 83.7 30.9 9.0
Refinery acquisition
expenditures........... -- 13.5 71.8 -- -- -- --
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- --------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Refining Division:
Port Arthur Refinery
(acquired February 27,
1995)
Production (m
bbls/day)............. -- -- 207.7 210.8 213.5 166.1 218.9
Gross margin (per
bbl)(a)............... -- -- $ 2.28 $ 2.78 $ 3.84 $ 3.91 $ 3.85
Operating
expenses(mm)(a)....... -- -- 121.6 164.7 170.7 43.1 45.4
Blue Island, Hartford
and other refining
Production (m
bbls/day)............. 134.7 140.3 136.5 134.2 135.8 136.7 116.1
Gross margin (per
bbl)(a)............... $ 3.68 $ 3.35 $ 2.51 $ 2.56 $ 3.79 $ 2.88 $ 2.71
Operating
expenses(mm)(a)....... 104.3 115.0 130.2 126.6 123.2 32.0 32.1
Refining operating
contribution (mm)..... 65.7 40.1 (0.6) 27.9 169.9 11.7 22.0
Retail Division(a):
Number of core market
stores (average)(h)... 547 553 595 620 666 657 670
Gasoline volume (mm
gals)................. 726.6 763.3 838.1 858.7 912.4 205.9 225.4
Gasoline volume (m gals
pmps)................. 110.7 115.0 117.4 115.4 115.8 105.6 113.7
Gasoline gross margin
(cents/gal)........... 11.4c 11.3c 11.9c 10.6c 10.5c 11.0c 10.5c
Convenience product
sales (mm)............ $143.6 $158.0 $189.9 $201.8 $244.3 $ 50.6 $ 58.9
Convenience product
sales (m pmps)........ 21.9 23.8 26.6 27.1 30.6 25.7 29.3
Convenience product
gross margin and other
income (mm)........... 36.4 39.8 46.5 52.2 64.6 13.9 15.9
Convenience product
gross margin (m
pmps)................. 5.5 6.0 6.5 7.0 8.1 7.0 7.9
Operating expenses
(mm)(a)............... 64.5 70.6 90.3 101.8 118.4 27.1 29.8
Core market store
contribution (mm)..... 35.0 35.3 38.3 20.5 19.8 3.7 4.1
Non-core stores,
business development &
other (mm)............ 14.6 9.1 6.9 4.7 2.0 0.5 (0.4)
Retail operating
contribution (mm)..... 49.6 44.4 45.2 25.2 21.8 4.2 3.7
</TABLE>
- ----------------
(a) Certain reclassifications have been made to prior periods to conform to
current period presentation.
(b) Amortization includes amortization of turnaround costs and organizational
costs.
(c) Interest and financing costs, net, included amortization of debt issuance
costs of $1.7 million, $1.8 million, $6.5 million, $10.2 million and $10.2
million for the years ended December 31, 1993, 1994, 1995, 1996 and 1997,
and $2.7 million and $0.5 million for the three-months ended March 31,
1997 and 1998, respectively. Interest and financing costs, net, also
included interest on all indebtedness, net of capitalized interest and
interest income.
(d) Other expense in 1994 included financing costs associated with a withdrawn
debt offering. Other income in 1993 included the final settlement of
litigation with Drexel Burnham Lambert Incorporated of $8.5 million and a
gain from the sale of non-core stores of $2.9 million.
(e) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is a commonly used non-GAAP financial measure but should not be construed
as an alternative to operating income or cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles ("GAAP")). EBITDA, as adjusted, does not reflect cash necessary
or available to fund cash requirements. EBITDA, as adjusted, in 1993 and
1994 excluded the write-off in 1993 and the recovery in 1994 of a $26.5
million inventory valuation adjustment.
(f) The ratio of earnings to fixed charges and preferred stock dividends is
computed by dividing (i) earnings before income taxes (adjusted to
recognize only distributed earnings from less than 50% owned persons
accounted for under the equity method) plus fixed charges, excluding
capitalized interest by (ii) fixed charges and preferred stock dividends,
excluding capitalized interest. Fixed charges consisted of interest on
indebtedness, including amortization of discount and debt issuance costs
and the estimated interest components (one-third) of rental and lease
expense.
(g) As a result of the losses for the years ended December 31, 1993, 1995,
1996 and 1997, earnings were insufficient to cover fixed charges by $13.2
million, $61.8 million, $60.5 million and $84.3 million, respectively. As
a result of the losses for the three months ended March 31, 1997 and 1998,
earnings were insufficient to cover fixed charges by $47.7 million and
$48.4 million, respectively.
(h) Ten stores included in 1997 and 1998 operated exclusively as convenience
stores and did not sell fuel.
26
<PAGE>
TERMS OF THE NOTES AND PREFERRED STOCK
The Company has outstanding (i) the Notes and (ii) the Preferred Stock. The
Notes are general unsubordinated and unsecured senior obligations of the
Company and rank pari passu with all other unsubordinated and unsecured
indebtedness of the Company. The Preferred Stock ranks senior to all classes
of Common Stock of the Company, on a parity with any class of Capital Stock or
series of preferred stock hereafter established the terms of which expressly
provide that such class will rank on a parity with the Preferred Stock, and
junior to each other class of Capital Stock or series of preferred stock
hereafter established the terms of which expressly provide that such class
will rank senior to the Preferred Stock. As a holding company that conducts
virtually all of its business through Clark R&M, the Company currently has no
material source of operating cash flow other than from dividends and
distributions from Clark R&M. Clark R&M has no obligation to pay amounts due
on the Notes or the Preferred Stock and does not guarantee the Notes.
Therefore, the rights of the holders of the Notes and the Preferred Stock are
effectively subordinated to all liabilities of Clark R&M, including trade
payables.
THE NOTES
The Notes mature on December 1, 2005. The Notes bear interest at a rate of
10 7/8% per annum, payable semi-annually in cash on June 1 and December 1. The
Notes are redeemable, at the option of the Company, in whole or in part, on or
after December 1, 2000 at 105.438%, 103.625%, 101.813% and 100% of their
principal amount for the twelve months following December 1, 2000, 2001, 2002
and 2003, respectively, plus accrued and unpaid interest, if any, thereon, to
the date of redemption. In addition, at any time on or prior to December 1,
1998, the Company may, at its option, redeem up to 35% of the aggregate
principal amount originally issued under the 10 7/8% Notes Indenture of the
Notes with the net cash proceeds of one or more public offerings, at a
redemption price equal to 110.875% of the principal amount thereof; provided,
however, that after giving effect to any such redemption, at least 65% of the
principal amount of Notes originally issued remains outstanding immediately
after such redemption and that such redemption occurs within 75 days following
the closing of such public offering. Holders of the Notes have the right to
require the Company to repurchase all or any part of such Holder's Notes in
the event of a Change of Control at par plus a 1% premium.
THE PREFERRED STOCK
Holders of Preferred Stock are entitled to receive dividends on each share
of Preferred Stock at a rate per annum of 11 1/2% of the liquidation
preference ($1,000) per share. The dividends are cumulative, whether or not
declared, on a daily basis from October 1, 1997 and are payable semi-annually
in arrears on April 1 and October 1. The Preferred Stock is redeemable, at the
option of the Company, in whole or in part, on or after October 1, 2002 at
105.750%, 103.833%, 101.917% and 100% of its liquidation preference for the
twelve months following October 1, 2002, 2003, 2004 and 2005, respectively,
plus an amount in cash equal to all accumulated and unpaid dividends per share
to the date of redemption; provided, that no redemption shall be authorized or
made unless prior thereto all accumulated and unpaid dividends are declared
and paid in full, or declared and a sum in cash is set apart sufficient for
such payment. In addition, the Company may, at its option, use the Net
Available Proceeds of one or more Equity Offerings to redeem for cash, in
whole or in part, shares of Preferred Stock at a redemption price equal to
107% prior to October 1, 1998, 108% thereafter but prior to October 1, 1999
and 109% thereafter but prior to October 1, 2000 of the liquidation preference
thereof. Holders of the Preferred Stock have the right to require the Company
to repurchase all or any part of such Holder's shares of Preferred Stock in
the event of a Change of Control occurring after October 1, 2005.
27
<PAGE>
THE AMENDMENTS
The Proposed Amendments would amend certain provisions which limit the
ability of Clark R&M to incur the indebtedness to finance the Lima Acquisition
and would conform the exception for indebtedness under the Credit Agreement to
the proposed amendment thereto described under "Summary--The Financing." The
Existing Debt Incurrence Provisions prohibit the incurrence of Indebtedness by
Clark R&M (with certain exceptions) unless, after giving pro forma effect to
such incurrence and acquisitions of material assets, the Consolidated
Operating Cash Flow Ratio of the Company for the most recent four quarters
would be greater than 2.0 to 1. After giving effect to the incurrence of the
New Clark R&M Notes and to the Lima Acquisition, the Company's Consolidated
Operating Cash Flow Ratio would be approximately 1.8 to 1 for the four
quarters ended March 31, 1998, compared to 1.6 to 1 for the four quarters
ended March 31, 1998 without giving effect thereto. Accordingly, the Proposed
Amendments would add an express exception for the incurrence of up to $250
million of indebtedness to be incurred in order to finance the Lima
Acquisition. See "Summary--The Financing."
In addition, the Proposed Amendments would conform the exception for
indebtedness under the Credit Agreement to the proposed amendment thereto
described under "Summary--The Financing." The existing exceptions in the
Governing Documents generally allow indebtedness under the Credit Agreement in
an aggregate principal amount not to exceed the greater of $500 million, in
the case of the Preferred Stock and the Exchange Debentures, and $400 million
in the case of the Notes, and the Borrowing Base (as defined in the Governing
Documents). The amendment to the Credit Agreement would increase the total
amount of availability thereunder up to the lesser of $700 million and the
Borrowing Base (as defined in the Credit Agreement). Accordingly, such
Proposed Amendment would change such $500 million and $400 million amounts
contained in the Governing Documents to $700 million. However, Holders should
note that because the exceptions in the Governing Documents will be based on
the greater of such amount and the Borrowing Base after giving effect to the
Lima Acquisition, such Proposed Amendment would not by itself result in any
significantly greater ability of Clark R&M to incur indebtedness.
The Proposed Amendments would also add an exception in the definition of
"Permitted Liens" in the 10 7/8% Notes Indenture for liens securing
obligations under the Credit Agreement to clarify that the full amount of
borrowings under the Credit Agreement are secured.
In order to effect such exceptions, the existing definition of "Permitted
Indebtedness" contained in each of (A) the 10 7/8% Notes Indenture, (B) the
Certificate of Designations and (C) the Exchange Indenture would be amended as
set forth on Appendix 1.
In addition, the texts of (i) one new definition--the definition of the
"Lima Acquisition" and (ii) the respective existing debt incurrence covenants
are set forth on Appendix 1.
THE FOREGOING STATEMENTS ARE SUMMARIES AND ARE QUALIFIED IN THEIR ENTIRETY
BY REFERENCE TO THE RESPECTIVE INDENTURES, THE CERTIFICATE OF DESIGNATIONS AND
APPENDIX 1.
The Company is unable to predict the effect, if any, that the Proposed
Amendments would have on the market price of the Notes or the Preferred Stock.
However, the Company believes that the potential benefit to Holders of the
Notes and the Preferred Stock of the Company's opportunity for enhanced
earnings and cash flow as a result of the Lima Acquisition more than offsets
any potential adverse effects of the Proposed Amendments. See "Risk Factors."
Neither the Notes nor the Preferred Stock is currently listed on any stock
exchange and it is not contemplated that they will be so listed after the
consummation of the Consent Solicitation.
28
<PAGE>
THE CONSENT SOLICITATION
GENERAL
The Company is soliciting Consents from Holders of the Notes and the
Preferred Stock as of the Record Date, upon the terms and subject to the
conditions set forth herein and in the accompanying Consent Letter, to approve
the Proposed Amendments to the Governing Documents, which Proposed Amendments
will, effective upon execution of the Supplemental Indentures and the filing
of an amendment to the Certificate of Designations, amend the respective
definitions of Permitted Indebtedness and add a definition of the "Lima
Acquisition". See "The Amendments" and Appendix 1 for a description of the
proposed changes to these provisions.
If the Requisite Consents are received (and not revoked) on or prior to the
expiration of the Solicitation Period and the other conditions set forth
herein are satisfied or waived, the Company will, after the expiration of the
Solicitation Period but not prior to the consummation of the transactions
contemplated by the Lima Acquisition, (a) execute Supplemental Indentures
implementing the Proposed Amendments, (b) amend the Certificate of
Designations and (c) instruct the Trustee, in the case of the Notes, and the
Registrar and Paying Agent, in the case of the Preferred Stock, pursuant to
the Escrow Agreements, to pay to each Holder of Notes or Preferred Stock as of
the Record Date who has delivered (and not revoked) a valid Consent on or
prior to such expiration of the Solicitation Period the Consent Fee equal to
(i) with respect to the Notes, $7.50 for each $1,000 in principal amount of
Notes as of the Record Date in respect of which such Consent has been
delivered and (ii) with respect to the Preferred Stock, $7.50 for each share
($1,000 in liquidation preference) of Preferred Stock as of the Record Date in
respect of which such Consent has been delivered. Pursuant to the terms of the
Supplemental Indentures, the Proposed Amendments will become effective as to
Holders of Notes upon the execution of such Supplemental Indentures. In
accordance with Delaware law, the Proposed Amendments will not become
effective as to the Holders of Preferred Stock until receipt of the approval
by a majority of the common stockholders of the Company entitled to vote
thereon of the amendment to the Certificate of Designations. Accordingly, the
majority of the common stockholders must also approve the proposed amendment
to the Certificate of Designations. Blackstone, which currently controls 78.5%
of the voting interest of the common stock of the Company, has indicated it
will consent to the Proposed Amendments as they relate to the Certificate of
Designations. Each Consent given by a holder of the Preferred Stock shall be
deemed to be a written consent in lieu of a meeting in accordance with Section
228 of the Delaware General Corporation Law. Thereafter, all current Holders
of Notes or Preferred Stock, as the case may be, including non-consenting
Holders, and all subsequent Holders will be bound by the Proposed Amendments.
If the Consent Solicitation is terminated for any reason or the conditions
thereto are neither satisfied nor waived, the Consents will be voided, the
Supplemental Indentures will not be executed, the Certificate of Designations
will not be amended and the Consent Fee will not be paid.
The Consents are being solicited by the Company. The Company has retained
Goldman, Sachs & Co. (the "Solicitation Agents") and Morrow & Co. (the
"Information Agent") to aid in the solicitation of Consents, including
soliciting Consents from brokerage firms, banks, nominees, custodians and
fiduciaries.
CONSENT FEE
If the Requisite Consents are received (and not revoked) on or prior to the
expiration of the Solicitation Period and the other conditions set forth
herein are satisfied or waived, the Company will, promptly after such
expiration of the Solicitation Period, deposit in escrow with the Trustee, in
the case of the Notes, and the Registrar and Paying Agent, in the case of the
Preferred Stock, funds in an amount sufficient to pay the Consent Fee.
Thereafter, upon consummation of the Lima Acquisition, the Company shall (i)
execute the Supplemental Indentures, (ii) file an amendment to the Certificate
of Designations and (iii) instruct the Trustee, in the case of the Notes, and
the Registrar and Paying Agent, in the case of the Preferred Stock, to pay to
each Holder as of the Record Date who
29
<PAGE>
has delivered (and has not revoked) a valid Consent on or prior to such
expiration of the Solicitation Period the Consent Fee of (i) with respect to
the Notes, $7.50 for each $1,000 in principal amount of Notes so validly
consenting held by each Holder thereof as of the Record Date and (ii) with
respect to the Preferred Stock, $7.50 for each share ($1,000 in liquidation
preference) of Preferred Stock so validly consenting held by each Holder
thereof as of the Record Date. IT IS A CONDITION TO THE PAYMENT OF A CONSENT
FEE TO ANY HOLDER AND TO THE ADOPTION OF ANY PROPOSED AMENDMENTS THAT (I) THE
PROPOSED AMENDMENTS BE APPROVED AS TO ALL OF THE GOVERNING DOCUMENTS, (II)
WITH RESPECT TO THE NOTES AND THE EXCHANGE DEBENTURES, THE SUPPLEMENTAL
INDENTURES BE EXECUTED BY THE COMPANY AND THE APPLICABLE TRUSTEE, (III) WITH
RESPECT TO THE PREFERRED STOCK, THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF
DESIGNATIONS TO EFFECT THE PROPOSED AMENDMENTS BE APPROVED BY A MAJORITY OF
THE COMMON STOCKHOLDERS OF THE COMPANY AND FILED WITH THE SECRETARY OF STATE
OF THE STATE OF DELAWARE AND (IV) THE FINANCING AND THE LIMA ACQUISITION AS
CURRENTLY CONTEMPLATED BE CONSUMMATED IN ALL MATERIAL RESPECTS.
NO ACCRUED INTEREST WILL BE PAID ON THE CONSENT FEE DURING THE PERIOD SUCH
FUNDS ARE HELD IN ESCROW.
Notwithstanding any subsequent transfer of Notes or Preferred Stock, any
Holder of Notes or Preferred Stock, as the case may be, as of the Record Date
whose properly executed Consent has been received (and not revoked) on or
prior to the expiration of the Solicitation Period will be eligible to receive
any Consent Fee payable in respect of such Notes or Preferred Stock, as the
case may be. Holders as of the Record Date who (i) do not deliver Consents,
(ii) revoke Consents or (iii) deliver Consents after the expiration of the
Solicitation Period will not be entitled to receive the Consent Fee, even
though the Supplemental Indentures, if they are executed, and the Certificate
of Designations, if it is amended, will be binding on them. Beneficial owners
of Notes or Preferred Stock whose Notes or shares of Preferred Stock are
registered as of the Record Date in the name of a broker, dealer, commercial
bank, trust company or nominee should contact such broker, dealer, commercial
bank, trust company or nominee promptly and instruct such person, as the
Holder of the Notes or the Preferred Stock, as the case may be, to execute and
then deliver the Consent on behalf of the beneficial owner on or prior to the
expiration of the Solicitation Period in order to receive any Consent Fee.
REQUISITE CONSENTS
Holders as of the Record Date must deliver (and not revoke) valid Consents
in respect of a majority in aggregate principal amount of the Notes and a
majority of issued and outstanding shares of Preferred Stock in order to
approve the Proposed Amendments. For purposes of the foregoing calculation,
Notes or shares of Preferred Stock held by the Company or any of its
affiliates will not be counted as being outstanding.
The failure of a Holder to deliver a Consent will have the same effect as if
such Holder had marked "Do Not Consent" to the Proposed Amendments on the
accompanying Consent Letter.
SOLICITATION PERIOD; EXTENSIONS; AMENDMENT
The Solicitation Period commences on July 6, 1998 and will expire at 5:00
p.m., New York City time, on July 15, 1998, unless otherwise extended.
The Company reserves the right to extend the Consent Solicitation at any
time and from time to time, whether or not the Requisite Consents have been
received, by giving oral or written notice to the Information Agent. Any such
extension will be followed as promptly as practicable by notice thereof by
press release or other public announcement (or by written notice to the
Holders as of the Record Date). Such announcement or notice may state that the
Company is extending the Consent Solicitation for a specified period of time
or on a daily basis.
30
<PAGE>
The Company expressly reserves the right, in its sole discretion, subject to
applicable law, to (i) terminate the Consent Solicitation upon the failure of
a condition specified herein under "Conditions of the Consent Solicitation" or
otherwise, waive any of the conditions to the Consent Solicitation, (ii)
extend the expiration of the Solicitation Period of the Consent Solicitation,
(iii) amend the terms of the Consent Solicitation or (iv) modify the form or
amount of the consideration to be paid pursuant to the Consent Solicitation.
Any termination, extension, amendment or modification applicable to the
Consent Solicitation will (A) apply to all Notes and shares of Preferred Stock
subject to the Consent Solicitation and (B) be followed as promptly as
practicable by public announcement (or written notice to the Holders) thereof.
If the Company amends the terms of the Consent Solicitation in a manner
adverse to the interests of the Holders, it shall allow the Holders sufficient
time after they receive written notice of such amendment to revoke their
Consents should they choose to do so.
FAILURE TO OBTAIN REQUISITE CONSENTS; TERMINATION
In the event the Requisite Consents are not obtained or the Consent
Solicitation is terminated, the Supplemental Indentures will not be executed,
the Certificate of Designations not be amended as contemplated herein, the
Consent Fee will not be paid and the Proposed Amendments will not be effected.
CONSENT PROCEDURES
Only those persons who are Holders as of the Record Date may execute and
deliver a Consent. A beneficial owner of Notes or Preferred Stock who is not
the Holder as of the Record Date of such Notes or shares of Preferred Stock
(e.g., a beneficial owner whose Notes or shares of Preferred Stock are
registered in the name of a nominee such as a bank or a brokerage firm) must
arrange for the registered Holder to execute a Consent Letter and deliver it
to the Information Agent on such beneficial owner's behalf. The Company
anticipates that DTC, as nominee holder of Notes and Preferred Stock, will
execute an omnibus proxy in favor of the DTC Participants which will authorize
each DTC Participant to vote the Notes or shares of Preferred Stock owned by
it and held in DTC's name. With regard to the Notes, Consents with respect to
less than such total amount must be in integral multiples of $1,000.
Giving a Consent will not affect a Holder's right to sell or transfer the
Notes or Preferred Stock. All Consents validly received (and not revoked) on
or prior to the expiration of the Solicitation Period will be effective
notwithstanding a record transfer of such Notes or Preferred Stock subsequent
to the Record Date, unless the Holder of such Note or Preferred Stock as of
the Record date revokes such Consent on or prior to the expiration of the
Solicitation Period by following the procedures set forth under "Revocation of
Consents" below.
HOLDERS OF NOTES AND PREFERRED STOCK AS OF THE RECORD DATE WHO WISH TO
CONSENT SHOULD MAIL, HAND DELIVER OR SEND BY OVERNIGHT COURIER OR FACSIMILE
(CONFIRMED BY PHYSICAL DELIVERY) THEIR PROPERLY COMPLETED AND EXECUTED CONSENT
LETTERS TO THE INFORMATION AGENT AT THE ADDRESS SET FORTH ON THE BACK COVER
PAGE HEREOF AND IN THE CONSENT LETTER ON OR PRIOR TO THE EXPIRATION OF THE
SOLICITATION PERIOD IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH HEREIN AND
THEREIN. CONSENTS SHOULD BE DELIVERED TO THE INFORMATION AGENT, NOT TO THE
COMPANY, ANY TRUSTEE OR THE SOLICITATION AGENTS. HOWEVER, THE COMPANY RESERVES
THE RIGHT TO ACCEPT ANY CONSENT RECEIVED BY THE COMPANY, ANY TRUSTEE OR THE
SOLICITATION AGENTS.
HOLDERS SHOULD NOT TENDER OR DELIVER THEIR NOTES OR PREFERRED STOCK AT ANY
TIME.
31
<PAGE>
All Consents that are properly completed, signed and delivered to the
Information Agent, and not revoked on or prior to the expiration or the
Solicitation Period, will be given effect in accordance with the
specifications thereof. Holders who desire to consent to the Proposed
Amendments should mark the "CONSENT" box on the Consent Letter, and complete,
sign and date the Consent Letter included herewith and mail, deliver, send by
overnight courier or facsimile (confirmed by physical delivery) the signed
Consent Letter to the Information Agent in the address listed on the back
cover page of this Consent Solicitation Statement and on the Consent Letter,
all in accordance with the instructions contained herein and therein. IF
NEITHER OF THE BOXES ON THE CONSENT LETTER ARE MARKED, BUT THE CONSENT LETTER
IS OTHERWISE PROPERLY COMPLETED AND SIGNED, THE HOLDER WILL BE DEEMED TO HAVE
CONSENTED TO THE PROPOSED AMENDMENTS.
By consenting to the Proposed Amendments, the Holder will waive any and all
defaults or claims that may arise as a result of this Consent Solicitation or
the Proposed Amendments. The Company is not aware of any such defaults which
may so arise.
Consents by the Holder(s) of Notes or Preferred Stock as of the Record Date
must be executed in exactly the same manner as such registered Holder(s)
name(s) appear(s) on the Notes or on the shares of Preferred Stock. If Notes
or Preferred Stock to which a Consent relates are held of record by two or
more joint holders, all such Holders must sign the Consent. If a Consent is
signed by a trustee, partner, executor, administrator, guardian, attorney-in-
fact, officer of a corporation or other person acting in a fiduciary or
representative capacity, such person must so indicate when signing and must
submit with the Consent form appropriate evidence of authority to execute the
Consent. In addition, if a Consent relates to less than the total principal
amount of Notes or less than the total number of shares of Preferred Stock
registered in the name of such Holder, the Holder must list the certificate
number (if applicable) and principal amount or number of shares, as the case
may be, of Notes or Preferred Stock registered in the name of such Holder to
which the Consent relates. If Notes or shares of Preferred Stock are
registered in different names, separate Consents must be executed covering
each form of registration. THE COMPANY ANTICIPATES THAT DTC, AS NOMINEE HOLDER
OF NOTES AND PREFERRED STOCK, WILL EXECUTE AN OMNIBUS PROXY THAT WILL
AUTHORIZE DTC PARTICIPANTS TO CONSENT WITH RESPECT TO THE NOTES AND SHARES OF
PREFERRED STOCK OWNED BY SUCH DTC PARTICIPANTS AND HELD IN THE NAME OF CEDE &
CO. AS SPECIFIED ON THE DTC POSITION LISTING AS OF THE RECORD DATE. IN SUCH
CASE, ALL REFERENCES TO HOLDER SHALL, UNLESS OTHERWISE SPECIFIED, INCLUDE DTC
PARTICIPANTS. CONSENTS BY DTC PARTICIPANTS WHOSE NOTES OR SHARES OF PREFERRED
STOCK ARE REGISTERED IN THE NAME OF CEDE & CO. SHOULD BE SIGNED IN THE MANNER
IN WHICH THEIR NAMES APPEAR ON THE POSITION LISTING OF CEDE & CO. WITH RESPECT
TO THE NOTES OR SHARES OF PREFERRED STOCK.
All questions as to the validity, form and eligibility (including time of
receipt) regarding the Consent procedures will be determined by the Company in
its sole discretion, which determination will be conclusive and binding. The
Company reserves the right to reject any or all Consents that are not in
proper form or the acceptance of which could, in the opinion of the Company or
its counsel, be unlawful. The Company also reserves the right to waive any
defects or irregularities in connection with deliveries of particular
Consents. Unless waived, any defects or irregularities in connection with
deliveries of Consents must be cured within such time as the Company
determines. None of the Company or any of its affiliates, the Solicitation
Agents, the Information Agent, the Trustee or any other person shall be under
any duty to give any notification of any such defects or irregularities or
waiver, nor shall any of them incur any liability for failure to give such
notification. Deliveries of Consents will not be deemed to have been made
until any irregularities or defects therein have been cured or waived. The
Company's interpretations of the terms and conditions of the Consent
Solicitation shall be conclusive and binding.
32
<PAGE>
REVOCATION OF CONSENTS
Each properly completed and executed Consent will be counted,
notwithstanding any transfer of the Notes to which such Consent relates,
unless the procedure for revocation of Consents described below has been
followed.
ON OR PRIOR TO THE EXPIRATION OF THE SOLICITATION PERIOD, ANY HOLDER MAY
REVOKE ANY CONSENT GIVEN AS TO ITS NOTES OR SHARES OF PREFERRED STOCK, AS THE
CASE MAY BE, OR ANY PORTION OF SUCH NOTES (IN INTEGRAL MULTIPLES OF $1,000). A
Holder of Notes or shares of Preferred Stock desiring to revoke a Consent
must, prior to that time, deliver to the Information Agent at the address set
forth on the back cover page of this Consent Solicitation Statement and on the
Consent Letter a written revocation of such Consent (which must be in the form
of a subsequent Consent marked "Do Not Consent" to the Proposed Amendments
containing the name of such registered Holder, the certificate number (if
applicable) of the Notes or shares of Preferred Stock to which such revocation
relates, in the case of Notes only, the principal amount of Notes to which
such revocation relates, and the signature of such registered Holder).
The revocation must be executed by such Holder in the same manner as the
Holder's name appears on the Consent to which the revocation relates. If a
revocation is signed by a trustee, partner, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person must so indicate when
signing and must submit with the revocation appropriate evidence of authority
to execute the revocation. A Holder may revoke a Consent only if such
revocation complies with the provisions of this Consent Solicitation
Statement. Only a Holder of Notes or shares of Preferred Stock as of the
Record Date is entitled to revoke a Consent previously given. A beneficial
owner of Notes or shares of Preferred Stock who is not the Holder as of the
Record Date of such Notes or shares of Preferred Stock must arrange with the
registered Holder to execute and deliver to the Information Agent on such
beneficial owner's behalf a revocation of any Consent already given with
respect to the Notes or Preferred Stock.
A revocation of a Consent may only be rescinded by the execution and
delivery of a new Consent, in accordance with the procedures herein described,
by the Holder who delivered such revocation.
The Company reserves the right to contest the validity of any revocation,
and all questions as to the validity (including time of receipt) of any
revocation will be determined by the Company in its sole discretion, which
determination will be conclusive and binding. None of the Company, any of its
affiliates, the Solicitation Agents, the Information Agent, the Trustee or any
other person will be under any duty to give notification of any defects or
irregularities with respect to any revocation nor shall any of them incur any
liability for failure to give such notification.
CONDITIONS OF THE CONSENT SOLICITATION
The Consent Solicitation (including the payment of Consent Fees in respect
thereof) for any Notes or Preferred Stock is conditioned on (i) there being
received (and not revoked), on or prior to the expiration of the Solicitation
Period, the Requisite Consents for the Notes and the Preferred Stock, (ii)
there being received the consent of the common stockholders of the Company to
the amendment to the Certificate of Designations, (iii) the consummation of
the financing and the Lima Acquisition as currently contemplated in all
material respects and (iv) the absence of any law or regulation which would,
and the absence of any injunction or action or other proceeding (pending or
threatened) which (in the case of any action or proceeding, if adversely
determined) would, make unlawful or invalid or enjoin the implementation of
the Proposed Amendments, the entering into of the Supplemental Indentures, the
filing of an amendment to the Certificate of Designations, the consummation of
the Lima Acquisition or the payment of any Consent Fee or question the
legality or validity thereof.
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In addition, the Consent Solicitation may be terminated or amended by the
Company at any time on or prior to the expiration of the Solicitation Period
for any reason, in which case Consents will be voided and no Consent Fee will
be paid. Each of the conditions to the Consent Solicitation set forth in this
Consent Solicitation Statement are for the sole benefit of the Company and may
be waived by the Company at any time.
SOLICITATION AGENTS AND INFORMATION AGENT
The Company has retained Goldman, Sachs & Co. as the Solicitation Agents in
connection with the Consent Solicitation. The Solicitation Agents will solicit
Consents but will not receive a separate fee for such services, although it
will receive reimbursement for reasonable out-of-pocket expenses. The Company
has agreed to indemnify the Solicitation Agents against certain liabilities
and expenses, including liabilities under the securities laws in connection
with the Consent Solicitation. In addition, Goldman, Sachs & Co. will be one
of the initial purchasers of the New Clark R&M Notes, for which it will
receive a customary placement fee.
The Company has retained Morrow & Co. as Information Agent in connection
with the Consent Solicitation. The Information Agent will solicit Consents and
will receive a customary fee for such services and reimbursement for
reasonable out-of-pocket expenses.
Requests for assistance in filling out and delivering Consents or for
additional copies of this Consent Solicitation Statement or the form of
Consent Letter may be directed to the Information Agent at its address and
telephone numbers set forth on the back cover of this Consent Solicitation
Statement and in the Consent Letter.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain U.S. federal income tax
consequences of the Consent Solicitation. The discussion is based on the
Internal Revenue Code of 1986, as amended (the "Code"), existing, temporary
and proposed regulations promulgated thereunder (including recently issued
regulations), judicial decisions and administrative rulings, all of which are
subject to change, possibly with retroactive effect. The following does not
address the U.S. federal income tax consequences to all categories of Holders
of Notes or Preferred Stock that may be subject to special rules (e.g.,
insurance companies, tax-exempt organizations, broker-dealers, taxpayers
subject to the alternative minimum tax, and persons that hold Notes or
Preferred Stock as part of a straddle, hedging, short-sale or conversion
transaction), nor does it address the U.S. federal income tax consequences to
persons who do not hold the Notes or Preferred Stock as "capital assets"
within the meaning of Section 1221 of the Code (generally, property held for
investment). Any person who is considering consenting to the Proposed
Amendments should consult his or her tax advisor regarding federal, state,
local and foreign income and other tax consequences of possible receipt of the
Consent Fees and adoption of the Proposed Amendments.
As used herein, a "U.S. Holder" of a Note or Preferred Stock means a holder
that is (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust which is subject to the supervision of a court within the United
States and the control of one or more United States persons as described in
section 7701(a)(30) of the Code. A "Non-U.S. Holder" of a Note or Preferred
Stock means a holder that is not a U.S. Holder.
There is no authority directly addressing the U.S. federal income tax
consequences of the receipt of Consent Fees and certain other matters
contained herein.
CONSEQUENCES OF THE CONSENT SOLICITATION AND RECEIPT OF CONSENT FEES TO U.S.
HOLDERS OF NOTES
Under general principles of tax law, the modification of a debt instrument
creates a deemed exchange (upon which gain or loss may be realized) if the
modified debt instrument differs materially either in kind or in extent from
the original debt instrument. Under applicable Treasury Regulations (the
"Regulations"), the modification of a debt instrument is a "significant"
modification, which will create a deemed exchange, if, based on all the facts
and circumstances and taking into account all modifications of the debt
instrument collectively, the legal rights or obligations that are altered and
the degree to which they are altered is "economically significant."
The Regulations provide that a modification of a debt instrument that adds,
deletes or alters customary accounting or financial covenants is not a
significant modification. A change in the yield of a debt instrument is a
significant modification under the Regulations if the yield of the modified
instrument (determined taking into account any Consent Fees paid as
consideration for the modification) varies from the yield on the unmodified
instrument (determined as of the date of the modification) by more than the
greater of 1/4 of one percent (25 basis points) or 5 percent of the annual
yield of the unmodified instrument. The regulations also provide that two or
more modifications within any five year period constitute a significant
modification if, had they been done as a single change, the change would have
resulted in a significant modification.
The Company believes that the adoption of the Proposed Amendments and
receipt of the Consent Fees should not cause a significant modification of the
Notes under the Regulations and therefore should not result in a deemed
exchange of the Notes for U.S. federal income tax purposes. In this case,
income would be recognized by U.S. Holders of the Notes only to the extent of
the Consent Fees
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received, if any. Even if the adoption of the Proposed Amendments and receipt
of the Consent Fees results in a deemed exchange of the old Notes for new
Notes, the Company believes that the deemed exchange of the Notes would
constitute a tax-free recapitalization for U.S. federal income tax purposes
and that gain would be recognized by U.S. Holders of the Notes only to the
extent of the Consent Fees received, if any.
The Company intends to treat the Consent Fees for U.S. federal income tax
purposes as an amount paid to U.S. Holders in consideration of the Consents
pursuant to the Consent Solicitation. If such treatment is respected, U.S.
Holders of the Notes would recognize ordinary income in the amount of the
Consent Fees received, if any.
U.S. Holders of the Notes should note that no ruling has been requested from
the Internal Revenue Service (the "IRS") regarding the tax consequences of the
Proposed Amendments and receipt of the Consent Fees. No assurance can be given
that the positions intended to be taken by the Company described above will be
accepted by the IRS.
CONSEQUENCES OF THE CONSENT SOLICITATION AND RECEIPT OF CONSENT FEES TO U.S.
HOLDERS OF PREFERRED STOCK
Although the issue is not free from doubt, the Company believes that the
adoption of the Proposed Amendments and receipt of the Consent Fees should not
result in a deemed exchange of the Preferred Stock for U.S. federal income tax
purposes. In this case, income would be recognized by U.S. Holders only to the
extent of the Consent Fees received, if any. The Company intends to treat the
Consent Fees for U.S. federal income tax purposes as an amount paid to U.S.
Holders in consideration of the Consents pursuant to the Consent Solicitation.
If such treatment is respected, U.S. Holders of Preferred Stock would likely
recognize ordinary non-dividend income in the amount of the Consent Fees
received, if any. A possible alternative characterization of the Consent Fees
is as a distribution that would be taxable as a dividend to the extent of the
Company's current and accumulated earnings and profits, then as a return of
capital, with any excess being considered capital gain. Under this
characterization, any dividend income would be potentially eligible for the
dividends received deduction permitted corporations under section 243 of the
Code (subject to applicable limitations) and any payment considered to be a
return of capital would reduce a U.S. Holder's basis in the Preferred Stock
causing such U.S. Holder to recognize additional capital gain or reduced
capital loss on a sale or other disposition of Preferred Stock.
Even if the adoption of the Proposed Amendments and receipt of the Consent
Fees results in a deemed exchange, the Company believes that the deemed
exchange of the Preferred Stock would constitute a tax-free recapitalization
or a tax-free stock-for-stock exchange under section 1036 of the Code for U.S.
federal income tax purposes. In such case, and assuming that the Consent Fees
are treated as part of the constructive exchange rather than a separate fee,
U.S. Holders of the Preferred Stock would recognize capital gain only to the
extent of the Consent Fees received, if any. In the event that the Consent
Fees are treated as a separate fee and not as part of the constructive
exchange, then U.S. Holders of the Preferred Stock would likely recognize
ordinary non-dividend income in the amount of the Consent Fees received, if
any.
U.S. Holders of the Preferred Stock should note that no ruling has been
requested from the IRS regarding the tax consequences of the Proposed
Amendments and receipt of the Consent Fees. No assurance can be given that the
positions intended to be taken by the Company described above will be accepted
by the IRS.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to Consent Fees
paid to U.S. Holders other than certain exempt recipients (such as
corporations). A 31 percent backup withholding tax will
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apply to the Consent Fees if a U.S. Holder fails to provide a taxpayer
identification number or certification of foreign or other exempt status or
fails to establish an exemption from backup withholding.
CONSEQUENCES TO NON-U.S. HOLDERS
Although it is unclear whether United States federal withholding tax is
applicable to the payment of the Consent Fees to Non-U.S. Holders of the Notes
and the Preferred Stock, such tax will be withheld from Consent Fees paid to
such Non-U.S. Holders at a rate of 30% unless (i) such Non-U.S. Holder is
engaged in the conduct of a trade or business in the United States to which
the receipt of the Consent Fee is effectively connected and provides a
properly executed Internal Revenue Service Form 4224 or (ii) a tax treaty
between the United States and the country of residence of the Non-U.S. Holder
eliminates or reduces the withholding on other income and such Non-U.S. Holder
provides a properly executed Internal Revenue Service Form 1001. Non-U.S.
Holders should consult their own tax advisors regarding the availability of a
refund of any United States withholding tax.
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APPENDIX 1
TEXT OF THE PROPOSED AMENDMENTS
Set forth below for each of the Notes, the Preferred Stock and the Exchange
Debentures relating to the Preferred Stock is the text of (A) one new
definition--the definition of the "Lima Acquisition", (B) the "Limitation on
Indebtedness" covenant, which itself is not being amended and (C) the
definition of "Permitted Indebtedness" as it is proposed to be amended.
PROPOSED ADDITIONS ARE INDICATED BY BOLD UNDERSCORING AND PROPOSED DELETIONS
ARE INDICATED BY STRIKED-THROUGH TEXT.
PROPOSED NEW DEFINITION FOR EACH OF THE NOTES, THE PREFERRED STOCK AND THE
EXCHANGE DEBENTURES:
"LIMA ACQUISITION" MEANS THE ACQUISITION BY CLARK REFINING & MARKETING, INC.
OF THE LIMA OIL REFINERY LOCATED IN LIMA, OHIO, AND CERTAIN RELATED INVENTORY,
SPARE PARTS AND OTHER ASSETS, PURSUANT TO THE AGREEMENT FOR THE PURCHASE AND
SALE OF LIMA OIL REFINERY, DATED AS OF JULY 1, 1998, AMONG CLARK REFINING &
MARKETING, INC. AND BP EXPLORATION & OIL INC., THE STANDARD OIL COMPANY, BP
OIL PIPELINE COMPANY AND BP CHEMICALS INC.
10 7/8% NOTES INDENTURE:
EXISTING DEBT INCURRENCE COVENANT (NOT BEING AMENDED--FOR REFERENCE ONLY)
Section 1012. Limitation on Indebtedness
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, issue, incur, assume, guarantee or become
liable for in any other manner, contingently or otherwise, or extend the
maturity of or become responsible for the payment of (collectively, "incur")
any Indebtedness (including Acquired Debt) other than (i) the Securities and
(ii) Permitted Indebtedness, unless after giving effect to the incurrence of
such Indebtedness and the receipt and application of the proceeds therefrom,
the Company's Consolidated Operating Cash Flow Ratio is greater than 1.50 to 1
if the date on which such Indebtedness is incurred is on or prior to December
1, 1996, 1.75 to 1 if such date is after December 1, 1996 and on or prior to
December 1, 1997 and 2.00 to 1.00 thereafter. The Company shall provide the
Trustee with an Officers' Certificate detailing the calculation determining
Permitted Indebtedness as set forth in the definition of Permitted
Indebtedness not later than the second Business Day of each calendar quarter.
Notwithstanding the foregoing, the Company's Unrestricted Subsidiaries may
incur Non-Recourse Debt, provided, however, that if any such Indebtedness
ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall
be deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company.
PROPOSED AMENDMENT TO DEFINITION OF "PERMITTED INDEBTEDNESS"
"Permitted Indebtedness" means Indebtedness incurred by the Company or its
Restricted Subsidiaries (i) to renew, extend, refinance or refund Indebtedness
that is permitted to be incurred pursuant to clauses (ii) through (iv) AND
CLAUSE (XI) below; provided, however, that such Indebtedness does not exceed
the principal amount of the Indebtedness so renewed, extended, refinanced or
refunded plus the amount of any premium required to be paid in connection with
such refinancing pursuant to the terms of the Indebtedness refinanced or the
amount of any premium reasonably determined by the Company or such Restricted
Subsidiary as necessary to accomplish such refinancing by means of a tender
offer or privately negotiated repurchase, plus the expenses of the Company or
such Restricted Subsidiary incurred in connection with such refinancing; and
provided, however, that Indebtedness the proceeds of which are used to
refinance or refund such Indebtedness shall only be permitted if (A) in the
case of any refinancing or refunding of Indebtedness that is pari
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passu with the Securities the refinancing or refunding Indebtedness is made
pari passu with the Securities or subordinated to the Securities, (B) in the
case of any refinancing or refunding of Indebtedness that is subordinated to
the Securities the refinancing or refunding of Indebtedness is made
subordinated to the Securities at least to the same extent as such
Indebtedness being refinanced or refunded was subordinated to the Securities
and (C) in the case of the refinancing or refunding of Indebtedness that is
subordinated to the Securities, the refinancing or refunding Indebtedness by
its terms, or by the terms of any agreement or instrument pursuant to which
such Indebtedness is issued, (x) does not provide for payments of principal of
such Indebtedness at the stated maturity thereof or by way of a sinking fund
applicable thereto or by way of any mandatory redemption, defeasance,
retirement or repurchase thereof by the Company or such Restricted Subsidiary
(including any redemption, retirement or repurchase which is contingent upon
events or circumstances, but excluding any retirement required by virtue of
acceleration of such Indebtedness upon an event of default thereunder), in
each case prior to the final Stated Maturity of the Securities and (y) does
not permit redemption or other retirement (including pursuant to an offer to
purchase made by the Company or such Restricted Subsidiary) of such
Indebtedness at the option of the holder thereof prior to the final stated
maturity of the Indebtedness being refinanced or refunded, other than a
redemption or other retirement at the option of the holder of such
Indebtedness (including pursuant to an offer to purchase made by the Company
or such Restricted Subsidiary), which is conditioned upon the change of
control of the Company or such Restricted Subsidiary pursuant to provisions
substantially similar to those applicable to the Securities; (ii) arising from
time to time under the Clark Credit Agreement or any refinancings, renewals,
extensions, refundings or replacements thereof or extensions of credit to
finance working capital requirements in an aggregate principal amount not to
exceed the greater of (a) $400 $700 million at any one time outstanding less
the aggregate amount of all proceeds of all Asset Dispositions that have been
applied since the Issue Date to permanently reduce the outstanding amount of
such Indebtedness pursuant to Section 1017 hereof and (b) the amount of the
Borrowing Base as of such date (calculated on a pro forma basis after giving
effect to such borrowing and the application of the proceeds therefrom); (iii)
outstanding on the date of this Indenture; (iv) evidenced by trade letters of
credit incurred in the ordinary course of business not to exceed $20 million
in the aggregate at any time; (v) between or among the Company and/or its
Restricted Subsidiaries other than Restricted Subsidiaries owned in any part
by the Principal Shareholders; (vi) which is Junior Subordinated Debt; (vii)
arising out of Sale and Leaseback Transactions or Capitalized Lease
Obligations relating to computers and other office equipment and elements,
catalysts or other chemicals used in connection with the refining of petroleum
or petroleum by-products; (viii) the proceeds of which are used to make the
Chevron Payment, the AOC Payment and the Occidental/Gulf Payments; (ix)
arising out of Interest Swap Obligations; (x) in connection with capital
projects qualifying under Section 142(a) (or any successor provision) of the
Internal Revenue Code of 1986, as amended, in an amount not to exceed $75
million in the aggregate at any time; (XI) TO FINANCE THE LIMA ACQUISITION, IN
AN AGGREGATE AMOUNT NOT TO EXCEED $250 MILLION; and (XII) in addition to
Indebtedness permitted by clauses (i) through (XI) above, Indebtedness not to
exceed on a consolidated basis for the Company and its Restricted Subsidiaries
at any time the greater of (a) $25 million and (b) the dollar amount
represented by the product of 1.25 million and the settlement price on the New
York Mercantile Exchange of the spot month for a barrel of West Texas
Intermediate crude oil (or, if such price cannot be obtained, the applicable
price shown in the then most recently published Platt's Oilgram Price Report
or, if such publication is not published at any time, or it if does not
include such prices, then in any comparable industry publication including
such prices), which amount shall be calculated by the Company as of the last
day of each calendar quarter using the price per barrel as determined under
(b) above as of such date and shall be in effect for the next succeeding
calendar quarter.
"Permitted Liens" means (i) Liens in favor of the Company; (ii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company, provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend
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to any assets other than those of the Person merged into or consolidated with
the Company; (iii) Liens on property existing at the time of acquisition
thereof by the Company, provided that such Liens were in existence prior to
the contemplation of such acquisition; (iv) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (v)
Liens existing on the Issue Date; (vi) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor;
(vii) Liens imposed by law, such as mechanics', carriers', warehousemen's,
materialmen's, and vendors' Liens, incurred in good faith in the ordinary
course of business with respect to amounts not yet delinquent or being
contested in good faith by appropriate proceedings if a reserve or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made therefor; (viii) zoning restrictions, easements, licenses, covenants,
reservations, restrictions on the use of real property or minor irregularities
of title incident thereto that do not, in the aggregate, materially detract
from the value of the property or the assets of the Company or impair the use
of such property in the operation of the Company's business; (ix) judgment
Liens to the extent that such judgments do not cause or constitute a Default
or an Event of Default; (x) Liens to secure the payment of all or a part of
the purchase price of property or assets acquired or the construction costs of
property or assets constructed in the ordinary course of business on or after
the Issue Date, provided that (a) such property or assets are used in the
Principal Business of the Company, (b) at the time of incurrence of any such
Lien, the aggregate principal amount of the obligations secured by such Lien
shall not exceed the lesser of the cost or fair market value of the assets or
property (or portions thereof) so acquired or constructed, (c) each such Lien
shall encumber only the assets or property (or portions thereof) so acquired
or constructed and shall attach to such assets or property within 180 days of
the purchase or construction thereof and (d) any Indebtedness secured by such
Lien shall have been permitted to be incurred under Section 1014 hereof; (xi)
Liens incurred in the ordinary course of business of the Company with respect
to obligations that do not exceed 5% of Consolidated Net Tangible Assets at
any one time outstanding; (xii) Liens incurred in connection with Interest
Swap Obligations; AND (XIII) LIENS TO SECURE OBLIGATIONS OWING FROM TIME TO
TIME UNDER THE CLARK CREDIT AGREEMENT AND GUARANTIES THEREOF.
CERTIFICATE OF DESIGNATIONS:
EXISTING DEBT INCURRENCE COVENANT (NOT BEING AMENDED--FOR REFERENCE ONLY)
(i) Limitation on Indebtedness. The Corporation shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, create, issue,
incur, assume, guarantee or become liable for in any other manner,
contingently or otherwise, or extend the maturity of or become responsible for
the payment of (collectively, "incur") any Indebtedness (including Acquired
Debt) other than (i) the Exchange Debentures and (ii) Permitted Indebtedness,
unless after giving effect to the incurrence of such Indebtedness and the
receipt and application of the proceeds therefrom, the Corporation's
Consolidated Operating Cash Flow Ratio is greater than 2 to 1. Notwithstanding
the foregoing, the Corporation's Unrestricted Subsidiaries may incur Non-
Recourse Debt, provided, however, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Corporation.
PROPOSED AMENDMENT TO DEFINITION OF "PERMITTED INDEBTEDNESS"
"Permitted Indebtedness" means Indebtedness incurred by the Corporation or
its Restricted Subsidiaries (i) to renew, extend, refinance or refund
Indebtedness that is permitted to be incurred pursuant to clauses (ii) through
(iv) AND CLAUSE (XI) below; provided, however, that such Indebtedness does not
exceed the principal amount of the Indebtedness so renewed, extended,
refinanced or refunded plus the amount of any premium required to be paid in
connection with such refinancing
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pursuant to the terms of the Indebtedness refinanced or the amount of any
premium reasonably determined by the Corporation or such Restricted Subsidiary
as necessary to accomplish such refinancing by means of a tender offer or
privately negotiated repurchase, plus the expenses of the Corporation or such
Restricted Subsidiary incurred in connection with such refinancing; and
provided, however, that Indebtedness the proceeds of which are used to
refinance or refund such Indebtedness shall only be permitted if (A) in the
case of any refinancing or refunding of Indebtedness that is pari passu with
the Exchange Debentures the refinancing or refunding Indebtedness is made pari
passu with the Exchange Debentures the Refinancing or refunding Indebtedness
is made pari passu with the Exchange Debentures the refinancing or refunding
Indebtedness is made pari passu with the Exchange Debentures or subordinated
to the Exchange Debentures, (B) in the case of any refinancing or refunding of
Indebtedness that is subordinated to the Exchange Debentures the refinancing
or refunding of Indebtedness is made subordinated to the Exchange Debentures
at least to the same extent as such Indebtedness being refinanced or refunded
was subordinated to the Exchange Debentures and (C) in the case of the
refinancing or refunding of Indebtedness that is subordinated to the Exchange
Debentures, the refinancing or refunding Indebtedness by its terms, or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
issued, (x) does not provide for payments of principal of such Indebtedness at
the stated maturity thereof or by way of a sinking fund applicable thereto or
by way of any mandatory redemption, defeasance, retirement or repurchase
thereof by the Corporation or such Restricted Subsidiary (including any
redemption, retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of acceleration
of such Indebtedness upon an event of default thereunder), in each case prior
to the final Stated Maturity of the Exchange Debentures and (y) does not
permit redemption or other retirement (including pursuant to an offer to
purchase made by the Corporation or such Restricted Subsidiary) of such
Indebtedness at the option of the holder thereof prior to the final stated
maturity of the Indebtedness being refinanced or refunded, other than a
redemption or other retirement at the option of the holder of such
Indebtedness (including pursuant to an offer to purchase made by the
Corporation or such Restricted Subsidiary), which is conditioned upon the
change of control of the Corporation or such Restricted Subsidiary); (ii)
arising from time to time under the Credit Agreement or any refinancings,
renewals, extensions, refundings or replacements thereof or extensions of
credit to finance working capital requirements in an aggregate principal
amount not to exceed the greater of (a) $500 $700 million at any one time
outstanding less the aggregate amount of all proceeds of all asset
dispositions that have been applied since the Issue Date to permanently reduce
the outstanding amount of such Indebtedness and (b) the amount of the
Borrowing Base on such date (calculated on a pro forma basis after giving
effect to such borrowing and the application of the proceeds therefrom; (iii)
outstanding on the Issue Date; (iv) evidenced by trade letters of credit
incurred in the ordinary course of business not to exceed $20 million in the
aggregate at any time; (v) between or among the Corporation and/or its
Restricted Subsidiaries other than Restricted Subsidiaries owned in any part
by the Principal Shareholders; (vi) which is Junior Subordinated Indebtedness;
(vii) arising out of Sale and Leaseback Transactions or Capitalized Lease
Obligations relating to computers and other office equipment and elements,
catalysts or other chemicals used in connection with the refining of petroleum
or petroleum by-products; (viii) the proceeds of which are used to make the
Chevron Payment, the AOC Payment and the Gulf Payments; (ix) arising out of
Interest Swap Obligations; (x) in connection with capital projects qualifying
under Section 142(a) (or any successor provision) of the Internal Revenue Code
of 1986, as amended, in an amount not to exceed $75 million in the aggregate
at any time; (XI) TO FINANCE THE LIMA ACQUISITION, IN AN AGGREGATE AMOUNT NOT
TO EXCEED $250 MILLION; and (XII) in addition to Indebtedness permitted by
clauses (i) through (XI) above, Indebtedness not to exceed on a consolidated
basis for the Corporation and its Restricted Subsidiaries at any time $50
million.
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EXCHANGE INDENTURE:
EXISTING DEBT INCURRENCE COVENANT (NOT BEING AMENDED--FOR REFERENCE ONLY)
Section 9.12. Limitation on Indebtedness.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, issue, incur, assume, guarantee or become
liable for in any other manner, contingently or otherwise,
or extend the maturity of or become responsible for the payment of
(collectively, "incur") any Indebtedness (including Acquired Debt) other than
(i) the Securities (whether issued in exchange for Exchangeable Preferred
Stock or in lieu of cash interest) and (ii) Permitted Indebtedness, unless
after giving effect to the incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, the Company's Consolidated Operating
Cash Flow Ratio is greater than 2 to 1. Notwithstanding the foregoing, the
Company's Unrestricted Subsidiaries may incur Non-Recourse Debt, provided,
however, that if any such Indebtedness ceases to be Non-Recourse Debt of an
Unrestricted Subsidiary, such event shall be deemed to constitute an
incurrence of Indebtedness by a Restricted Subsidiary of the Company.
PROPOSED AMENDMENT TO DEFINITION OF "PERMITTED INDEBTEDNESS"
"Permitted Indebtedness" means Indebtedness incurred by the Company or its
Restricted Subsidiaries (i) to renew, extend, refinance or refund Indebtedness
that is permitted to be incurred pursuant to clauses (ii) through (iv) AND
CLAUSE (XI) below; provided, however, that such Indebtedness does not exceed
the principal amount of the Indebtedness so renewed, extended, refinanced or
refunded plus the amount of any premium required to be paid in connection with
such refinancing pursuant to the terms of the Indebtedness refinanced or the
amount of any premium reasonably determined by the Company or such Restricted
Subsidiary as necessary to accomplish such refinancing by means of a tender
offer or privately negotiated repurchase, plus the expenses of the Company or
such Restricted Subsidiary incurred in connection with such refinancing; and
provided, however, that Indebtedness the proceeds of which are used to
refinance or refund such Indebtedness shall only be permitted if (A) in the
case of any refinancing or refunding of Indebtedness that is pari passu with
the Securities the refinancing or refunding Indebtedness is made pari passu
with the Securities or subordinated to the Securities, (B) in the case of any
refinancing or refunding of Indebtedness that is subordinated to the
Securities the refinancing or refunding of Indebtedness is made subordinated
to the Securities at least to the same extent as such Indebtedness being
refinanced or refunded was subordinated to the Securities and (C) in the case
of the refinancing or refunding of Indebtedness that is subordinated to the
Securities, the refinancing or refunding Indebtedness by its terms, or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
issued, (x) does not provide for payments of principal of such Indebtedness at
the stated maturity thereof or by way of a sinking fund applicable thereto or
by way of any mandatory redemption, defeasance, retirement or repurchase
thereof by the Company or such Restricted Subsidiary (including any
redemption, retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of acceleration
of such Indebtedness upon an event of default thereunder), in each case prior
to the final Stated Maturity of the Securities and (y) does not permit
redemption or other retirement (including pursuant to an offer to purchase
made by the Company or such Restricted Subsidiary) of such Indebtedness at the
option of the holder thereof prior to the final stated maturity of the
Indebtedness being refinanced or refunded, other than a redemption or other
retirement at the option of the holder of such Indebtedness (including
pursuant to an offer to purchase made by the Company or such Restricted
Subsidiary), which is conditioned upon the change of control of the Company or
such Restricted Subsidiary); (ii) arising from time to time under the Credit
Agreement in an aggregate principal amount not to exceed the greater of (a)
$500 $700 million at any one time outstanding less the aggregate amount of all
proceeds of all asset dispositions that have been applied since the Closing
Date to permanently reduce the outstanding amount of such Indebtedness and (b)
the amount of the Borrowing Base as of such date (calculated
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on a pro forma basis after giving effect to such borrowing and the application
of the proceeds therefrom); (iii) outstanding on the Closing Date; (iv)
evidenced by trade letters of credit incurred in the ordinary course of
business not to exceed $20 million in the aggregate at any time; (v) between
or among the Company and/or its Restricted Subsidiaries other than Restricted
Subsidiaries owned in any part by the Principal Shareholders; (vi) which is
Junior Subordinated Indebtedness; (vii) arising out of Sale and Leaseback
Transactions or Capitalized Lease Obligations relating to computers and other
office equipment and elements, catalysts or other chemicals used in connection
with the refining of petroleum or petroleum by-products; (viii) the proceeds
of which are used to make the Chevron Payment, the AOC Payment and the Gulf
Payments; (ix) arising out of Interest Swap Obligations; (x) in connection
with capital projects qualifying under Section 142(a) (or any successor
provision) of the Internal Revenue Code of 1986, as amended, in an amount not
to exceed $75 million in the aggregate at any time; (XI) TO FINANCE THE LIMA
ACQUISITION, IN AN AGGREGATE AMOUNT NOT TO EXCEED $250 MILLION; and (XII) in
addition to Indebtedness permitted by clauses (i) through (XI) above,
Indebtedness not to exceed on a consolidated basis for the Company and its
Restricted Subsidiaries at any time $50 million.
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APPENDIX 2
OPINION AND SUMMARY REPORT OF TURNER, MASON & COMPANY
ACQUISITION OF
BP'S LIMA REFINERY
BY CLARK
John R. Auers
George B. Grey, IV
Joseph A. Loftus
Malcolm M. Turner
June 27, 1998
<PAGE>
TURNER, MASON & COMPANY
Consulting Engineers
June 27, 1998
Clark Refining & Marketing, Inc.
Turner, Mason & Company (TM&C) is retained by Clark Refining & Marketing,
Inc. ("Clark") to review the proposed acquisition of BP's 168,000 barrel per
day (B/D) petroleum refinery located at Lima, Ohio by Clark and develop
certain opinions related to this transaction. The Lima refinery is a large
single-train, high conversion plant utilizing relatively modern process units
and ancillary facilities. Noticeable deficiencies include the lack of diesel
desulfurization and alkylation process units. Most industry observers were
surprised two years ago when BP was unsuccessful in a well publicized effort
to sell the Lima refinery to a third party and announced in December 1996 that
operations would cease in late 1998. If this were to happen, a strong
consensus would conclude that the Lima refinery would probably be the best
non-operating refinery in the U.S. Thus, Clark's efforts to reverse BP's plans
(which are tied to a decision to implement a major capital improvement program
at its Toledo refinery and become a net product purchaser in Ohio) is viewed
by TM&C as opportunistic. TM&C estimates the replacement cost of the Lima
refinery at about $1.2 billion. The $175 million purchase price for the fixed
assets equates to just under 15% of replacement cost, and this level is toward
the lower range of recent U.S. refinery transactions.
The time frame for TM&C work has been exceptionally shortened for this
engagement. Both BP and Clark staff personnel have provided extensive historic
financial and operating data for our study, and we have relied on this
information exclusively without independent verification. TM&C staff did have
the opportunity to make a short visit to inspect the Lima refinery, and we are
satisfied with the level of our due diligence efforts for the purposes at
hand. It should be understood that TM&C opinions regarding the mechanical
condition of the refinery and BP's environmental compliance and potential
liabilities and costs related thereto are outside the scope of our engagement.
To construct estimates of Clark's ability to operate the Lima refinery in a
manner to generate acceptable cash flows, TM&C has independently developed
refinery yield estimates and operating costs for such a scenario. Although
BP's past performance at Lima is relevant, Clark is inherently a much
different company with varying capabilities and operating philosophies. At
Port Arthur, Clark has proven its ability to make major improvements in the
financial performance and refinery operations of its predecessor, Chevron. In
our opinion, however, it is not reasonable to expect a duplication of these
productivity improvements at Lima. We do anticipate relative improvements
through Clark's "leaner and meaner" refining and marketing concepts, but we
recognize that the BP management at Lima, in fact, was successful in reducing
manpower, lowering overall operating costs and achieving almost 100% saleable
product yields. BP's profitability has been respectable in a cyclical
competitive industry with a basic refinery charging relatively expensive high
quality crude oils. Nonetheless, we expect Clark management will be successful
to a degree in its efforts to increase crude throughput and reduce operating
costs, compared to BP. Also, we expect Clark to benefit from improved future
margins prevailing in the refining industry.
Using tests and methodologies employed by our firm for many years in
numerous refinery transactions, we have developed the opinion that it is
reasonable to expect Clark to operate the Lima refinery competitively and
achieve financial performance corresponding with an annual average earnings
before interest, taxes and depreciation ("EBITD") of approximately $60
million. (Turnaround maintenance amortization is estimated at $7 million;
therefore, the corresponding EBITDA is $67 million.) This estimate is based on
the calculations, assumptions and methodologies contained in this report.
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The Lima refinery is well served by both crude and products pipelines. It is
our opinion that Clark will not be handicapped by limited crude supply
sources. In contrast, Clark will have the opportunity to utilize optimum
domestic and foreign sources for its Lima refinery operations. The situation
may be somewhat different concerning products, depending on the future supply
arrangements Clark is able to achieve with BP and other area competitors, such
as Sun and Marathon/Ashland. It is TM&C's opinion that there could be some
initial competitive disruptions in the first few years following the
acquisition, but ultimately the product supply balances will normalize, and
Clark should be able to realize fair market values for its products, even at
increased throughputs. Currently, there is a plentiful supply of products in
Ohio. With the expectation of the Lima refinery closing, others are generating
plans to fill this void. It is TM&C's opinion that there could be some early
refinery margin repercussions if competitors, particularly Marathon/Ashland,
react aggressively to the Lima purchase. It is our understanding that
Marathon/Ashland has plans to deliver significant volumes from its
Catlettsburg refinery to the Columbus area with the construction of a new
pipeline. Ultimately, this will simply change the balance of imports/exports
in the Ohio region, but overall supply/demand relationships will not be
greatly altered. We do not expect any major pipeline projects to bring
products from Gulf Coast refineries to this region, as contemplated earlier
following BP's announcement of the Lima refinery closing.
It should be noted that TM&C's gross margin projections are based on Clark's
operating the Lima refinery as a wholesale refiner with virtually no end-user
marketing efforts. We assume that the primary products--gasoline, diesel, jet
fuel and LPG products--will be sold on a bulk basis, essentially at the
refinery gate or into product pipelines. Eventually, Clark is expected to
expand its marketing strengths into this area and achieve relatively higher-
than-assumed product prices, but that is a future eventuality and not relevant
for our assignment. Along with our bulk wholesale product disposition approach
is the assumption that there are virtually no selling and marketing expenses
with this venture. Because BP has been so dominant in this area, we believe
that Clark's near-term success will depend on its ability to work out
beneficial commercial arrangements with BP (or other refiner/marketers).
We have noted that there should be natural concern that BP has possibly
neglected routine maintenance at the Lima refinery in order to avoid
unnecessary expenses prior to closure. A major turnaround (which will cost
approximately $30 million) will be required in 1999. During our brief visit to
the Lima refinery, senior BP management assured us that routine maintenance
has been continued during the past two years, essentially on a "business as
usual" basis without regard to the imminent closure. In any case, it will be
prudent for Clark to anticipate in its planning some "catch up" maintenance
expenses for a couple of years. However, TM&C did not include any
extraordinary maintenance expenses in our estimates because the limited scope
of our assignment and time availability prevented establishing any reasonable
basis to do so.
With respect to capital expenditures, Clark estimates that it will face
annual average expenditures of approximately $20 million for sustaining
(defensive) capital. TM&C believes that this estimate may be conservative, as
it exceeds industry averages for refineries of this size, complexity and
apparent mechanical condition. On the other hand, there will undoubtedly be
several capital projects undertaken that provide economic payout. It appears
to us that a new alkylation unit will be readily justified unless BP or some
other nearby refinery offers a very attractive purchase arrangement for
Clark's alky feed production (which is now being processed at BP's Toledo
refinery). Similarly, we expect that Clark will be able to justify a diesel
HDS unit to make low sulfur diesel and avoid dumping surplus high sulfur
diesel and No. 2 fuel production. We are aware of available shut-down process
units--both alkylation and HDS--that could be considered by Clark if economics
point this direction. Capital requirements for these units might be reduced to
the $20 million range with such an approach.
Finally, it is TM&C's opinion that the Lima refinery will be faced with a
sulfur in gasoline issue in about 2004, or perhaps sooner. Both API and NPRA
have recommended to EPA that Ohio and surrounding states be required to market
gasoline with maximum sulfur content of 150 ppm. EPA and
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others are considering even lower sulfur levels, in some cases as low as 50
ppm sulfur. It seems highly likely that the Lima refinery's current capability
of about 230 ppm sulfur in gasoline will be inadequate. We have not undertaken
a specific assessment of this problem but believe that hydrotreating heavy cat
gasoline will be the likely solution. Capital costs might be in the range of
$10 million if this route is required.
The following report and tables provide details of our analysis in each of
the key areas considered in this engagement.
TURNER, MASON & COMPANY
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REFINERY PROFILE
HISTORY
A petroleum refinery was built on the current location in Lima, Ohio around
the turn of the century by the Standard Oil Company, and was known as the
Solar refinery. Standard Oil was forced to break up in 1911 by U.S. anti-trust
legislation, creating several smaller companies, among them Standard Oil of
Ohio (SOHIO). SOHIO acquired the Lima refinery in 1931. Previously, SOHIO had
built a refinery in Toledo (1919), about 75 miles north of Lima. These two
refineries have historically operated as a system, with several intermediate
streams being exchanged.
In 1987, SOHIO was purchased by British Petroleum (BP), a U.K.-based major
integrated oil company with worldwide operations, and it has operated the Lima
refinery since that time. In 1996, BP attempted to sell the refinery but was
unsuccessful in securing a satisfactory offer. As a result, plans were made to
cease operations at the plant as of year-end 1998.
PROCESS UNITS
Over the years, significant expansions and modifications have taken place at
the Lima refinery. As a result, most of the operating units at the refinery
are relatively modern and technologically up-to-date. The crude unit was
constructed in 1969-70 with an original design capacity of 150,000 barrels per
day (B/D). Since then, it has been expanded to a current capability of 168,000
B/D. A gas oil hydrocracker (24,000 B/D capacity), naphtha hydrotreater
(60,000 B/D capacity) and reformer (54,000 B/D capacity) were also built at
the same time as the crude unit, and together with the crude unit, are
collectively referred to as the Lima Integrated Unit (LIU).
The FCC (cat cracker) and delayed coker units were both built in 1949 during
an earlier expansion of the refinery. However, they have been significantly
modified since that time. The FCC was expanded and modernized most recently in
1994 and has a current capacity of 36,000 B/D. The coker was converted from a
crude coker to a delayed coker in 1970 and has been steadily upgraded and
expanded from the 1970 design capacity of 13,000 B/D to a current capacity of
about 22,500 B/D. The most recent upgrade (in 1994) included the addition of a
new, state-of-the-art feed furnace.
Other major units at the refinery include an 18,500 B/D C5/C6 isomerization
unit, a 25,500 B/D aromatics extraction unit, a 5,500 B/D toluene
hydrodealkylation unit (THDA), a 1.2 million SCFH hydrogen purification unit
(HPU), a 54 tons per day sulfur recovery unit (SRU) and a 1,200 B/D Trolumen
unit. The isomerization, aromatics, THDA and HPU units were all built during a
major petrochemical expansion in 1984.
Table 1 summarizes all the major process units at the refinery. TM&C has
estimated total replacement cost of the refinery to be about $1.2 billion,
with an estimated complexity rating of 8.9.
ASSETS FOR SALE
The assets included for sale are:
. 650 acres of a 900-acre industrial site at Lima, Ohio;
. All the oil refining related structures, equipment and machinery at the
site;
. An adjacent product terminal (Vine Street terminal);
. Four crude oil tanks located just south of the refinery;
. On-site and in-transit crude oil inventories;
. On-site refined and intermediate products inventories; and
. All assignable contracts and permits.
BP intends to accept all existing environmental liabilities at the refinery
as of the sale date.
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HISTORIC FINANCIAL AND OPERATING PERFORMANCE
Because Lima is just one of several refineries operated by BP Oil US,
audited financial statements for Lima as a standalone refinery are not
prepared as a normal course of business. However, as part of the effort by BP
to sell the refinery in 1996, certain financial and operating data were
prepared for Lima for the years 1991-95. In addition, Clark prepared estimates
for refinery net margins for the years 1996 and 1997 using actual refinery
yield and operating cost data and the same pricing methodology used by BP in
generating the 1991-95 estimates. Tables 2 through 8 show the estimated
refinery gross margins for those years.
CRUDE SUPPLY
Table 9 summarizes the crude slate processed at the refinery during the
1991-97 time period. The refinery is limited to running mostly light to medium
gravity, low sulfur crude oils. West Texas Intermediate (WTI) has been the
mainstay of the crude slate, averaging about 70% of the total. WTI typically
has a gravity of 38-40 API with a sulfur content of 0.3%. The only other crude
oil that has been run in significant volumes is Cabinda from Angola, which
averaged about 8% of the total for the whole period. In recent years, the
refinery has processed upwards of 15% Cabinda. Like WTI, Cabinda is also very
low in sulfur but is heavier at 32 API. Most of the remaining crudes that have
been processed at the refinery have been light sweet crudes such as LLS, North
Sea, Nigerian and Cusiana. The refinery has run up to about 10,000 B/D of
medium sour crudes such as ANS, Eugene Island and WTS.
The refinery receives all its crude oil supply via pipeline. There is an
extensive network of crude oil pipelines that can deliver crude from Texas,
Louisiana and the mid-continent. Most of the WTI is shipped from Longview,
Texas via the Mid-Valley Pipeline. Foreign crude oil can be accessed through
the LOOP/LOCAP system and then into Capline to Patoka, Illinois. A Marathon
pipeline makes deliveries from this point to Lima. Canadian crude oil can be
brought into the refinery via the Interprovincial Pipeline to Chicago and then
to Patoka via a Mobil pipeline. Given this configuration of pipeline options,
it is our opinion that crude oil supply logistics are unlikely to limit the
refinery's future ability to run crude oil.
PRODUCTS
The refinery produces a full range of products. Distribution to market or to
subsequent processing facilities is accomplished via several pipelines, by
rail, by truck, or through the adjacent product terminal (Vine Street).
Products shipped by rail include:
<TABLE>
<S> <C>
. Petroleum coke .Benzene
.Propylene .Butanes
.Caustic .Decanted oil
Products shipped by truck include:
.LPG .Trolumen
.Vacuum bottoms and decanted oil .Sulfur
</TABLE>
CRUDE UNIT OPERATING RATES
As stated earlier, the refinery has a nameplate crude capacity of 168,000
B/D. Over the three-year period 1995-97, the crude unit utilization has
averaged about 152,000 B/D, or about 91%. Most downstream units have had
relatively low operating rates, with the exception of the FCC, which has
averaged about 95% of capacity. A summary of historic utilization rates at the
refinery process units is shown in Table 10.
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OPERATING EXPENSES
BP has supplied operating cost information for the 1991-97 time period which
has been summarized in Table 11. Variable operating costs (including fuel,
power, catalyst and other costs) have averaged $33.7 million per year. Non-
turnaround fixed costs have ranged from about $61 million to $68 million per
year during this time period. In addition, turnaround costs have averaged $7.1
million per year. Total operating costs (including turnaround expenses) have
averaged almost $106 million per year, or $1.99 per barrel of crude processed.
CHEMICAL PLANT NEIGHBORS
An acrylonitrile plant, owned and operated by BP Chemicals is adjacent to
the refinery, as well as a nitrogen based chemical plant owned by Arcadian
Chemical and operated by BP Chemicals. In addition, the Hampshire Chemical
plant processes by-products from the BP Chemical plant.
The refinery interfaces with this chemicals complex through shared
infrastructure and through feedstock supply arrangements. A significant aspect
of infrastructure sharing is an electric utility substation that services the
complex. Also, propylene produced by the refinery is sold exclusively to BP
Chemical, and BP Chemical distributes and markets all benzene and surplus
toluene produced by the refinery. Arcadian Corporation purchases pipeline
natural gas on behalf of the complex.
BP provides numerous shared support services to the Lima and Toledo
refineries such as commercial operations and planning, technical support,
accounting and control, procurement, human resources, etc. Such services are
not individually allocated to each refinery, but are accounted for in a
general overhead charge allocated to each site. Thus, meaningful historical
costs for these services are not available.
TOLEDO/LIMA REFINERY TIES
Even though BP's refinery in Toledo is located about 75 miles away from
Lima, the two refineries have been operated as a system, with economic
optimization based on the system rather than the individual sites. The
integration includes exchanges of intermediates and unfinished products
including alky feed, gas oil, and distillate blendstocks.
The recent and continuing upgrade of the Toledo refinery (the Repositioning
Project) is altering levels of transfers. Agreements covering the continuation
of transfers are not known to TM&C and would need to be renegotiated at the
completion of the Repositioning Project, which is expected in April/May 1999.
However, this does not apply to the exchange of propylene. All propylene
produced by the Toledo refinery must be sent to the Lima Refinery for either
processing, storage or sale, and an agreement for the continuation of this
arrangement is expected to be negotiated subsequent to the signing of the
Purchase Agreement.
CAPITAL EXPENDITURES
Over the past several years, annual capital expenditures have been in the
range of $20-$40 million. Expenditures for basic care and maintenance have
ranged from $1-$5 million per year, while health, safety and environment (HSE)
expenditures were in the range of $5-$18 million per year. The last full
maintenance turnaround occurred in 1994, at a cost of approximately $30
million. Another plant-wide turnaround is scheduled for 1999, and Clark's
operating plan estimates the cost of this turnaround to be approximately $30
million. Sustaining capital during this period has included significant
expenditures on benzene National Emissions Standards for Hazardous Air
Pollutants (NESHAP) and the wastewater system. Clark has estimated overall
sustaining capital requirements to average approximately $20 million per year
from 1999 through 2001, including $4 million per year for refinery maximum
achievable control technology (MACT) II compliance. These estimates appear to
be
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conservative relative to industry averages for refineries of this size and
complexity. The following is a summary (in millions of dollars) of historic
and projected capital expenditures:
<TABLE>
<CAPTION>
DISCRETIONARY SUSTAINING TOTAL
------------- ---------- -----
<S> <C> <C> <C>
1991.......................................... $ 8.9 $22.8 $31.7
1992.......................................... 13.3 14.3 27.6
1993.......................................... 11.7 11.4 23.1
1994.......................................... 24.5 14.0 38.5
1995.......................................... 8.9 7.7 16.6
1996.......................................... 1.3 8.3 9.6
1997.......................................... -- 10.9 10.9
Average....................................... 10.0 12.8 22.8
Projected..................................... 20.7
</TABLE>
A more detailed summary for the 1991-95 period is contained in Table 12.
PROJECTED OPERATIONS UNDER CLARK OWNERSHIP
In preparing an independent forecast of expected EBITD generated by the
refinery under the ownership of Clark, TM&C completed the following tasks:
. A price forecast for the Lima refinery was generated, covering all expected
product sales and feedstock purchases.
. A set of operating assumptions and limitations were prepared that are
consistent with our view of how the refinery would be operated by Clark.
. The operating assumptions and prices were used to generate a set of refinery
yields, through use of a linear programming (LP) model.
. Refinery operating costs were projected consistent with the LP results and
with Lima's historical experience.
PRICING BASIS
The feedstock and product pricing assumptions which we developed are
summarized in Table 13. Refined product prices are based on the United States
Gulf Coast (USGC). The USGC represents a large percentage of the U.S. refining
capacity, and it is the incremental product supplier to much of the U.S.,
including the Midwest and the East Coast. Consequently, the USGC establishes
price trends and relationships which are reflected throughout the country and
include the markets where the Lima refinery competes.
The USGC price forecast used is one that TM&C has developed for use in
refining studies in which we are currently involved. A key piece of this
forecast is the $3 WTI crack spread which we used. It is about the same as the
average 1991-97 crack of $3.03. Figure 1 summarizes the actual WTI crack
spread from 1991 through 1997.
In our price forecast, the Lima location differential for light clean
products (gasolines, jet fuel and No. 2 diesel) above the USGC is 2.5c per
gallon. This is somewhat less than the pipeline tariff of about 3.0c per
gallon and also less than local rack differentials to the USGC, which
generally have been about 4.0c per gallon.
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NO ALKYLATION UNIT
Two other key product price assumptions which we made involve alky feed and
incremental No. 2 HS diesel. The Lima refinery is somewhat unusual in that it
has an FCC unit which produces alkylation unit feedstock but lacks an
alkylation unit. The BP refinery in Toledo has an oversized alkylation unit
and has historically processed the alky feed produced at Lima. Upon completion
of the Repositioning Project at the Toledo refinery, its appetite for alky
feed is expected to go down. Lima's alternative for alky feed sales would
include other refiners with alkylation units or as a gasoline blendstock in
its own gasoline pool. In the latter disposition, alky feed essentially
displaces normal butane. Therefore, we have valued this stream at a normal
butane price.
NO DIESEL HDS UNIT
Because of Lima's lack of a diesel HDS unit and Toledo's excess capacity,
significant volumes of No. 2 diesel blending components produced at Lima have
been processed at Toledo since the advent of low sulfur diesel regulations in
late 1993. Under Clark's ownership, the Lima refinery will have to blend all
of these components into HS No. 2 diesel and produce higher volumes of this
product into a market which is already over-supplied. Our price assumption
penalizes the production of this incremental (above historical levels) HS No.
2 diesel by 4.0c per gallon.
The crude prices shown in Table 13 are also consistent with recent TM&C
studies. The base price for WTI crude of $18 per barrel (Cushing Spot) is
above current levels, but reflects a reasonable future outlook for analyses.
In any case, the absolute WTI level is not as important as the price
relationship to other crudes and products. The transportation charge of $1 per
barrel for WTI from Midland reflects transit to Longview on the Mesa and West
Texas Gulf pipeline systems and transit to Lima from Longview on the Mid-
Valley Pipeline. Cabinda and Eugene Island are both assumed to move on Capline
from St. James to Patoka and on the Marathon pipeline to Lima.
FEEDSTOCK AND PRODUCT ASSUMPTIONS
Table 14 summarizes the feedstock and product volume limitations assumed in
our projection. As shown, we have fixed the crude slate to only three crudes:
WTI, Cabinda and Eugene Island. This slate is consistent quality-wise with
what has been historically run at the Lima refinery. The availabilities of the
crude in the stated volumes are not a problem, and although not "optimized",
the selected slate fits in well with the refinery's capabilities and unit
limitations. The only other feedstocks made available are normal butane (which
is supplied as desired for gasoline blending purposes) and low purity
propylene produced at the BP Toledo refinery (which is subject to negotiation
for Lima receiving approximately 3,900 B/D). Most products were limited to
historically demonstrated volumes.
PROJECTED YIELDS
To estimate future refinery yields, TM&C used a version of the LP planning
model for the Lima refinery which BP has provided to Clark. Clark conducted a
validation process to test the ability of the LP to match actual refinery
yields. We reviewed Clark's validation methodology and conclude that the LP is
adequate for our work.
Applying the price set and assumptions summarized in Tables 13 and 14, we
generated an LP case which represents annualized refinery operation in a non-
turnaround year. The resultant yields and estimated gross margin of $168.2
million are shown in Table 15.
Table 16 summarizes the process unit operating rates for this case. Although
somewhat higher than recent actual throughputs for some units (such as the
coker, reformer, hydrocracker and isomerization units), the projected rates
are below stream day capacities and are very achievable, in our opinion. It
should be noted that BP has been operating over the last two years with a view
that the
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refinery would be shutting down at the end of 1998. Therefore, BP has not
attempted to maximize rates to the extent we would expect Clark to do so.
Product yields and some other key parameters are compared to historical
operations in Table 17. The projected case results are reasonably consistent
with history. Although overall product yield is slightly above the seven-year
average, it is below the 101.0% that the Lima refinery has achieved since
1995. We discussed this issue with refinery management and learned that the
refinery staff has focused on and made significant progress in reducing oil
losses from various sources (flaring, oil to the sewer, etc.). In light of
this, the projected product yield should be conservative.
OPERATING COSTS
Table 18 summarizes the operating cost estimate for the projected case. As
shown, we have estimated total cash operating costs of $106.2 million
annually, or $1.88 per barrel of crude oil processed. This compares with the
seven-year historic average of $105.7 million and $1.99, respectively (which
was shown in Table 11).
The fuel balance was derived from our estimate of the required fuel produced
and consumed by the refinery, taking into account process unit operating rates
and severities and the historic overall energy efficiency of the plant. The
fuel balance is very similar to 1995 performance, during which refinery
operations were most similar to the projected operation. Estimates for other
variable costs were also made based on historic operational results provided
by BP, adjusted to reflect the refinery operating rates in the future case.
The fixed cost estimate is slightly less than the seven-year average of $72
million which BP has incurred. With recent manpower cutbacks and increased
maintenance efficiencies, fixed costs have been running at a level
significantly below our estimate. Although it is very possible that these
lower costs can be sustained by Clark in its operation of the refinery, we
have not given full credit for this in our projections.
EBITD OUTLOOK
TM&C's EBITD projections that result from combining gross margin and
operating costs estimates developed as stated are presented in Table 19. As
shown, we have projected a five-year average EBITD of $58.8 million per year
(and, assuming an average turnaround amortization of $7.0 million, an EBITDA
of $65.8 million per year). A 30-day plant-wide turnaround is assumed for
1999, resulting in lower EBITD for that year. Note that we used Clark's
estimate of $1.2 million per year for G&A expenses, a figure based on its
expectation to absorb the Lima refinery operation readily into the existing
St. Louis organization.
TM&C BACKCAST
TM&C has traditionally tested forecasts of refinery cash-generating
performances with simple backcast comparisons. This differs from a typical
review of a company's financials in that past deficiencies in operating
capabilities are eliminated by using current proved unit capacities, yields
and operating costs. Simply put, this backcast methodology assesses what the
current refinery could have hypothetically been expected to do under prior
years' margins and price relationships.
For the period 1991-97, TM&C has estimated product revenues, cost of sales
and resulting gross margins using this backcast methodology. These results are
summarized in Table 20, with the backcast period average gross margin being
about $164 million. Backcast gross margins range from $137.4 million in 1996
to $218.6 million in 1991. This compares with BP's estimated actual gross
margin during the same period of about $159 million and the TM&C projected
gross margin of about $168 million. Accordingly, this analysis indicates that
even though there have been numerous changes
B-10
<PAGE>
in the Lima refinery's processing capabilities and prevailing industry
competitive factors, the projected results are reasonable by this test.
MARGIN SENSITIVITIES
Of general interest is an approximation of expected impacts resulting from
both controllable and noncontrollable changes in the industry and at the
refinery. TM&C has developed the estimated gross margin sensitivities shown in
Table 21 for several such events. Because the Lima refinery is a "remotely
located Gulf Coast refinery", it is necessarily dependent on Gulf Coast crack
spreads. This conclusion is emphasized by noting that a change of 25c per
barrel in the Gulf Coast crack spread affects TM&C's estimated gross margin
about $12 million annually. In addition, we conclude that the Lima refinery
economics are quite sensitive to throughput rates, with a 10,000 B/D increase
producing a gross margin improvement of about $10 million annually. Several
other sensitivity measurements shown in Table 21 are significantly less
important.
B-11
<PAGE>
TABLE 1
LIMA REFINERY
PROCESS UNIT SUMMARY
<TABLE>
<CAPTION>
DATE ORIGINAL CURRENT
BUILT/ CAPACITY CAPACITY
UPGRADED MB/D* MB/D* COMMENTS
--------- -------- -------- --------
<S> <C> <C> <C> <C>
PROCESS UNIT
Crude................... 1969/1994 150.0 168.0 Winter capacity is 173 MB/D
Vacuum.................. 1969/1994 42.0 54.0
Naphtha HDS............. 1969 47.8 60.0
Reformer................ 1969 47.0 54.0
Gas Oil Hydrocracker.... 1969/1996 20.7 24.0 24 MB/D on gasoline; 26 MB/D
on kerosene
Aromatics............... 1984 24.4 25.5
THDA.................... 1984 5.5 5.5
Isomerization........... 1984/1986 16.7 18.5
FCC..................... 1949/1994 16.0 36.0 36 MB/D at 79% conversion; 40 MB/D
at 75% conversion
Coker**................. 1949/1995 30.0 22.5 22.5 MB/D at 18-hour cycle
HPU..................... 1984 1.2 MMSCF/H 90% H2
SRU..................... 1974/1996 33 ltpd 54 ltpd
Trolumen................ 1964/1995 1.1 1.2 Decanted oil feed
</TABLE>
- --------
* Thousand barrels per day.
** Originally a 30 MB/D Kellogg crude coker. Modified in 1970 to Foster Wheeler
delayed coker @ 13 MB/D with subsequent upgrades to 22.5 MB/D.
B-12
<PAGE>
TABLE 2
LIMA REFINERY
CALCULATED REFINERY GROSS MARGIN*
1991 OPERATIONS
<TABLE>
<CAPTION>
c/GAL. $/BBL. BPCD** $MM
------ ------ ------- -------
<S> <C> <C> <C> <C>
PRODUCTS
Conventional Regular Gasoline................. 65.7 27.59 47,000 473.1
Conventional Midgrade 89...................... 67.3 28.26 8,900 91.6
Conventional Premium 92....................... 69.2 29.05 14,800 156.7
Blend Components.............................. 67.8 28.48 (500) (5.3)
Jet A......................................... 62.8 26.38 17,900 172.0
Kerosene...................................... 64.2 26.96 600 5.8
No. 2 HS Diesel............................... 60.7 25.50 13,600 126.3
No. 2 Diesel Supreme.......................... 61.5 25.85 13,300 125.3
Benzene....................................... 106.8 44.84 4,400 71.8
Toluene....................................... 83.2 34.95 1,000 12.7
Net Butane.................................... (39.8) (16.72) 200 (1.2)
Isobutane..................................... 47.2 19.82 4,000 28.9
Alky Feed..................................... 39.4 16.54 4,200 25.3
Mixed LPG..................................... 35.8 15.04 4,600 25.3
Propylene (Chemical Grade).................... 49.0 20.59 4,400 33.0
FCC Feed (LS)................................. 58.9 24.75 4,000 36.1
FCC Slurry Oil................................ 12.18 1,100 4.9
Trolumen...................................... 45.88 200 3.3
Coke (Anode Grade), FOEB...................... 14.16 3,100 16.0
Sulfur, LT.................................... 25.00 40 0.4
------- -------
Total Products.............................. 146,840 1,402.0
FEEDSTOCKS
Crude Oil..................................... 22.33 141,400 1,152.9
Toledo Vacuum Bottoms......................... 12.96 400 1.9
Toledo Low Purity C3=......................... 16.97 3,100 19.2
Purchased Reformate/Other..................... 25.38 1,300 12.0
------- -------
Total Feedstocks............................ 146,200 1,186.0
Gross Margin.................................. 4.05 216.0
</TABLE>
- --------
*Data source: BP
** Barrels per calendar day.
B-13
<PAGE>
TABLE 3
LIMA REFINERY
CALCULATED REFINERY GROSS MARGIN*
1992 OPERATIONS
<TABLE>
<CAPTION>
c/GAL. $/BBL. BPCD $MM
------ ------ ------- -------
<S> <C> <C> <C> <C>
PRODUCTS
Conventional Regular Gasoline..................... 59.2 24.87 43,000 391.4
Conventional Midgrade 89.......................... 61.3 25.74 9,400 88.6
Conventional Premium 92........................... 63.6 26.71 8,600 84.1
Conventional Premium 93........................... 63.5 26.65 6,300 61.5
Conventional Regular 84 (Subgrade)................ 59.6 25.03 900 8.2
Blend Components.................................. 66.1 27.77 700 7.1
Jet A............................................. 59.2 24.88 17,900 163.1
Kerosene.......................................... 54.7 22.98 600 5.0
No. 2 HS Diesel................................... 57.3 24.05 13,700 120.6
No. 2 Diesel Supreme.............................. 56.8 23.84 13,700 119.5
Benzene........................................... 91.1 38.26 4,600 64.4
Toluene........................................... 75.2 31.59 700 8.1
Net Butane........................................ 4.9 2.05 500 0.4
Isobutane......................................... 46.6 19.57 3,900 27.9
Alky Feed......................................... 34.2 14.35 4,000 21.0
Mixed LPG......................................... 34.0 14.29 4,600 24.1
Propylene (Chemical Grade)........................ 33.8 14.20 4,500 23.4
FCC Feed (LS)..................................... 52.7 22.13 5,000 40.5
FCC Slurry Oil.................................... 11.48 1,100 4.6
Trolumen.......................................... 40.17 200 2.9
Coke (Anode Grade), FOEB.......................... 11.80 3,200 13.8
Sulfur, LT........................................ 25.00 40 0.4
------- -------
Total Products.................................. 147,140 1,280.6
FEEDSTOCKS
Crude Oil......................................... 21.27 140,500 1,094.1
Toledo Vacuum Bottoms............................. 12.08 600 2.6
Toledo Low Purity C3=............................. 12.32 3,100 14.0
Purchased Reformate/Other......................... 22.01 2,800 22.6
------- -------
Total Feedstocks................................ 147,040 1,133.3
Gross Margin...................................... 2.74 147.3
</TABLE>
- --------
*Data source: BP
B-14
<PAGE>
TABLE 4
LIMA REFINERY
CALCULATED REFINERY GROSS MARGIN*
1993 OPERATIONS
<TABLE>
<CAPTION>
c/GAL. $/BBL. BPCD $MM
------ ------ ------- -------
<S> <C> <C> <C> <C>
PRODUCTS
Conventional Regular Gasoline................... 53.7 22.55 44,100 363.0
Conventional Midgrade 89........................ 54.5 22.88 6,600 55.3
Conventional Premium 92......................... 55.7 23.40 2,400 20.5
Conventional Premium 93......................... 57.1 23.97 14,500 126.6
Conventional Regular 84 (Subgrade).............. 42.6 17.88 1,700 11.1
Blend Components................................ 48.5 20.35 1,700 12.6
Jet A........................................... 55.5 23.31 18,500 157.4
Kerosene........................................ 56.4 23.69 800 6.9
No. 2 HS Diesel................................. 52.0 21.83 15,000 119.8
No. 2 Diesel Supreme............................ 54.0 22.69 10,600 88.1
Light Cycle Oil................................. 47.6 19.98 5,100 37.2
Benzene......................................... 80.0 33.58 3,800 46.7
Toluene......................................... 61.0 25.62 100 0.9
Net Butane...................................... 20.7 8.69 400 1.3
Isobutane....................................... 40.3 16.94 3,600 22.5
Alky Feed....................................... 32.0 13.43 3,700 18.3
Mixed LPG....................................... 33.1 13.90 4,500 23.0
Propylene (Chemical Grade)...................... 28.8 12.10 4,300 19.2
FCC Feed (LS)................................... 49.1 20.64 2,500 18.8
FCC Slurry Oil.................................. 10.04 1,240 4.5
Trolumen........................................ 32.20 300 3.5
Coke (Anode Grade), FOEB........................ 11.41 3,100 13.1
Sulfur, LT...................................... 25.00 40 0.4
------- -------
Total Products................................ 148,540 1,170.7
FEEDSTOCKS
Crude Oil....................................... 19.14 143,800 1,004.3
Toledo Vacuum Bottoms........................... 11.27 (200) (0.8)
Toledo Low Purity C3=........................... 10.86 2,900 11.5
Purchased Reformate/Other....................... 19.53 2,800 20.0
------- -------
Total Feedstocks.............................. 149,300 1,035.0
Gross Margin.................................... 2.49 135.7
</TABLE>
- --------
*Data Source: BP
B-15
<PAGE>
TABLE 5
LIMA REFINERY
CALCULATED REFINERY GROSS MARGIN*
1994 OPERATIONS
<TABLE>
<CAPTION>
c/GAL. $/BBL. BPCD $MM
------ ------ ------- -------
<S> <C> <C> <C> <C>
PRODUCTS
Conventional Regular Gasoline..................... 51.4 21.58 32,400 255.2
Conventional Midgrade 89.......................... 48.4 20.31 1,100 8.1
Conventional Premium 92........................... 58.6 24.60 3,600 32.3
Conventional Premium 93........................... 56.5 23.74 16,800 145.6
Reformulated Regular.............................. 52.7 22.14 600 4.8
Reformulated Premium 93........................... 58.0 24.34 300 2.7
Conventional Regular 84 (Subgrade)................ 49.4 20.76 9,400 71.2
Blend Components.................................. 57.3 24.08 900 7.9
Jet A............................................. 56.9 23.90 13,000 113.4
Kerosene.......................................... 52.4 22.00 1,200 9.6
Water White (Kerosene)............................ 47.1 19.77 4,900 35.4
No. 2 HS Diesel................................... 49.0 20.59 13,100 98.5
No. 2 Diesel Supreme.............................. 50.3 21.14 5,600 43.2
Light Cycle Oil + Unfinished Diesel............... 45.9 19.29 6,800 47.9
Benzene........................................... 90.8 38.14 3,500 48.7
Toluene........................................... 73.2 30.76 500 5.6
Net Butane........................................ 22.8 9.58 1,100 3.8
Isobutane......................................... 36.3 15.26 3,000 16.7
Alky Feed......................................... 27.4 11.51 3,400 14.3
Mixed LPG......................................... 31.7 13.32 4,100 19.9
Propylene (Chemical Grade)........................ 39.3 16.50 4,600 27.7
FCC Feed (LS)..................................... 46.7 19.62 5,000 35.8
FCC Slurry Oil.................................... 9.28 1,200 4.0
Trolumen.......................................... 30.13 500 5.5
Coke (Anode Grade), FOEB.......................... 7.28 3,000 8.0
Sulfur, LT........................................ 25.00 40 0.4
------- -------
Total Products.................................. 139,640 1,066.2
FEEDSTOCKS
Crude Oil......................................... 17.83 135,100 879.2
Toledo Low Purity C3=............................. 14.12 3,200 16.5
Purchased Reformate/Other......................... 20.30 3,000 22.2
------- -------
Total Feedstocks................................ 141,300 917.9
Gross Margin...................................... 2.88 148.3
</TABLE>
- --------
*Data source: BP
B-16
<PAGE>
TABLE 6
LIMA REFINERY
CALCULATED REFINERY GROSS MARGIN*
1995 OPERATIONS
<TABLE>
<CAPTION>
c/GAL. $/BBL. BPCD $MM
------ ------ ------- -------
<S> <C> <C> <C> <C>
PRODUCTS
Conventional Regular Gasoline................... 52.9 22.23 44,000 357.0
Conventional Premium 92......................... 57.5 24.17 5,900 52.0
Conventional Premium 93......................... 58.8 24.71 13,800 124.5
Reformulated Regular............................ 59.0 24.76 800 7.2
Reformulated Premium 93......................... 64.5 27.08 600 5.9
Conventional Regular 84 (Subgrade).............. 50.5 21.19 14,100 109.1
Blend Components................................ 35.0 14.70 (400) (2.1)
Jet A........................................... 52.7 22.14 16,600 134.1
Kerosene........................................ 53.9 22.62 900 7.4
Water White (Kerosene).......................... 47.6 19.98 5,900 43.0
No. 2 HS Diesel................................. 49.3 20.71 14,600 110.4
No. 2 Diesel Supreme............................ 50.7 21.29 5,200 40.4
Unfinished Diesel + Light Cycle Oil............. 46.4 19.49 7,700 54.8
Benzene......................................... 80.8 33.92 3,200 39.6
Toluene......................................... 72.0 30.23 600 6.6
Net Butane...................................... 24.8 10.40 900 3.4
Isobutane....................................... 40.3 16.94 3,500 21.6
Alky Feed....................................... 30.9 12.98 4,700 22.3
Mixed LPG....................................... 34.0 14.26 5,000 26.0
Propylene (Chemical Grade)...................... 69.3 29.10 5,900 62.7
FCC Feed (LS)................................... 47.0 19.72 4,400 31.7
FCC Slurry Oil.................................. 10.16 1,000 3.7
Trolumen........................................ 28.39 400 4.1
Coke (Anode Grade), FOEB........................ 8.99 3,000 9.8
Sulfur, LT...................................... 25.00 40 0.4
------- -------
Total Products................................ 162,340 1,275.6
FEEDSTOCKS
Crude Oil....................................... 19.22 154,600 1,084.7
Toledo Vac Bottoms.............................. 9.91 (200) (0.7)
Toledo Low Purity C3=........................... 22.51 4,000 32.9
Purchased Reformate/Other....................... 21.33 2,500 19.5
------- -------
Total Feedstocks.............................. 160,900 1,136.4
Gross Margin.................................... 2.37 139.2
</TABLE>
- --------
*Data Source: BP
B-17
<PAGE>
TABLE 7
LIMA REFINERY
CALCULATED REFINERY GROSS MARGIN*
1996 OPERATIONS
<TABLE>
<CAPTION>
c/GAL. $/BBL. BPCD $MM
------ ------ ------- -------
<S> <C> <C> <C> <C>
PRODUCTS
Conventional Regular Gasoline................... 63.3 26.57 54,000 525.1
Conventional Premium 92......................... 66.0 27.72 2,100 21.3
Conventional Premium 93......................... 66.1 27.76 13,600 138.1
Reformulated Regular............................ 67.0 28.12 1,300 13.4
Reformulated Premium 93......................... 69.6 29.25 500 5.4
Conventional Regular 84 (Subgrade).............. 62.3 26.15 5,000 47.8
Blend Components................................ 61.6 25.88 (1,400) (13.3)
Jet A........................................... 65.2 27.38 17,200 172.4
Kerosene........................................ 65.2 27.38 600 6.0
Water White (Kerosene).......................... 59.2 24.86 3,800 34.6
No. 2 HS Diesel................................. 61.6 25.86 16,800 159.0
No. 2 Diesel Supreme............................ 62.6 26.29 5,600 53.9
Light Gas Oil (Unfinished Diesel)............... 57.8 24.27 5,000 44.4
Light Cycle Oil................................. 57.8 24.27 2,700 24.0
Benzene......................................... 86.7 36.41 2,000 26.6
Toluene......................................... 71.0 29.84 1,000 10.9
Net Butane...................................... 40.7 17.11 400 2.5
Isobutane....................................... 44.4 18.64 2,800 19.1
Alky Feed....................................... 41.5 17.45 4,000 25.5
Mixed LPG....................................... 43.9 18.43 4,400 29.7
Propylene (Chemical Grade)...................... 48.0 20.14 5,800 42.8
FCC Feed (LS)................................... 57.4 24.10 4,500 39.7
FCC Slurry Oil.................................. 13.48 1,300 6.4
Trolumen........................................ 35.35 400 5.2
Coke (Anode Grade), FOEB........................ 12.88 3,200 15.1
Sulfur, LT...................................... 25.00 40 0.4
------- -------
Total Products................................ 156,640 1,456.0
FEEDSTOCKS
Crude Oil....................................... 22.96 149,000 1,252.2
Toledo Vacuum Bottoms........................... 13.41 300 1.5
Toledo Low Purity C3=........................... 16.74 3,900 23.9
Purchased Reformate/Other....................... 28.15 2,100 21.6
------- -------
Total Feedstocks.............................. 155,300 1,299.2
Gross Margin.................................... 2.76 156.8
</TABLE>
- --------
* Data source: Clark
B-18
<PAGE>
TABLE 8
LIMA REFINERY
CALCULATED REFINERY GROSS MARGIN*
1997 OPERATIONS
<TABLE>
<CAPTION>
c/GAL. $/BBL. BPCD $MM
------ ------ ------- -------
<S> <C> <C> <C> <C>
PRODUCTS
Conventional Regular Gasoline................... 60.7 25.49 55,000 511.7
Conventional Premium 92......................... 63.9 26.84 1,100 10.8
Conventional Premium 93......................... 64.0 26.89 13,400 131.5
Reformulated Regular............................ 64.4 27.03 2,000 19.7
Reformulated Premium 93......................... 67.6 28.38 600 6.2
Conventional Regular 84 (Subgrade).............. 59.7 25.07 11,400 104.3
Blend Components................................ 59.0 24.80 (900) (8.1)
Jet A........................................... 59.3 24.89 16,800 152.6
Kerosene........................................ 59.3 24.89 300 2.7
Water White (Kerosene).......................... 53.7 22.55 3,700 30.5
No. 2 HS Diesel................................. 56.0 23.53 20,100 172.6
No. 2 Diesel Supreme............................ 57.0 23.96 5,400 47.2
Light Gas Oil (Unfinished Diesel)............... 51.6 21.68 3,700 29.3
Light Cycle Oil................................. 51.6 21.68 4,000 31.7
Benzene......................................... 92.8 38.96 1,500 21.3
Toluene......................................... 76.0 31.90 200 2.3
Isobutane....................................... 40.3 16.91 3,300 20.4
Alky Feed....................................... 37.4 15.72 4,200 24.1
Mixed LPG....................................... 39.2 16.48 4,500 27.1
Propylene (Chemical Grade)...................... 43.3 18.19 6,000 39.8
FCC Feed (LS)................................... 53.9 22.65 2,000 16.5
FCC Slurry Oil.................................. 12.31 1,100 4.9
Trolumen........................................ 35.35 400 5.2
Coke (Anode Grade coke), FOEB................... 11.71 3,100 13.2
Sulfur, LT...................................... 25.00 40 0.4
------- -------
Total Products................................ 162,940 1,417.9
FEEDSTOCKS
Crude Oil....................................... 21.37 153,400 1,196.6
Toledo Vacuum Bottoms........................... 12.42 200 0.9
Toledo Low Purity C3=........................... 14.78 3,900 21.0
Purchased Butane................................ 15.38 1,100 6.2
Purchased Reformate/Other....................... 24.19 2,500 22.1
------- -------
Total Feedstocks.............................. 161,100 1,246.8
Gross Margin.................................... 2.91 171.1
</TABLE>
- --------
* Data source: Clark
B-19
<PAGE>
TABLE 9
LIMA REFINERY
HISTORIC CRUDE SLATE
(THOUSANDS OF BARRELS PER DAY)
<TABLE>
<CAPTION>
WT. %
(degrees)API SULFUR 1991 1992 1993 1994 1995 1996 1997 AVERAGE
------------ ------ ----- ----- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WTI..................... 39.0 0.3 110.6 100.5 105.0 96.5 107.8 91.1 98.3 101.4
ANS..................... 27.6 1.1 5.4 5.2 5.6 8.0 5.3 7.1 4.6 5.9
LLS..................... 38.7 0.1 7.0 4.8 5.5 10.8 7.5 5.7 5.7 6.7
Eugene Island........... 34.1 0.7 0.0 0.5 0.8 1.8 1.5 2.4 3.5 1.5
West Texas Sour......... 34.2 1.3 0.0 0.0 0.0 0.2 0.6 0.2 0.3 0.2
Other Domestic.......... 37.5 0.3 5.8 0.5 1.2 0.1 2.2 1.8 2.9 2.1
Cusiana................. 36.3 0.3 0.0 3.9 6.6 6.6 1.1 1.8 4.0 3.4
Bonito Sour............. 30.0 1.0 0.0 0.0 0.0 0.2 0.0 0.6 2.4 0.5
Cabinda................. 32.0 0.2 0.6 3.6 6.7 6.3 15.4 24.5 22.6 11.4
Rabi.................... 34.3 0.1 0.0 0.0 0.0 0.0 0.0 0.5 0.0 0.1
Zaire................... 31.3 0.1 0.0 0.0 0.0 0.0 0.0 0.9 0.9 0.3
North Sea............... 38.2 0.4 9.4 12.4 7.8 2.6 4.6 2.4 1.0 5.7
Nigerian................ 30.4 0.2 2.6 9.1 5.2 2.4 8.6 10.0 7.2 6.4
----- ----- ----- ----- ----- ----- ----- -----
Total................. 141.3 140.5 143.8 135.1 154.6 149.0 153.4 145.5
API Gravity, (degrees).. 37.9 38.1 37.3 37.1 37.3 36.4 36.8 37.3
Sulfur, Wt. %........... 0.3 0.3 0.3 0.4 0.3 0.3 0.3 0.3
</TABLE>
B-20
<PAGE>
TABLE 10
LIMA REFINERY
HISTORIC UNIT OPERATING RATES
<TABLE>
<CAPTION>
AVERAGE
CAPACITY -------------------
MB/D 1995 1996 1997 MB/D % UTILIZATION
-------- ----- ----- ----- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Crude Distillation............... 168.0 154.6 149.0 153.4 152.3 90.7
Coking........................... 22.5 15.5 17.0 18.5 17.0 75.6
FCC.............................. 36.0 34.6 32.9 35.4 34.3 95.3
Hydrocracking.................... 24.0 21.9 18.3 19.4 19.9 82.8
Naphtha HDS...................... 60.0 49.9 48.5 52.1 50.2 83.6
Catalytic Reforming.............. 54.0 48.4 38.9 45.0 44.1 81.7
Aromatics Extraction............. 25.5 21.3 17.6 18.6 19.2 76.7
C5/C6 Isomerization.............. 18.5 13.9 10.3 12.2 12.1 65.6
</TABLE>
B-21
<PAGE>
TABLE 11
LIMA REFINERY
HISTORIC CASH OPERATING COSTS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 AVERAGE
------ ------- ------- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VARIABLE
Fuel.................... 6,337 10,064 8,393 6,678 8,372 17,300 16,735 10,554
Power................... 15,051 15,194 14,880 14,705 15,201 15,500 14,180 14,959
Catalyst................ 1,362 1,545 1,780 1,585 2,081 2,000 1,796 1,736
Other Variable.......... 5,735 6,057 6,192 6,602 7,505 6,500 6,470 6,437
------ ------- ------- ------- ------ ------- ------- -------
Total Variable........ 28,485 32,860 31,245 29,570 33,159 41,300 39,181 33,686
$/Barrel of Crude....... 0.55 0.64 0.59 0.60 0.59 0.76 0.70 0.63
FIXED
Turnaround Maintenance.. 2,082 3,508 5,814 30,094 908 5,900 1,653 7,137
Other Fixed............. 61,671 64,133 64,058 66,491 65,436 68,100 64,339 64,890
------ ------- ------- ------- ------ ------- ------- -------
Total Fixed........... 63,753 67,641 69,872 96,585 66,344 74,000 65,992 72,027
$/Barrel of Crude....... 1.24 1.32 1.33 1.96 1.18 1.36 1.18 1.36
TOTAL OPERATING COSTS 92,238 100,501 101,117 126,155 99,503 115,300 105,173 105,712
$/Barrel of Crude....... 1.79 1.95 1.93 2.56 1.76 2.12 1.88 1.99
</TABLE>
B-22
<PAGE>
TABLE 12
BP LIMA REFINERY
HISTORIC CAPITAL EXPENDITURES
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
1991-95
-------------
1991 1992 1993 1994 1995 TOTAL AVERAGE
---- ---- ---- ---- ---- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
MAJOR PAYOUT PROJECTS
Refinery Automation..................... 2.0 8.4 2.7 0.1 13.2 2.6
Vacuum Tower Revamp..................... 0.2 5.0 1.1 6.3 1.3
Coke Drum Overhead Piping............... 1.1 1.1 0.2
Refinery Information System............. 0.1 0.1 0.0
Light Ends Optimization................. 0.5 0.5 0.1
Coker Unit Improvements................. 0.7 0.7 0.1
Conversion Unit Optimization............ 0.5 0.5 0.1
DHT Project............................. 0.8 0.8 0.2
Coker Furnace........................... 1.5 5.0 6.5 1.3
Multivariable Control................... 0.5 0.5 0.1
HPU C3 Recovery......................... 0.1 0.1 0.0
FCC Unsaturates Gas Plant............... 3.0 3.0 0.6
Gasoline Blender Upgrade................ 1.3 0.3 1.6 0.3
Low Pressure Reformer................... 0.1 0.1 0.0
Reformer Recycle Gas Dryer.............. 0.1 0.1 0.0
Crude Unit Debottleneck................. 0.8 0.8 0.2
FCC Reactor Cyclone Revisions........... 11.5 0.1 11.6 2.3
Trolumen Instrumentation Upgrade........ 1.1 1.1 0.2
Total Other Payout Projects............. 6.9 2.9 2.1 4.4 2.4 18.7 3.7
---- ---- ---- ---- ---- ----- ----
Subtotal Payout Projects.............. 8.9 13.3 11.7 24.5 8.9 67.3 13.5
NON-PAYOUT AND RELIABILITY PROJECTS
Tank Rationalizations................... 0.6 0.8 1.4 0.2 1.9 4.9 1.0
Power Boiler............................ 2.2 2.5 4.7 0.9
Coker Gas Compressor.................... 1.7 1.3 3.0 0.6
Total Other Projects.................... 0.8 0.4 0.1 0.6 1.5 3.4 0.7
---- ---- ---- ---- ---- ----- ----
Subtotal Reliability Projects......... 5.3 5.0 1.5 0.8 3.4 16.0 3.2
ENVIRONMENTAL PROJECTS
Benzene NESHAPs......................... 8.4 6.8 2.8 3.2 21.2 4.2
Oily Wastewater......................... 3.4 0.3 6.4 2.5 12.6 2.5
Firewater System........................ 1.8 0.8 2.6 0.5
Process Safety Management............... 0.2 0.1 0.3 0.1
East Area Flare Rectification........... 4.5 1.8 6.3 1.3
CO Boiler Seal Pot...................... 1.6 1.5 0.3
L5 Landfill Rectification............... 0.4 1.4 1.8 0.4
Total Other Projects.................... 3.7 1.3 0.7 1.1 1.1 7.9 1.6
---- ---- ---- ---- ---- ----- ----
Subtotal Environmental Projects....... 17.5 9.3 9.9 13.3 4.3 54.2 10.8
Total Capital Spending.............. 31.7 27.6 23.1 38.6 16.6 137.5 27.5
</TABLE>
B-23
<PAGE>
TABLE 13
TM&C PRICING BASIS
WTI AT $18/BARREL AND GULF COAST CRACK SPREAD AT $3/BARREL
<TABLE>
<CAPTION>
LIMA REFINERY
---------------------------------
TRANSPORTATION/ REFINERY
MARKET(1) FEES PRICE
------------- ------------------ -------------
c/GAL. $/BBL. c/GAL. $/BBL. c/GAL. $/BBL. REMARKS
------ ------ ------- -------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
CRUDES
WTI (Midland)........... 17.85 1.00 18.85 WTI (Cushing)--$0.15/bbl.
LLS (St. James)......... 18.20 0.91 19.11 WTI (Cushing) + $0.20/bbl.
Eugene Island
(St. James)............ 17.00 0.91 17.91 WTI (Cushing)--$1.00/bbl.
Angola Cabinda (FOB).... 15.50 2.70 18.20 WTI (Cushing)--$2.50/bbl.
OTHER FEEDSTOCKS
Normal Butane........... 37.3 15.68 5.5 2.31 42.8 17.99 Mont Belvieu + 5.5c/gal.
Toledo Low Purity
Propylene.............. 34.8 14.63 Formula (per proposed BP agreement)
Natural Gas ($/FOEB).... 12.60 4.00 16.60 Gulf Coast + $4.00/FOEB
PRODUCTS
Conventional
Regular 87............. 51.3 21.56 2.5 1.05 53.8 22.61 Gulf Coast + 2.5c/gal.
Conventional Regular 84
(Subgrade)............. 51.8 21.77 Conventional regular--2.0c/gal.
Conv. Premium 93........ 55.3 23.24 2.5 1.05 57.8 24.29 Conventional regular + 4.0c/gal.
Jet A-54................ 49.6 20.83 2.5 1.05 52.1 21.88 Gulf Coast + 2.5c/gal.
Kerosene................ 53.1 22.30 Jet A-54 + 1.0c/gal.
No. 2 HS Diesel......... 47.3 19.88 2.5 1.05 49.8 20.93 Gulf Coast + 2.5c/gal.
No. 2 HS Diesel
Incremental............ 45.8 19.25 No. 2 diesel HS--4.0c/gal.
No. 2 HS Diesel
Supreme................ 50.8 21.35 No. 2 diesel HS + 1.0c/gal.
Benzene................. 93.3 39.20 (10.0) (4.20) 83.3 35.00 Gulf Coast--10.0c/gal. (transportation)
Toluene................. 77.3 32.48 (10.0) (4.20) 67.3 28.28 Gulf Coast--10.0c/gal. (transportation)
Normal Butane........... 37.3 15.68 37.3 15.68 Mont Belvieu
Isobutane............... 40.3 16.94 40.3 16.94 Mont Belvieu
Alky Feed............... 37.3 15.68 37.3 15.68 Mont Belvieu normal butane
Mixed LPG............... 31.3 13.16 3.0 1.26 34.3 14.42 Mont Belvieu propane + 3.0c/gal.
(based on Ferrelgas contract)
Propylene (Chemical Gulf Coast--27.4c/gal. (per proposed
Grade);................ 70.0 29.40 (27.4) (11.51) 42.6 17.89 BP agreement)
FCCU Slurry Oil......... 9.00 Gulf Coast No. 6 (3%)--$2.00/bbl.
(historical relationship)
Trolumen................ 31.00 Gulf Coast No. 6 (3%) + $20.00/bbl.
(historical relationship)
Coke (Anode Grade),
$/FOEB................. 12.00 Equivalent to $60 per ton
Sulfur, $/T............. 28.50 Historical average
</TABLE>
- -------
(1) Product and other feedstock market prices are Gulf Coast spot lows.
B-24
<PAGE>
TABLE 14
LIMA REFINERY PROJECTED OPERATION
FEEDSTOCK AND PRODUCT LIMITATIONS
<TABLE>
<CAPTION>
TYPE OF
MB/D LIMIT
----- -------
<S> <C> <C>
CRUDES
WTI............................................................... 115.0 Fixed
Eugene Island..................................................... 10.0 Fixed
Angola Cabinda.................................................... 30.0 Fixed
OTHER FEEDSTOCKS
Normal Butane..................................................... -- Open
Toledo Low Purity Propylene....................................... 3.9 Fixed
Natural Gas....................................................... -- Open
PRODUCTS
Conventional Regular 87........................................... -- Open
Conventional Regular 84 (Subgrade)................................ 12.0 Fixed
Conventional Premium 93........................................... 17.0 Maximum
Jet A-54.......................................................... 20.0 Maximum
Kerosene.......................................................... 0.8 Maximum
No. 2 HS Diesel................................................... 18.0 Maximum
No. 2 HS Diesel Incremental....................................... -- Open
No. 2 HS Diesel Supreme........................................... 5.0 Maximum
Benzene........................................................... -- Open
Toluene........................................................... 1.0 Maximum
Normal Butane..................................................... -- Open
Isobutane......................................................... -- Open
Alky Feed......................................................... -- Open
Mixed LPG......................................................... -- Open
Propylene (Chemical Grade)........................................ -- Open
FCCU Slurry Oil................................................... -- Open
Trolumen.......................................................... 0.5 Maximum
Coke (Anode Grade)................................................ -- Open
Sulfur............................................................ -- Open
</TABLE>
B-25
<PAGE>
TABLE 15
LIMA REFINERY
ESTIMATED REFINERY GROSS MARGIN
TM&C PROJECTED OPERATIONS
<TABLE>
<CAPTION>
c/GAL. $/BBL. BPCD $MM
------ ------ ------- -------
<S> <C> <C> <C> <C>
PRODUCTS
Conventional Regular Gasoline..................... 53.8 22.61 53,967 445.4
Conventional Premium 93........................... 57.8 24.29 17,000 150.7
Conventional Regular Subgrade (84)................ 51.8 21.77 12,000 95.4
Jet A............................................. 52.1 21.88 20,000 159.7
Kerosene.......................................... 53.1 22.30 800 6.5
No. 2 HS Diesel................................... 49.8 20.93 18,000 137.5
No. 2 HS Diesel Incremental....................... 45.8 19.25 5,166 36.3
No. 2 Diesel Supreme.............................. 50.8 21.35 5,000 39.0
Benzene........................................... 70.3 35.00 1,635 20.9
Toluene........................................... 67.3 28.28 1,000 10.3
Normal Butane..................................... 37.3 15.68 638 3.7
Isobutane......................................... 40.3 16.94 4,742 29.3
Alky Feed......................................... 37.3 15.68 4,059 23.2
Mixed LPG......................................... 34.3 14.42 5,157 27.1
Propylene (Chemical Grade)........................ 42.6 17.89 5,433 35.5
FCC Slurry Oil.................................... 9.00 1,064 3.5
Trolumen.......................................... 31.00 500 5.7
Coke (Anode Grade), FOEB.......................... 12.00 3,394 14.9
Sulfur, LT........................................ 28.50 39 0.4
------- -------
Total Liquid Products........................... 159,555 1,244.9
FEEDSTOCKS
WTI............................................... 18.85 115,000 791.2
Eugene Island..................................... 17.91 10,000 65.4
Angola Cabinda.................................... 18.20 30,000 199.3
Toledo Low Purity C3=............................. 14.63 3,900 20.8
------- -------
Total Feedstocks................................ 158,900 1,076.7
Gross Margin...................................... 2.84 168.2
</TABLE>
B-26
<PAGE>
TABLE 16
LIMA REFINERY
TM&C PROJECTED UNIT OPERATING RATES
<TABLE>
<CAPTION>
%
MB/D UTILIZATION
----- -----------
<S> <C> <C>
Crude Distillation............................................ 155.0 90.7
Coking........................................................ 20.3 88.7
FCC........................................................... 35.0 95.6
Hydrocracking................................................. 22.5 92.2
Naphtha HDS................................................... 51.7 84.8
Catalytic Reforming........................................... 52.0 94.7
Aromatics Extraction.......................................... 16.6 65.3
C5/C6 Isomerization........................................... 18.0 95.7
</TABLE>
B-27
<PAGE>
TABLE 17
LIMA REFINERY
FEEDSTOCK AND PRODUCT VOLUMES
HISTORIC VS. TM&C PROJECTED CASE OPERATIONS
<TABLE>
<CAPTION>
VOL. % OF
FEEDSTOCKS
------------------
AVERAGE TM&C
HISTORIC PROJECTED
1991-97 CASE
-------- ---------
<S> <C> <C>
PRODUCT YIELDS
Gasolines.................................................... 48.2 52.2
Middle Distillates........................................... 32.4 30.8
LPGs......................................................... 11.3 12.6
Benzene/Toluene.............................................. 2.6 1.7
Coke......................................................... 2.0 2.1
FCC Feed/Other............................................... 3.6 1.0
----- -----
Total...................................................... 100.1 100.4
OTHER PARAMETERS
% Premium Gasoline........................................... 23.3 20.5
% WTI in Crude Slate......................................... 69.7 74.2
Crude API gravity............................................ 37.3 37.3
Crude Sulfur, Wt. %.......................................... 0.3 0.3
</TABLE>
B-28
<PAGE>
TABLE 18
LIMA REFINERY PROJECTED OPERATION
OPERATING COSTS SUMMARY
<TABLE>
<CAPTION>
$/BBL.
FOEB/D $MM/YEAR CRUDE
------ -------- ------
<S> <C> <C> <C>
VARIABLE COSTS
Fuel
Consumed............................................... 11,700 -- --
Produced............................................... 9,700 -- --
Net Purchase........................................... 2,000 12.2 0.22
Power.................................................... 15.0 0.26
Catalyst................................................. -- 2.0 0.04
Other Variable........................................... -- 7.0 0.12
----- ----
Total................................................ -- 36.2 0.64
FIXED COSTS.............................................. -- 70.0 1.24
----- ----
TOTAL OPERATING COSTS.................................... -- 106.2 1.88
</TABLE>
- --------
Notes:
Fuel cost assumed @ $16.70 per FOEB ($2.65 per MMBTU).
Power cost assumed @ $0.03 per KWH.
Fixed Costs estimate includes turnaround maintenance amortization of $7
million.
B-29
<PAGE>
TABLE 19
LIMA REFINERY PROJECTED OPERATION
ESTIMATED EBITD
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
1999(1) 2000 2001 2002 2003
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Product Revenues....................... 1,142.6 1,244.9 1,244.9 1,244.9 1,244.9
Cost of Sales.......................... 988.2 1,076.7 1,076.7 1,076.7 1,076.7
Refinery Gross Margin.................. 154.4 168.2 168.2 168.2 168.2
Refinery Operating Expenses(2)......... 103.2 106.2 106.2 106.2 106.2
Refinery Net Margin.................... 51.2 62.0 62.0 62.0 62.0
Refinery G&A(3)........................ 1.2 1.2 1.2 1.2 1.2
EBITD.................................. 50.0 60.8 60.8 60.8 60.8
</TABLE>
- --------
(1) 1999 includes a 30-day plant-wide turnaround.
(2)See Table 18.
(3)Estimate by Clark.
B-30
<PAGE>
TABLE 20
LIMA REFINERY
BACKCAST COMPARISONS(1)
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
REFINERY
ACKCASTB PRODUCT COST OF GROSS
PERIOD REVENUES SALES MARGIN
- -------- -------- ------- --------
<S> <C> <C> <C>
1991................................................. 1,482.8 1,264.2 218.6
1992................................................. 1,384.4 1,216.5 167.9
1993................................................. 1,245.0 1,092.6 152.4
1994................................................. 1,183.2 1,035.3 147.9
1995................................................. 1,253.9 1,113.6 140.3
1996................................................. 1,453.5 1,316.1 137.4
1997................................................. 1,403.8 1,218.0 185.8
Average.............................................. 1,343.8 1,179.5 164.3
BP Actual Gross Margin (1991-97 Average)............. 159.2
TM&C Projected Gross Margin.......................... 168.2
</TABLE>
- --------
(1) TM&C projected refinery yields with actual historical prices and
relationships.
B-31
<PAGE>
TABLE 21
LIMA REFINERY
ESTIMATED GROSS MARGIN SENSITIVITIES
(MILLION OF DOLLARS PER YEAR)
<TABLE>
<CAPTION>
DELTA GROSS MARGIN
------------------
<S> <C>
. Change 3:2:1 Crack Spread By $0.25 Per Barrel.............. +/-12.1
. Increase Crude Throughput By 10,000 BPCD................... +10.4
. Do Not Make Trolumen....................................... -3.9
. Change Premium Spread By 1.0c Per Gallon................... +/-2.6
. Change Anode Coke Price By $10/Ton......................... +/-2.5
. Change Alky Feed Price by $1.00 Per Barrel................. +/-1.5
. Change Gasoline/Diesel Spread By 1.0c Per Gallon........... +/-0.6
</TABLE>
B-32
<PAGE>
FIGURE 1
WTI 3:2:1 GULF COAST CRACK SPREAD
(DOLLAR PER BARREL)
91 4.15
92 3.25
93 2.90
94 2.59
95 2.38
96 2.71
97 3.24
TM&C 3.00
B-33
<PAGE>
Requests for assistance in filling out and delivering Consents or for
additional copies of this Consent Solicitation Statement or the Consent Letter
should be directed or the Consent Letter should be directed to the Information
Agent at one of its telephone numbers set forth below. Questions concerning
the terms of the Consent Solicitation should be directed to the Information
Agent or the Solicitation Agents at one of their telephone numbers set forth
below. Deliveries of Consents should be made to the Information Agent at its
addresses or facsimile number set forth below (facsimiles should be confirmed
by physical delivery).
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements................................................. 3
Incorporation of Certain Documents by Reference............................ 4
Available Information...................................................... 4
Summary.................................................................... 5
Risk Factors............................................................... 14
The Lima Acquisition....................................................... 17
Summary of Company Estimates Regarding the Lima Acquisition................ 20
Capitalization............................................................. 24
Selected Consolidated Financial and Other Data............................. 25
Terms of the Notes and Preferred Stock..................................... 27
The Amendments............................................................. 28
The Consent Solicitation................................................... 29
Certain Federal Income Tax Consequences.................................... 35
Appendix 1................................................................. A-1
Appendix 2................................................................. B-1
</TABLE>
CLARK USA, INC.
CONSENT SOLICITATION STATEMENT
The Information Agent is:
MORROW & CO.
212-754-8000
800-662-5200
By Mail, Hand or Courier:
Morrow & Co.
909 Third Avenue, 20th Floor
New York, New York 10022
By Facsimile:
212-754-8300
The Solicitation Agents are:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
1-800-323-5678 ext. 20557
