UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

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): October 15, 2014

 

 

 

LOGO

WESTERN REFINING LOGISTICS, LP

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

001-36114

(Commission

File Number)

 

46-3205923

(IRS Employer

Identification No.)

123 West Mills Avenue, Suite 200

El Paso, Texas 79901

(Address of principal executive office) (Zip Code)

(915) 534-1400

(Registrants’ telephone number, including area code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Introductory Note

On October 15, 2014, Western Refining Logistics, LP (the “ Partnership ”) completed its previously announced acquisition from Western Refining, Inc. (“ Western ”) of the outstanding limited liability company interests of Western Refining Wholesale, LLC (“ WRW ”), which owns primarily all of Western’s southwest wholesale assets (the “ Business ”), pursuant to a Contribution, Conveyance and Assumption Agreement, dated September 25, 2014, as amended (the “ Contribution Agreement ”), by and among the Partnership, Western, Western Refining Southwest, Inc., a wholly-owned indirect subsidiary of Western (“ WRSW ”), and Western Refining Logistics GP, LLC, the general partner of the Partnership (the “ General Partner ”). Pursuant to the Contribution Agreement, the Partnership acquired all of the outstanding limited liability company interests of WRW in exchange for total consideration of $360 million, comprised of approximately $320 million in cash and the issuance of approximately 1.16 million common units representing limited partner interests in the Partnership (collectively with the Commercial Agreements (as defined below), the “ Transaction ”). The cash payment was primarily financed using bank financing under the Partnership’s existing credit facility.

Item 1.01. Entry into a Material Definitive Agreement.

Product Supply Agreement

In connection with the closing of the Contribution Agreement, on October 15, 2014, Western Refining Company, L.P. (“ WRC ”), WRSW (together with WRC, collectively, the “ Sellers ”), and, solely for the purposes of section 3.7 thereof, Western entered into a Product Supply Agreement with WRW (the “ Product Supply Agreement ”) whereby the Sellers have agreed to supply and WRW has agreed to purchase approximately 79,000 barrels per day of refined products for sale to WRW’s wholesale customers. The Product Supply Agreement includes product pricing based upon OPIS or Platts indices on the day of delivery. The Product Supply Agreement also contains, subject to certain exceptions, a covenant restricting Western’s ability to compete in certain wholesale activities in the southwest United States (a “ restricted business ”). If Western acquires assets relating to the restricted business or an entity that engages in a restricted business, in each case, the value of which exceeds certain thresholds, the Partnership will have the right to acquire, on an exclusive basis, the restricted business so acquired at fair market value within a certain period of time. The Product Supply Agreement has an initial ten-year term.

The foregoing description of the Product Supply Agreement is not complete and is qualified in its entirety by reference to the text of the Product Supply Agreement, which is attached to this Current Report on Form 8-K as Exhibit 10.1 and incorporated in this Item 1.01 by reference.

Fuel Distribution and Supply Agreement

In connection with the closing of the Contribution Agreement, on October 15, 2014, WRW entered into a Fuel Distribution and Supply Agreement with WRSW (the “ Fuel Distribution Agreement ”) whereby WRSW has agreed to purchase a minimum of 645,000 barrels per month of branded and unbranded motor fuels for its retail and cardlock businesses at a price equal to WRW’s product cost at each terminal, plus taxes, fees and actual transportation costs, plus a margin of $0.03 per gallon. Under the Fuel Distribution Agreement, WRSW is obligated to offer WRW the first opportunity to satisfy all of its incremental branded and unbranded motor fuel requirements. The Fuel Distribution Agreement has an initial ten-year term.

The foregoing description of the Fuel Distribution Agreement is not complete and is qualified in its entirety by reference to the text of the Fuel Distribution Agreement, which is attached to this Current Report on Form 8-K as Exhibit 10.2 and incorporated in this Item 1.01 by reference.

Crude Oil Trucking Transportation Services Agreement

In connection with the closing of the Contribution Agreement, on October 15, 2014, the Sellers entered into a Crude Oil Trucking Transportation Services Agreement with WRW (the “ Crude Trucking Agreement ” and together with the Product Supply Agreement and the Fuel Distribution Agreement, the “ Commercial Agreements ”) whereby the Sellers have agreed to utilize WRW’s crude oil trucks to haul a minimum of 1.525 million barrels of crude oil each month. The Sellers have agreed to pay a per barrel fee based on the distance between the applicable pick-up and delivery points, plus, monthly fuel adjustments and customary applicable surcharges. The Crude Trucking Agreement has an initial ten-year term.


The foregoing description of the Crude Trucking Agreement is not complete and is qualified in its entirety by reference to the text of the Crude Trucking Agreement, which is attached to this Current Report on Form 8-K as Exhibit 10.3 and incorporated in this Item 1.01 by reference.

The terms of the Transaction were unanimously approved on behalf of the Partnership by the Conflicts Committee (the “ Conflicts Committee ”) of the Board of Directors of the General Partner. The Conflicts Committee, composed of independent members of the Board of Directors of the General Partner, retained independent legal and financial advisors to assist it in evaluating and negotiating the Transaction. In approving the Transaction, the Conflicts Committee based its decisions in part on an opinion from its independent financial advisor that the consideration to be paid by the Partnership was fair to the Partnership and its subsidiaries and the unaffiliated common unitholders of the Partnership from a financial point of view.

A copy of the Contribution Agreement was filed as Exhibit 2.1 to the Current Report on Form 8-K filed by the Partnership with the Securities and Exchange Commission on October 1, 2014 and is incorporated herein by reference.

Relationships

Each of the Partnership, the General Partner, WRSW and WRW is a direct or indirect subsidiary or affiliate of Western. As a result, certain individuals, including officers and directors of Western, the Partnership and the General Partner, serve as officers and/or directors of more than one of such other entities. Western owns through its wholly-owned subsidiaries 8,158,592 common units (including the approximately 1.16 million common units issued to Western in connection with the closing of the Transaction) representing limited partner interests of the Partnership and 22,811,000 of the subordinated units representing limited partner interests in the Partnership. In addition, the General Partner owns a non-economic general partner interest in the Partnership.

Item 2.01 Completion of Acquisition or Disposition of Assets.

To the extent required, the information set forth under “Introductory Note” and Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference. A copy of the Contribution Agreement was filed as Exhibit 2.1 to the Current Report on Form 8-K filed by the Partnership with the Securities and Exchange Commission on October 1, 2014 and is incorporated herein by reference.

Item 3.02 Unregistered Sales of Equity Securities.

The information set forth under “Introductory Note” of this Current Report on Form 8-K with respect to the issuance and sale by the Partnership of the common units representing limited partner interests in the Partnership to Western is incorporated herein by reference. This private placement of Partnership common units issued pursuant to the Contribution Agreement was made in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2).

Item 7.01 Regulation FD Disclosure.

On October 15, 2014, the Partnership and Western issued a joint press release announcing the consummation of the Transaction, including entry into the Commercial Agreements. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

The information contained in this Item 7.01 of this Current Report on Form 8-K (including the exhibit) is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), or otherwise subject to the liabilities of that Section. The information contained in this Item 7.01 of this Current Report on Form 8-K shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in any such filing.


Item 9.01. Financial Statements and Exhibits.

 

(a) Financial Statements of Business Acquired .

Attached hereto as Exhibit 99.2 to this Current Report on Form 8-K and incorporated herein by reference are: (i) the audited combined financial statements of the Business as of and for the years ended December 31, 2012 and 2013, (ii) the unaudited combined balance sheet of the Business as of June 30, 2014; (iii) the unaudited combined statements of operations and cash flows of the Business for the six months ended June 30, 2014 and June 30, 2013 and (iv) the unaudited combined statement of segment equity of the Business from December 31, 2011 to June 30, 2014.

 

(b) Pro Forma Financial Information .

The unaudited pro forma condensed consolidated balance sheet of the Partnership as of June 30, 2014 and the unaudited pro forma condensed consolidated statement of operations for the Partnership for the six months ended June 30, 2014 and the years ended December 31, 2011, 2012, 2013 are included as Exhibit 99.3 to this Current Report on Form 8-K and are incorporated herein by reference.

 

(d) Exhibits .

 

 Exhibit
Number

  

Description

 10.1†    Product Supply Agreement, dated October 15, 2014, by and among Western Refining Southwest, Inc., Western Refining Company, L.P. and Western Refining Wholesale, LLC.
 10.2†    Fuel Distribution and Supply Agreement, dated October 15, 2014, by and between Western Refining Wholesale, LLC and Western Refining Southwest, Inc.
 10.3†    Crude Oil Trucking Transportation Services Agreement, dated October 15, 2014, by and among Western Refining Wholesale, LLC, Western Refining Company, L.P. and Western Refining Southwest, Inc.
23.1    Consent of Deloitte & Touche LLP.
99.1    Joint Press Release of Western Refining Logistics, LP and Western Refining, Inc. issued October 15, 2014.
99.2    Audited combined financial statements of the Business as of and for the years ended December 31, 2012 and 2013; unaudited combined balance sheet of the Business as of June 30, 2014 and unaudited combined statements of operations and cash flows of the Business for the six months ended June 30, 2014 and June 30, 2013 and unaudited combined statement of segment equity of the Business from December 31, 2011 to June 30, 2014.
99.3    Unaudited pro forma condensed consolidated balance sheet of Western Refining Logistics, LP as of June 30, 2014 and the unaudited pro forma condensed consolidated statement of operations for Western Refining Logistics, LP for the six months ended June 30, 2014 and the years ended December 31, 2011, 2012 and 2013.

 

Confidential status has been requested for certain portions thereof pursuant to a Confidential Treatment Request filed October 16, 2014. Such provisions have been filed separately with the Securities and Exchange Commission.


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 thereunto duly authorized.

 

 

WESTERN REFINING LOGISTICS, LP

 

By: Western Refining Logistics GP, LLC, its general partner

Dated: October 16, 2014   By:  

 /s/ Gary R. Dalke

 

Name: Gary R. Dalke

Title:   Chief Financial Officer


EXHIBIT INDEX

 

 Exhibit
Number

  

Description

 10.1†    Product Supply Agreement, dated October 15, 2014, by and among Western Refining Southwest, Inc., Western Refining Company, L.P. and Western Refining Wholesale, LLC.
 10.2†    Fuel Distribution and Supply Agreement, dated October 15, 2014, by and between Western Refining Wholesale, LLC and Western Refining Southwest, Inc.
 10.3†    Crude Oil Trucking Transportation Services Agreement, dated October 15, 2014, by and among Western Refining Wholesale, LLC, Western Refining Company, L.P. and Western Refining Southwest, Inc.
23.1    Consent of Deloitte & Touche LLP.
99.1    Joint Press Release of Western Refining Logistics, LP and Western Refining, Inc. issued October 15, 2014.
99.2    Audited combined financial statements of the Business as of and for the years ended December 31, 2012 and 2013; unaudited combined balance sheet of the Business as of June 30, 2014 and unaudited combined statements of operations and cash flows of the Business for the six months ended June 30, 2014 and June 30, 2013 and unaudited combined statement of segment equity of the Business from December 31, 2011 to June 30, 2014.
99.3    Unaudited pro forma condensed consolidated balance sheet of Western Refining Logistics, LP as of June 30, 2014 and the unaudited pro forma condensed consolidated statement of operations for Western Refining Logistics, LP for the six months ended June 30, 2014 and the years ended December 31, 2011, 2012 and 2013.

 

Confidential status has been requested for certain portions thereof pursuant to a Confidential Treatment Request filed October 16, 2014. Such provisions have been filed separately with the Securities and Exchange Commission.

Exhibit 10.1

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

PRODUCT SUPPLY AGREEMENT

Between

WESTERN REFINING SOUTHWEST, INC.,

WESTERN REFINING COMPANY, L.P.

AND

WESTERN REFINING WHOLESALE, LLC,

Dated as of October 15, 2014


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

TABLE OF CONTENTS

 

ARTICLE I TERM

     1   
 

        1.1

       Initial Term      1   
ARTICLE II SUPPLY COMMITMENTS AND FORECASTS      2   
 

        2.1

       Supply Commitment      2   
 

        2.2

       Committed Terminal Capacity      2   
 

        2.3

       Buyer Forecasts      2   
ARTICLE III COMMERCIAL TERMS      3   
 

        3.1

       Product Pricing      3   
 

        3.2

       Product Sales Terms      3   
 

        3.3

       Product Specifications      3   
 

        3.4

       RFS-2 RIN Documentation      3   
 

        3.5

       Ratable Purchases      3   
 

        3.6

       Margin Shortfall Payments; Margin Excess Payments; Pricing Adjustments      3   
 

        3.7

       Restricted Activities      5   
ARTICLE IV SUPPLY COMPLIANCE      8   
 

        4.1

       Alternative Terminals In the Event of an Outage      8   
 

        4.2

       Seller’s Failure to Deliver Products      9   
 

        4.3

       Buyer’s Failure to Meet a Supply Commitment      9   
 

        4.4

       Force Majeure      9   
 

        4.5

       Equitable Allocation      10   
ARTICLE V RECORDS; AUDIT RIGHTS      11   
 

        5.1

       Records      11   
 

        5.2

       Audit Rights      11   
ARTICLE VI DEFAULT AND TERMINATION      11   
 

        6.1

       Default by Seller      11   
 

        6.2

       Buyer Payment Default      11   
 

        6.3

       Other Defaults      12   
ARTICLE VII OTHER PROVISIONS      12   
 

        7.1

       Confidentiality      12   
 

        7.2

       Notices      13   

 

i


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

 

        7.3

       Entire Agreement      14   
 

        7.4

       Construction      14   
 

        7.5

       Dispute Resolution; Governing Law; Jurisdiction      14   
 

        7.6

       Cooperation      16   
 

        7.7

       Gifts      16   
 

        7.8

       Amendments      16   
 

        7.9

       Waiver      16   
 

        7.10

       Assignment      16   
 

        7.11

       Indemnity      17   
 

        7.12

       Severability      18   
 

        7.13

       No Third Party Beneficiaries      18   
 

        7.14

       Counterparts      18   

EXHIBITS

 

A    Definitions
B    List of Western Refining Terminals
C    Products Pricing
D    Product Terms of Sale
E    Tracking Account Illustration

 

ii


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

PRODUCT SUPPLY AGREEMENT

This PRODUCT SUPPLY AGREEMENT (this “ Agreement ”) is dated as of October 15, 2014 (the “ Effective Date ”), and is made by and between (i) Western Refining Southwest, Inc., an Arizona corporation (“ WRSW ”), and Western Refining Company, L.P., a Delaware limited partnership (“ WRC ”), and (ii) Western Refining Wholesale, LLC, a Delaware limited liability company (“ Buyer ”). WRSW and WRC are individually and collectively referred to as “ Seller ” and shall be jointly and severally liable for all obligations of Seller contained herein and, except as otherwise expressly contemplated by this Agreement, shall be treated for all purposes contained in this Agreement as a single Party. Seller and Buyer are individually referred to as a “ Party ” and collectively as the “ Parties .” Capitalized terms used throughout this Agreement shall have the meanings set forth in Exhibit A , unless otherwise specifically defined herein.

RECITALS

 

A. WRSW is the owner and operator of a petroleum refinery located near Gallup in the Four Corners region of northwest New Mexico (the “ Gallup Refinery ”).

 

B. WRC is the owner and operator of a petroleum refinery located in El Paso, Texas (the “ El Paso Refinery ”).

 

C. The Gallup Refinery and the El Paso Refinery (collectively, the “ Western Refineries ”) have a combined total throughput capacity of approximately 153,000 barrels per Day.

 

D. WRSW and WRC desire to secure a certain volume of sales of the refined petroleum and other transportation fuel products that are produced at the Western Refineries (the “ Products ”) through third party terminals and terminals that are owned and operated by Western Refining Logistics, LP, a Delaware limited partnership (such terminals are listed in Exhibit B and referred to as the “ Terminals ”).

 

E. Buyer is engaged in the wholesale distribution and sale of motor fuels and desires to be assured of a certain volume of supply of Products at the Terminals to support its wholesale operations.

NOW, THEREFORE, in consideration of the premises and the representations, warranties and covenants contained herein, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

TERM

1.1 Initial Term . Unless otherwise terminated as provided herein or extended pursuant to a mutual agreement of the Parties, this Agreement shall be effective as of the Effective Date and will remain in effect until the ten (10) year anniversary of the Effective Date.

 

1


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

ARTICLE II

SUPPLY COMMITMENTS AND FORECASTS

2.1 Supply Commitment . Seller shall sell to Buyer, and Buyer shall buy from Seller, the Stipulated Product Commitment on the terms and subject to the conditions set forth in this Agreement. Seller hereby acknowledges that if the Committed Volumes are increased pursuant to the FDSA, Buyer may need to acquire additional volumes of Product from Seller hereunder. In such instances, Buyer shall have the right (to be exercised via written notice to the Seller) to unilaterally increase the Stipulated Product Commitment under this Agreement to the extent reasonably necessary to enable Buyer to meet its obligations to deliver the increased Committed Volumes under the FDSA.

2.2 Committed Terminal Capacity . Subject to Section 2.3(b) , during each Supply Period, Seller shall reserve sufficient capacity at each Terminal to the extent required to meet Buyer’s Forecast (as defined below) for such Terminal during such Supply Period.

2.3 Buyer Forecasts .

(a) By the fifteenth (15 th ) Day of the Month immediately preceding each Supply Period, Buyer shall prepare and submit to Seller a forecast which shall contain the Terminal Volume for each Terminal during such upcoming Supply Period (each a “ Forecast ”).

(b) To the extent that the operational limits at any Terminal prevent Seller from meeting Buyer’s Terminal Volume for such Terminal during any Supply Period, Seller shall not be obligated to reserve capacity at such Terminal in excess of such Terminal’s operational limits, and the Parties shall cooperate in good faith to revise the allocation of the Stipulated Product Commitment for such Supply Period among the Seller’s other Terminals to account for such limits in a Terminal’s operational capacity.

(c) Each Forecast submitted to Seller by Buyer (as subsequently revised by Buyer in accordance with this subsection (c) ) shall constitute a “ Supply Commitment ” for the upcoming Supply Period with respect to each Terminal. A Supply Commitment is a binding commitment, effective for the Supply Period, for Seller to sell and Buyer to purchase the Terminal Volume set forth in the Forecast for such Terminal; provided, that in any given Supply Period, Buyer shall have the right to periodically change (i) its Supply Commitment (so long as the total volumes purchased for such Supply Period do not exceed or fall below the Stipulated Product Commitment) and (ii) the Terminal Volumes at each Terminal subject to Section 2.3(b) . During any Supply Period, Seller shall not be firmly obligated to sell any Product in excess of the maximum Stipulated Product Commitment; but, rather, it will only have an obligation to use commercially reasonable efforts to do so.

 

2


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

ARTICLE III

COMMERCIAL TERMS

3.1 Product Pricing . Subject to the terms of this Agreement, Seller shall sell and Buyer shall buy the Products at the Product Prices. Such Product Prices are inclusive of all handling fees, delivery fees for delivery to the applicable Terminal, additive fees and any other fees; provided, however, that Seller will supply additives applicable to third party jobber locations as a direct pass through ( i.e. , at cost without any mark-up or profit added) to Buyer.

3.2 Product Sales Terms . The Product Sales Terms shall apply to all sales of Product supplied by Seller to Buyer pursuant to this Agreement. To the extent of any conflict between the terms of the Product Sales Terms and the terms of this Agreement, the Product Sales Terms shall govern.

3.3 Product Specifications . All Products supplied by Seller pursuant to this Agreement shall in all respects meet applicable legal requirements, industry standards, and the Product Specifications. The Product Specifications shall apply to all Products delivered under this Agreement.

3.4 RFS-2 RIN Documentation . Seller shall retain any RFS-2 RINs related to any of the Products delivered by Seller to Buyer under this Agreement.

3.5 Ratable Purchases . Buyer shall purchase each Product on a Ratable Basis during each Supply Period. Seller may restrict or deny supply of a Product on any given Day under any Supply Commitment when Buyer is not purchasing such Product on a Ratable Basis; provided however, that Seller will use commercially reasonable efforts to accommodate a request by Buyer to purchase on a non-Ratable Basis and any such restriction imposed by Seller on any given Day will not reduce the Terminal Volume for that Product for the applicable Supply Commitment.

3.6 Margin Shortfall Payments; Margin Excess Payments; Pricing Adjustments .

(a) In any Month where the Average Margin of Non-Delivered Rack Sales (stated as $ per gallon) is less than *** (a “ Shortfall Month ”), Seller will pay Buyer an amount equal to the product of (i) the Average Margin Shortfall for such Shortfall Month and (ii) the amount (in gallons) of the Buyer’s Non-Delivered Rack Sales during such Shortfall Month (but in no event shall such amount be greater than 30 million gallons in any given Shortfall Month) (each a “ Margin Shortfall Payment ”). Such amount shall be due within fifteen (15) Days after the last Day of such Shortfall Month.

(b) Any Margin Shortfall Payments paid by Seller under this Agreement shall be added to a virtual tracking account (the “ Tracking Account ”) and will remain “available” for repayment (i.e., included in the balance of the Tracking Account) in the form of Margin Excess Payments (as defined below) for a period of twelve (12) Months from the end of the Shortfall

 

3


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

Month for which such payments relate. The amount of any Margin Shortfall Payments included in the Tracking Account will be reduced by the sum of (i) the amount of any Margin Excess Payments where such Margin Excess Payments are applied to reduce the balance of the oldest Margin Shortfall Payment made within the previous twelve (12) Months and (ii) the amount of any Margin Shortfall Payments that are no longer “available” for repayment because they were not “repaid” within twelve (12) Months from the end of the Shortfall Month for which they were made. An illustration of the Tracking Account calculation is set forth on Exhibit E. The funds in the Tracking Account will be available to be “repaid” by Buyer in the form of Margin Excess Payments to the Seller in any subsequent Overage Month (as defined below).

(c) In any Month where the Average Margin of Non-Delivered Rack Sales (stated as $ per gallon) is greater than *** (an “ Overage Month ”), Buyer will apply as a credit for purchases in such Month an amount equal to the product of (i) the Average Margin Excess for such Overage Month and (ii) the amount (in gallons) of Buyer’s Non-Delivered Rack Sales during such Overage Month (but in no event shall such amount be greater than 30 million gallons) (each a “ Margin Excess Payment ”); provided that, such credit will only be due if and to the extent that the Tracking Account has a positive balance.

(d) Within ten (10) Days after the end of each Month, Buyer will deliver to Seller a statement showing the Average Margin of Non-Delivered Rack Sales (together with calculations and supporting data) for such Month just ended and stating the amount of any Margin Shortfall Payment or Margin Excess Payment due for such Month.

(e) For purposes of the foregoing:

(i) “ Aggregate Margin of Non-Delivered Rack Sales ” means, for any Month, an amount equal to the difference between (A) the aggregate net sales proceeds received by Buyer for Non-Delivered Rack Sales during such Month and (B) the aggregate price paid by Buyer hereunder for the Products sold as Non-Delivered Rack Sales during such Month.

(ii) “ Average Margin of Non-Delivered Rack Sales ” means, for any Month, an amount (stated as $ per gallon) equal to (A) the Aggregate Margin of Non-Delivered Rack Sales for such Month divided by (B) the aggregate number of gallons of Products sold as Non-Delivered Rack Sales during such Month.

(iii) “ Average Margin Excess ” means, for any Overage Month, an amount equal to the excess of (A) the Average Margin of Non-Delivered Rack Sales for such Overage Month over (B) *** (stated as $ per gallon). The Average Margin Excess cannot be less than zero.

(iv) “ Average Margin Shortfall ” means, for any Shortfall Month, an amount (stated as $ per gallon) equal to the amount by which (A) the Average Margin of Non-Delivered Rack Sales for such Shortfall Month is less than (B) ***. The Average Margin Shortfall cannot be less than zero.

 

4


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

3.7 Restricted Activities .

(a) Generally . During the term of this Agreement, Western Refining, Inc., a Delaware corporation (“ WNR ”), agrees that it will not, and shall cause each WNR Group Member (as defined below) not to, directly or indirectly, either acting on its own behalf or through or in connection with any Person (as defined below), acquire, own, manage, engage in, operate, control or participate in the acquisition, ownership, management, operation or control of, any Person or business engaged in the Restricted Business (as defined below). For the avoidance of doubt, the foregoing restrictions shall not apply to any Northern Tier Group Member or any Person Controlled by the Northern Tier Group.

(b) Exceptions . Notwithstanding the foregoing, the WNR Group Members shall be permitted to (i) own an aggregate of less than 2% of the outstanding Interests (as defined below) of an entity primarily engaged in the Restricted Business, if such Interests are listed on a national securities exchange or regularly traded in the over-the-counter market by a member of a national securities exchange, without violating the provisions of Section 3.7 ; provided, that no WNR Group Member Controls such entity; (ii) acquire assets, a portion of which are Competing Assets (as defined below), if the value of such Competing Assets (measured as of the date of such acquisition) is (A) no more than *** of the total value of all assets acquired in such acquisition and (B) no more than *** of the total value of the Partnership Group (as defined below) assets engaged in the Restricted Business (measured as of the date of such acquisition), and such WNR Group Members may thereafter continue to use such assets in the Restricted Business; (iii) acquire, or make investments in, entities that are engaged in the Restricted Business (each of such entities, a “ Competitor ”) if the value of such Competitor’s Competing Assets is (A) no more than *** of the total value of all assets of such Competitor and (B) no more than *** of the total value of the Partnership Group assets engaged in the Restricted Business (measured as of the date of such acquisition), and such Competitor may thereafter continue to engage in the Restricted Business; (iv) subject to compliance with Section 3.7(c) below, acquire assets or acquire, or make investments in, entities that are not otherwise permitted by clause (ii)  or (iii)  that result in the WNR Group Members or such entities, as the case may be, conducting or engaging in the Restricted Business, and the WNR Group Members or such entities, as the case may be, may thereafter continue to conduct or engage in such Restricted Business; (v) continue to market and distribute wholesale petroleum products to customers being served by WNR Group Members (other than Buyer) as of the date of this Agreement solely in the regions in which such customers are being served by such WNR Group Members (other than Buyer) as of the date of this Agreement; and (vi) market and distribute wholesale petroleum products to WNR Group Members to the extent provided in Section 4(c) of that certain Fuel Distribution and Supply Agreement, dated the date hereof, between Buyer and WRSW.

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(c) Right of First Offer . Notwithstanding anything to the contrary in this Section 3.7 , if a WNR Group Member acquires a Offered Business (as defined below), the following provisions shall apply:

(i) Within *** months of consummating such acquisition, WNR will provide the Partnership written notice (“ Offer Notice ”) of the Partnership’s right to acquire, on an exclusive basis, the Offered Business for the fair market value of the Offered Business. In connection with the Offer Notice, WNR shall provide its indicative view of the fair market value of the Offered Business and such other information concerning the Offered Business as reasonably requested by the Partnership to permit an informed investment decision.

(ii) Within 45 days of the Partnership’s receipt of the Offer Notice, the Partnership shall provide a non-binding indication of interest written notice (an “ Indication of Interest ”) to WNR indicating whether or not it desires to acquire the Offered Business. All Indications of Interest will be non-binding on the Partnership.

(iii) If WNR and the Partnership cannot agree on the fair market value of the Offered Business, WNR and the Partnership will jointly appoint an independent investment banking firm of national reputation to determine such value. The appraiser will have 30 days to determine the fair market value, which value will be binding on WNR and the Partnership.

(iv) Following determination of the fair market value for the Offered Business, WNR and the Partnership will have 120 days (the “ Negotiation Period ”) to enter into definitive agreements with respect to the Partnership’s purchase of the Offered Business. During the Negotiation Period, the parties will use reasonable best efforts and negotiate in good faith regarding entry into such definitive agreements. Such definitive agreements shall contain customary terms and conditions for a comparable arm’s length transaction; provided, that (A) WNR shall enter into any definitive agreements proposed by the Partnership that contain terms (other than financial terms) that are as favorable to WNR as the terms granted by WNR to the seller of the Offered Business to WNR and (B) WNR shall not propose any terms that are less favorable to the Partnership than the those terms obtained by WNR from the seller of the Offered Business to WNR.

(v) If the Partnership does not submit an Indication of Interest or the Partnership and WNR do not enter into definitive agreements prior to the end of the Negotiation Period, WNR shall have no further obligation to the Partnership in respect of the Offered Business.

(d) Change of Control . Notwithstanding anything to the contrary in this Section 3.7 , the restrictions set forth in this Section 3.7 shall terminate in connection with a Change of Control.

(e) Definitions . As used in this Section 3.7 :

(i) “ Affiliate ” means, with respect to any Person, any other Person that, directly or indirectly, Controls, is Controlled by or is under common Control with, such specified Person through one or more intermediaries or otherwise.

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(ii) “ Change of Control ” means, and shall be deemed to have occurred upon, one or more of the following events: (A) any “person” or “group” within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (as determined immediately prior to such event), who is not Affiliated with WNR immediately prior to such event, shall become the beneficial owner, by way of merger, acquisition, consolidation, recapitalization, reorganization or otherwise, of 50% or more of the combined voting power of the equity interests in WNR or (B) the sale or other disposition by WNR of all or substantially all of WNR’s assets, in one or more transactions, to any “person” or “group” within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (as determined immediately prior to such event), who is not Affiliated with WNR immediately prior to such event.

(iii) “ Competing Assets ” means assets that relate to the Restricted Business.

(iv) “ Control ” means, where used with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “Controlling” and “Controlled” have correlative meanings.

(v) “ Interest ” means (A) capital stock, common units, member interests, partnership interests, other equity interests, rights to profits or revenue and any other similar interest, (B) any security or other interest convertible into or exchangeable or exercisable for any of the foregoing and (C) any right (contingent or otherwise) to acquire any of the foregoing.

(vi) “ Northern Tier Group ” means, collectively, NT InterHoldCo LLC, a Delaware limited liability company, and its Subsidiaries.

(vii) “ Northern Tier Group Member ” means any member of the Northern Tier Group.

(viii) “ Offered Business ” means (A) in the case of an asset acquisition, the Competing Assets so acquired, and (B) in the case of an acquisition of, or investment in, a Competitor, the Competing Assets of such Competitor.

(ix) “ Partnership Group ” means, collectively, Western Refining Logistics, LP, a Delaware limited partnership (the “ Partnership ”), and its Subsidiaries and any Person Controlled by the Partnership Group.

(x) “ Person ” means an individual or a corporation, firm, limited liability company, partnership, joint venture, trust, unincorporated organization, association, government agency or political subdivision thereof or other entity.

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(xi) “ Restricted Business ” means the marketing and distribution of wholesale petroleum products, crude trucking and the marketing, distribution and warehousing of wholesale lubricants, in each case, anywhere in Arizona, California, Colorado, Nevada, New Mexico or Texas.

(xii) “ Subsidiary ” means, with respect to any Person, (A) a corporation of which more than 50% of the voting power of shares entitled (without regard to the occurrence of any contingency) to vote in the election of directors or other governing body of such corporation is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such Person or a combination thereof, (B) a partnership (whether general or limited) in which such Person or a Subsidiary of such Person is, at the date of determination, a general or limited partner of such partnership, but only if more than 50% of the partnership interests of such partnership (considering all of the partnership interests of the partnership as a single class) is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such Person, or a combination thereof; or (C) any other Person (other than a corporation or a partnership) in which such Person, one or more Subsidiaries of such Person, or a combination thereof, directly or indirectly, at the date of determination, has (1) at least a majority ownership interest or (2) the power to elect or direct the election of a majority of the directors or other governing body of such Person.

(xiii) “ WNR Group ” means WNR and its Subsidiaries and Affiliates, excluding any member of the Partnership Group.

(xiv) “ WNR Group Member ” means any member of the WNR Group.

ARTICLE IV

SUPPLY COMPLIANCE

4.1 Alternative Terminals In the Event of an Outage . Except as provided in Section 4.4 or Section 4.5 , in the event of an Outage at a Terminal, Seller must satisfy the applicable Supply Commitment by allowing Buyer to lift volumes from the other Terminals. In such event, the diverted volumes will be deemed to have been lifted at the Terminal as specified in the affected Supply Commitment for all purposes under this Agreement, except that all such diverted volumes will be sold to Buyer at the Product Prices as set forth on Exhibit C , less the sum of (i) any incremental freight differential charges that Buyer incurs and (ii) any demurrage or other costs associated with the alternative Terminal.

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

4.2 Seller’s Failure to Deliver Products . Except as provided in Sections 4.4 or  4.5 , if at any time, Seller fails to make available the Terminal Volume of a Product at the relevant Terminal and fails to direct Buyer to lift volumes from a designated alternative Terminal and Buyer is thereby forced to select its own means of alternative supply, then in such event:

(a) Buyer may purchase such volumes from third parties; and

(b) Seller shall pay Buyer (i) an amount equal to the difference between the applicable Product Price and the price actually paid by Buyer for the alternative supply Product volumes (if higher than the applicable Product Price), including any demurrage or other costs associated with the Buyer selected alternative supply point and (ii) an amount equal to the amount of the freight differential (if higher) for the volume actually lifted from the Buyer selected alternative supply point, within ten (10) Days of Seller’s receipt of Buyer’s demand for such amounts; and

(c) Once all amounts required to be paid by Seller pursuant to subsection (b)  above are paid, the alternative supply Product volumes will be deemed to have been lifted at the Terminal at which such Terminal Volumes were to have been “made available” as specified in the affected Supply Commitment for purposes of this Agreement.

4.3 Buyer’s Failure to Meet a Supply Commitment . If within a Supply Period Seller makes available the Supply Commitment at the Terminals but Buyer fails to purchase the Supply Commitment from Seller, then Seller may sell to other customers the amount of the shortfall of the Supply Commitment, as calculated as the difference between the volumes actually purchased by Buyer and the Supply Commitment for such Supply Period; and Buyer shall pay to Seller an amount equal to the difference between the applicable Product Price and the net sales proceeds Seller receives from such other customers for such Supply Commitment shortfall (if lower than the applicable Product Price).

4.4 Force Majeure .

(a) As soon as possible upon the occurrence of a Force Majeure (as defined below), the Party affected by such Force Majeure shall provide the other Party with written notice of the occurrence of such Force Majeure (a “ Force Majeure Occurrence Notice ”). The Party affected by such Force Majeure shall identify in such Force Majeure Occurrence Notice the approximate length of time that such Party reasonably believes in good faith such Force Majeure shall continue.

(b) The obligations under this Agreement of the Party affected by such Force Majeure shall be temporarily suspended during the occurrence of, and for the entire duration of, a Force Majeure. The Party affected by such Force Majeure shall use commercially reasonable efforts to overcome such Force Majeure but shall not be obligated under this Agreement to settle any strike or labor dispute.

(c) As soon as possible upon the cessation of a Force Majeure, the Party affected by such Force Majeure shall provide the other Party with written notice of the cessation of such Force Majeure (a “ Force Majeure Cessation Notice ”). The Party affected by such Force Majeure shall identify in such Force Majeure Cessation Notice the date on which such Force Majeure ceased to exist.

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(d) Nothing in this Section 4.4 shall excuse any Party from complying with its obligations under this Agreement arising prior to the occurrence of such Force Majeure, including any obligation to make payments when due under this Agreement.

(e) Notwithstanding anything contained herein to the contrary, (i) if the Party affected by an event of Force Majeure (the “ Affected Party ”) is unable to resume the performance of its obligations under this Agreement within two (2) years after the event of Force Majeure despite using its commercially reasonable efforts to overcome such event in accordance with this Section 4.4, then the Affected Party may, upon written notice to the other Party, terminate this Agreement; or (ii) if the Affected Party is unable to resume performance of its obligations under this Agreement within six (6) months after the event of Force Majeure, then the other Party may upon written notice to the Affected Party, terminate this Agreement; provided that, in either case any payment obligations accruing up to and through the date of such termination shall remain outstanding and shall continue to be due and payable following the termination of this Agreement.

(f) “ Force Majeure ” means circumstances not reasonably within the control of the Parties and which, by the exercise of reasonable efforts (including the Seller’s use of reasonable efforts, to supply to Buyer the Stipulated Product Commitment through alternative means (including procuring Products from third parties and/or sourcing the Product from an unaffected refinery owned by WRSW or WRC)), the Parties are unable to prevent or overcome that prevent (i) Seller from delivering Products to Buyer at the Terminals or (ii) Buyer buying Products from Seller at the Terminals, including: acts of God, strikes, lockouts or other industrial disturbances, wars, riots, fires, floods, storms, orders of courts or Governmental Authorities, governmental request or requisition for national defense, explosions, terrorist acts, breakage, accident to machinery, storage tanks or lines of pipe and inability to obtain or unavoidable delays in obtaining material or equipment, delays of other carriers, local or national disruptions to transportation networks or operations, fuel shortages and similar events. Force Majeure specifically excludes any Outages.

4.5 Equitable Allocation . If due to any Force Majeure there is a limitation, generally, on the type or quantities of Products Seller is required to supply to Buyer at the Terminals under this Agreement, then Seller may implement a plan, formula or method to equitably allocate its available supply of Products among Buyer and Seller’s other unaffiliated customers; provided that any such plan, formula or method shall give priority to purchasers of Products under firm delivery contracts having a term of supply greater than one (1) year at the time such limitation is imposed. Such allocation shall not be deemed a breach of this Agreement, and during a period of supply limitation pursuant to this Section 4.5 , Buyer may seek alternative sources of supply of the affected Product(s), but only for the volume of affected Products that Seller, in good faith, estimates it cannot supply.

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

ARTICLE V

RECORDS; AUDIT RIGHTS

5.1 Records .

(a) Buyer and Seller shall maintain complete and accurate records in connection with this Agreement and all transactions related hereto for at least twenty-four (24) months from the date of expiration or termination of this Agreement, whichever is sooner.

(b) Without limiting the foregoing, Buyer will retain, for a period of at least two (2) years after the close of the Supply Period to which they relate, the following records: (i) all Forecasts delivered under Section 2.3 ; and (ii) all Product supply agreements with suppliers other than Seller that form the basis of a claim under Article IV .

(c) Without limiting the foregoing, Seller will retain, for a period of at least two (2) years after the close of the Supply Period to which they relate, the following records: (i) all forecasts received by it under Section 2.3 ; and (ii) all sales agreements with third parties sufficient to substantiate claims under Article IV .

5.2 Audit Rights . Each Party and its duly authorized representatives shall have access to accounting records and other documents maintained by the other Party which relate to Products sold hereunder and shall have the right to audit such records at any reasonable time and upon reasonable advance notice during the term of this Agreement and during the two (2) year period following the expiration or termination of this Agreement.

ARTICLE VI

DEFAULT AND TERMINATION

6.1 Default by Seller . If during any three consecutive Supply Periods, Seller fails to make available the Terminal Volume of a Product as set forth within a Supply Commitment either at the Terminal or by way of the alternative sourcing mechanism provided in Section 4.1 , and such failure is not excused under Section 4.4 , then Seller shall be deemed to be in default of this Agreement and Buyer shall have the option, at its sole discretion and in addition to its rights at law or in equity, to terminate this Agreement by providing thirty (30) Days written notice to Seller. No such termination by Buyer shall constitute or be construed as a waiver or any right or remedy of Buyer for breach of contract resulting from the facts and circumstances forming the basis of such termination.

6.2 Buyer Payment Default . If Buyer fails to pay any amounts due to Seller under this Agreement that are not disputed by Buyer in good faith, and the failure continues for a period of fifteen (15) Days after Buyer’s receipt of a written notice of such failure, then in addition to Seller’s rights at law or in equity, Seller may suspend deliveries hereunder until such failure has been cured, and/or terminate this Agreement in its entirety.

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

6.3 Other Defaults . If either Party fails to fully perform any material obligation under this Agreement (other than obligations that are the subject of Sections 6.1 and 6.2 ) and such failure continues for a period of (a) thirty (30) Days after delivery to the defaulting Party of written notice of such non-performance, if the defaulting party is not undertaking commercially reasonable efforts to cure such failure to perform or (b) ninety (90) Days after delivery to the defaulting Party of written notice of such non-performance, if the defaulting party is undertaking commercially reasonable efforts to cure such failure to perform, then the non-defaulting Party shall have the right to specifically enforce the terms of this Agreement and seek damages for any breach, terminate this Agreement in its entirety and otherwise pursue the remedies available to the non-defaulting Party at law or in equity.

ARTICLE VII

OTHER PROVISIONS

7.1 Confidentiality .

(a) Each Party agrees that it will keep any and all Confidential Information of the other Party strictly confidential and that it will take such steps to protect such Confidential Information as it normally takes to preserve and safeguard its own Confidential Information. Each Party agrees that, without the prior written consent of the other Party, it will not: (i) disclose Confidential Information of the other Party in any manner whatsoever, in whole or in part; (ii) use any Confidential Information of the other Party other than in connection with the transaction(s) that is the subject of this Agreement; or (iii) transmit the Confidential Information of the other Party to any of its officers, directors, employees, affiliates, agents or representatives who (1) are not aware of the confidential nature of such information, or (2) do not need to know the Confidential Information for the sole purpose of assisting with the transaction(s) (collectively, its “ Representatives ”). Each Party shall be responsible for the breach of this Section 7.1 by any of its Representatives.

(b) For purposes of this Agreement, “ Confidential Information ” shall mean all information, documents, data or materials that is now or in the future provided (including any information provided by Buyer pursuant to Section 3.6(c) or Section 5 hereof or relating to any customer contracts), acquired or received directly or indirectly by a Party or its agents, employees or contractors either in writing, orally or by observation, relating to the business or operations of other Party or its affiliates, including but not limited to the pricing of product, design, planning, operation or maintenance of the other Party’s equipment, products and business; formulas or process parameters relating to the other Party’s products or proposed products; plans for expansion; information relating to research, development, invention, manufacturing, purchasing, accounting, engineering, marketing, merchandising and selling not generally known in the industry in which the other Party is engaged; any other data, samples, material and/or information specifically identified by the other Party as “Confidential”; and any and all other data, information, findings, documents or other materials arising from or relating to the other Party or the transaction(s) or any work or services performed by it for the other Party, regardless of whether such Confidential Information is generated solely by or as a result of any

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

of its activities; except that Confidential Information shall not include any information that (i) was, at the time of disclosure to the receiving Party, in the public domain; (ii) after disclosure to the receiving Party, is published or otherwise becomes part of the public domain through no fault of the receiving Party; (iii) was in the possession of the receiving Party at the time of disclosure to it and was not the subject of a pre-existing confidentiality obligation; (iv) was received after disclosure to the receiving Party from a third party (other than the disclosing Party’s Affiliates or subcontractors) that was not bound by any duty of confidentiality; or (v) was independently developed by the receiving Party without the use of the Confidential Information of the disclosing Party.

7.2 Notices .

(a) Notices, correspondence, invoices, as applicable, and all other communications related to this Agreement shall be addressed as follows:

 

to Seller at:
        WRSW:
                1250 W. Washington Street, Suite 101
                Tempe, Arizona 85281
                Attn: General Counsel
        With a copy to:
                1250 W. Washington Street, Suite 101
                Tempe, Arizona 85281
                Attn: President of Refining & Marketing
        WRC:
                1250 W. Washington Street, Suite 101
                Tempe, Arizona 85281
                Attn: General Counsel
        With a copy to:
                1250 W. Washington Street, Suite 101
                Tempe, Arizona 85281
                Attn: President of Refining & Marketing
and to Buyer at:
            1250 W. Washington Street, Suite 101
            Tempe, Arizona 85281
            Attn: President of Wholesale

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(b) All notices, requests, demands, and other communications hereunder will be in writing and will be deemed to have been duly given: (i) if by transmission by facsimile or hand delivery, when delivered; (ii) by e-mail on the next Business Day after delivery, if receipt is confirmed, (iii) if mailed via the US Postal Service, five (5) Business Days after mailing, provided said notice is sent first class, postage pre-paid, via certified or registered mail, with a return receipt requested; or (iv) if mailed by an internationally recognized overnight express mail service such as Federal Express, UPS, or DHL Worldwide, one (1) Business Day after deposit therewith prepaid.

(c) Each Party shall have the right, from time to time, to designate a different address by written notice given in conformity with this Section 7.2.

(d) For the avoidance of doubt, any notice, correspondence, invoice or other communication under this Agreement that is required to be provided to Seller shall be provided to both WRSW and WRC hereunder but shall be deemed given upon delivery in accordance with this Section 7.2 to either WRSW or WRC.

7.3 Entire Agreement . This Agreement and the attached Exhibits constitutes the entire agreement between the Parties and supersedes all prior agreements, representations, warranties, statements, promises, information, arrangements, and understandings, whether oral, written, expressed, or implied, with respect to the subject matter hereof.

7.4 Construction . Unless the context requires otherwise: (a) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural, and vice-versa, (b) the gender (or lack of gender) of all words used in this Agreement includes the masculine, feminine and neuter; (c) references to Articles and Sections refer to Articles and Sections of this Agreement; (d) references to Exhibits or Schedules refer to the Exhibits or Schedules attached to this Agreement, each of which is made a part hereof for all purposes; (e) the term “include”, “includes”, “including” or words of like report shall be deemed to be followed by the words “without limitation”; (f) the terms “hereof”, “herein” or “hereunder” refer to this Agreement as a whole and not to any particular provision of this Agreement; (g) references to money refer to legal currency of the United States of America; and (h) when calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. The table of contents and headings contained in this Agreement are for reference purposes only, and shall not affect in any way the meaning or interpretation of this Agreement.

7.5 Dispute Resolution; Governing Law; Jurisdiction .

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(a) This Agreement shall be governed and construed in accordance with the substantive laws of the State of Texas without reference to principles of conflicts of law that would result in the application of the laws of another jurisdiction.

(b) THE PARTIES VOLUNTARILY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA IN HARRIS COUNTY, TEXAS, OVER ANY DISPUTE BETWEEN OR AMONG THE PARTIES ARISING OUT OF THIS AGREEMENT, OTHER THAN A DISPUTE SUBJECT TO SECTION 7.5(d) , AND EACH PARTY IRREVOCABLY AGREES THAT ALL SUCH CLAIMS IN RESPECT OF SUCH DISPUTE SHALL BE HEARD AND DETERMINED IN SUCH COURTS. THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH DISPUTE ARISING OUT OF THIS AGREEMENT BROUGHT IN SUCH COURT OR ANY DEFENSE OF INCONVENIENT FORUM FOR THE MAINTENANCE OF SUCH DISPUTE. EACH PARTY AGREES THAT A JUDGMENT IN ANY SUCH DISPUTE MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.

(c) EACH OF THE PARTIES HEREBY VOLUNTARILY AND IRREVOCABLY WAIVES TRIAL BY JURY IN ANY DISPUTE OR OTHER PROCEEDING RELATED THERETO BROUGHT IN CONNECTION WITH THIS AGREEMENT.

(d) Any dispute, controversy or claim, of any and every kind or type, whether based on contract, tort, statute, regulations, or otherwise, between the Parties, arising out of, connected with, or relating in any way to this Agreement or the obligations of the Parties hereunder, including any dispute as to the existence, validity, construction, interpretation, negotiation, performance, non-performance, breach, termination or enforceability of this Agreement (in each case, a “ Dispute ”), shall be resolved solely and exclusively in accordance with the procedures specified in this Section 7.5 . The Parties shall attempt in good faith to resolve any Dispute by mutual discussions within thirty (30) days after the date that one Party gives written notice to the other Parties of such a Dispute in accordance with Section 7.2 . If the Dispute is not resolved within such thirty (30) day period, or such longer period that may subsequently be agreed to in writing by the parties to the Dispute, the Dispute shall be finally settled by arbitration administered by JAMS, Inc. (“ JAMS ”) under its Comprehensive Arbitration Rules & Procedures, and judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The arbitration shall be held in Houston, Texas, and presided over by three arbitrators. If the Dispute is not settled within the above operative time period, the Party providing the aforesaid notice or the Parties receiving such notice may initiate the arbitration with JAMS. The Party who initiates the arbitration with JAMS shall also provide notice to JAMS and the opposing Party at the time of the initiation of the arbitration of the name of the Party selected arbitrator. The opposing Party shall file their answering statement with JAMS within forty-five (45) days of their receipt of the notice of filing from JAMS. The

 

15


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

name of their party appointed arbitrator shall be included in such answering statement. The two Party-appointed arbitrators shall select a third arbitrator, who shall serve as the chairperson. The arbitration award shall identify whether there is a prevailing party in the arbitration and include an award in favor of such prevailing party and against each losing party, jointly and severally, for costs and expenses, including the actual litigation fees and costs (including reasonable attorney fees) the prevailing party incurred, excluding any contingent or deferred fees and costs. This agreement to arbitrate shall be binding upon the successors, assignees and any trustee or receiver of any Party.

7.6 Cooperation . Each Party will cooperate fully with the other and provide such further information as may be reasonably necessary to fulfill the objectives in this Agreement.

7.7 Gifts . No director, employee or agent of Buyer or of any subcontractor or vendor of Buyer shall give or receive any commission, fee, rebate, or gift or entertainment of significant cost or value in connection with this Agreement, or enter into any business arrangement with any director, employee or agent of Seller or its parent or affiliated entities other than as a representative of Buyer, without Seller’s prior written agreement. Buyer shall promptly notify Seller of any violation of this Section 7.8 .

7.8 Amendments . No amendment or modification of the terms of this Agreement shall be binding unless in writing and signed by the Parties.

7.9 Waiver . No waiver of any right, power, or privilege hereunder shall be binding upon any Party unless in writing and signed by or on behalf of the Party against which the waiver is asserted.

7.10 Assignment .

(a) WRSW shall not assign any of its rights or obligations under this Agreement without the prior written consent of Buyer and WRC, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however; that WRSW may assign this Agreement without such consent to an affiliate or in connection with a sale by WRSW of the Gallup Refinery so long as the transferee: (i) agrees to assume all of WRSW’s obligations under this Agreement and (ii) is financially and operationally capable of fulfilling the terms of this Agreement, which determination shall be made by Buyer in its reasonable judgment.

(b) WRC shall not assign any of its rights or obligations under this Agreement without the prior written consent of Buyer and WRSW, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however; that WRC may assign this Agreement without such consent to an affiliate or in connection with a sale by WRC of the El Paso Refinery so long as the transferee: (i) agrees to assume all of WRC’s obligations under this Agreement and (ii) is financially and operationally capable of fulfilling the terms of this Agreement, which determination shall be made by Buyer in its reasonable judgment.

 

16


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(c) Buyer shall not assign any of its rights or obligations under this Agreement without Seller’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however; that (i) Buyer may assign this Agreement without Seller’s consent to an affiliate or in connection with a sale by Buyer of Buyer’s wholesale motor fuel distribution business so long as the transferee: (A) agrees to assume all of Buyer’s obligations under this Agreement, and (B) is financially and operationally capable of fulfilling the terms of this Agreement, which determination shall be made by Seller’s in its reasonable judgment; and (ii) Buyer shall be permitted to make a collateral assignment of this Agreement to obtain financing.

(d) Any assignment that is not undertaken in accordance with the provisions set forth above shall be null and void ab initio. A Party making any assignment shall promptly notify the other Party of such assignment, regardless of whether consent is required.

(e) This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

7.11 Indemnity . NEITHER PARTY SHALL BE LIABLE FOR ANY ACTIONS OR OMISSIONS TO ACT OF THE OTHER PARTY, OR OF ANY OF ITS EMPLOYEES, AGENTS OR REPRESENTATIVES. SUBJECT TO THE LIMITATIONS SET FORTH IN SECTION 7 OF THE PRODUCT SALES TERMS, EACH PARTY (THE “ INDEMNIFYING PARTY ”) AGREES THAT IT SHALL, TO THE EXTENT PERMITTED BY LAW, DEFEND, INDEMNIFY, AND HOLD HARMLESS THE OTHER PARTY, ITS MEMBERS, DIRECTORS, OFFICERS, MANAGERS, AGENTS AND EMPLOYEES, FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, DAMAGES, LOSSES, LIABILITIES, CAUSES OF ACTION, JUDGMENTS, ASSESSMENTS, PENALTIES, COSTS, AND EXPENSES OF ANY KIND OR NATURE, INCLUDING REASONABLE ATTORNEYS FEES, EXPENSES OF LITIGATION AND COURT COSTS, WITHOUT REGARD TO THE AMOUNT (COLLECTIVELY “ LOSSES ”) TO THE EXTENT SUCH LOSSES ARE, DIRECTLY OR INDIRECTLY CAUSED BY, CONNECTED WITH, OR ARISE OUT OF THE INDEMNIFYING PARTY’S FAILURE TO COMPLY, OR ANY PRODUCTS DELIVERED BY THE INDEMNIFYING PARTY’S FAILURE TO COMPLY WITH ALL APPLICABLE FEDERAL, STATE AND LOCAL LAWS, ORDINANCES, ORDERS, RULES AND REGULATIONS OR FROM ANY INTENTIONAL OR UNINTENTIONAL ACTION OR OMISSION TO ACT OF THE INDEMNIFYING PARTY, OR ITS MEMBERS, DIRECTORS, OFFICERS, MANGERS, AGENTS AND EMPLOYEES. IN THE EVENT THAT ANY SUCH INCIDENT THAT LEADS TO ANY CLAIM FOR INDEMNIFICATION IS THE RESULT OF INTENTIONAL OR UNINTENTIONAL CONDUCT OF BOTH PARTIES, EACH PARTY AGREES THAT IT SHALL BE LIABLE TO REIMBURSE AND INDEMNIFY THE OTHER PARTY TO THE EXTENT THAT LIABILITY AND RESPONSIBILITY WOULD BE APPORTIONED TO SUCH PARTY IN ACCORDANCE WITH THE LAWS OF COMPARATIVE NEGLIGENCE. TO RECEIVE THE FOREGOING INDEMNITY, THE PARTY SEEKING INDEMNIFICATION MUST NOTIFY THE

 

17


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

INDEMNIFYING PARTY IN WRITING OF A CLAIM PROMPTLY AND PROVIDE ALL COOPERATION REASONABLY REQUESTED BY THE INDEMNIFYING PARTY (AT THE EXPENSE OF THE INDEMNIFYING PARTY). For the avoidance of doubt, WRC and WRSW shall be jointly and severally liable for all obligations of Buyer hereunder and treated as a single party for purposes of this Section 7.11.

7.12 Severability . Any term or provision of this Agreement that is held to be invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction.

7.13 No Third Party Beneficiaries . It is expressly understood that the provisions of this Agreement do not impart enforceable rights in anyone who is not a Party or successor or permitted assignee of a Party.

7.14 Counterparts . This Agreement may be executed in one or more counterparts, any or all of which shall constitute one and the same instrument. Either Party, at its option, may supply any document required by or referenced in this Agreement in either paper or electronic form (including, but not limited to, an electronically imaged, faxed, photocopied, or online posted version), and any such version shall be sufficient for all purposes under this Agreement.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

18


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.

 

WESTERN REFINING SOUTHWEST, INC.
By:  

/s/ Mark J. Smith

Name:   Mark J. Smith
Title:   President – Refining and Marketing
WESTERN REFINING COMPANY, L.P.
By:  

/s/ Mark J. Smith

Name:   Mark J. Smith
Title:   President – Refining and Marketing

 

WESTERN REFINING WHOLESALE, LLC
By:  

/s/ Matthew L. Yoder

Name:   Matthew L. Yoder
Title:   Senior Vice President – Operations

Solely for purposes of the undertakings set forth in Section 3.7:

 

WESTERN REFINING, INC.

By:  

/s/ Mark J. Smith

Name:   Mark J. Smith
Title:   President – Refining and Marketing

 

[Signature Page to Product Supply Agreement]


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

EXHIBIT A

DEFINITIONS

Capitalized terms used throughout the Agreement and not otherwise specifically defined elsewhere shall have the meanings set forth in this Exhibit A .

Applicable Law ” means any applicable statute, law, regulation, ordinance, rule, determination, judgment, rule of law, order, decree, permit, approval, concession, grant, franchise, license, requirement, or any similar form of decision of, or any provision or condition of any permit, license or other operating authorization issued by any Governmental Authority having or asserting jurisdiction over the matter or matters in question, whether now or hereafter in effect.

Barrel ”, “ barrel ”, or “ BBL ” means a volume equal to 42 U.S. gallons at 60 degrees Fahrenheit under one atmosphere of pressure. “ bpd ” means Barrels per day.

Business Day ” means a Day, other than a Saturday or Sunday, on which banks in New York, New York are open for the general transaction of business.

Committed Volumes ” shall have the meaning prescribed to such term in the FDSA.

Daily Terminal Volume ” means, for each Product at a Terminal, the Terminal Volume at such Terminal for such Product divided by the number of Days in the Supply Period associated with such Terminal Volume.

Day ” means a calendar day.

EFT ” means electronic funds transfer.

FDSA ” means that certain Fuel Distribution and Supply Agreement dated as of October 15, 2014, between Buyer and WRSW, as amended or otherwise modified from time to time.

Governmental Authority ” means any federal, state, local or foreign government or any provincial, departmental or other political subdivision thereof, or any entity, body or authority exercising executive, legislative, judicial, regulatory, administrative or other governmental functions or any court, department, commission, board, bureau, agency, instrumentality or administrative body of any of the foregoing.

Month ” means a calendar month.

Non-Delivered Rack Sales ” means sales by Buyer to third parties of Products at the Terminals on a non-delivered basis.

OPIS ” means the Oil Price Information Service.

 

Exhibit A

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

Outage ” means, with respect to any Product at a Terminal, the planned or unplanned (due to a Force Majeure Event or otherwise) failure or inability of Seller to deliver the Product at the relevant Terminal to or for the account of Buyer.

Products ” means, in each of its grades, gasoline, gasohol, diesel, biodiesel and other products (including branded and unbranded products). “ Product ” means one of the Products.

Product Price ” means, for each Product, the price indicated, or calculated using the formula set forth, as applicable, on the attached Exhibit C , such Product Price to apply to all transactions made pursuant to a Supply Commitment under this Agreement.

Product Sales Terms ” means the terms set forth on the attached Exhibit D .

Product Specifications ” means the commodity specifications for the Products that are required to be met by Applicable Law and customary industry standards.

Ratable Basis ” means the purchase by Buyer of a volume of Product that is less than 200% of the Daily Terminal Volume for such Product at the relevant Terminal.

RFG ” means Reformulated Gasoline, as defined by the Environmental Protection Agency.

RFS-2 RIN ” means a Renewable Fuel Standard-2 Renewable Identification Number issued by the Environmental Protection Agency.

RVP ” means Reid Vapor Pressure, as defined by the Environmental Protection Agency.

Stipulated Product Commitment ” means not less than 90% or more than 110% of 79,000 bpd (as such amount may be increased pursuant to Section 2.1 ) of Products multiplied by the number of Days in a given Supply Period.

Supply Period ” means any period from the first Day of a Month through the last Day of such Month, inclusive.

Terminals ” means the light products truck loading terminals listed in Exhibit B . “ Terminal ” means one of the Terminals.

Terminal Volume ” means, for each Terminal, the estimated portion of the Stipulated Product Commitment to be delivered to such Terminal during a Supply Period as set forth in the Forecast for such Supply Period.

U.S. ” means the United States of America.

 

Exhibit A

Page 2 of 2


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

EXHIBIT B

TERMINALS

Tucson (KM) Terminal located at 3735 S Dodge Blvd, Tucson AZ 85713

Tucson (HEP) Terminal located at 3605 S Dodge Blvd, Tucson AZ 85713

Phoenix (KM) Terminal located at 5325 W Van Buren St, Phoenix AZ 85043

Phoenix (CalJet) Terminal located at 125 N 53rd Ave, Phoenix AZ 85043

Albuquerque Terminal located at 3209 Broadway SE, Albuquerque NM 87105

Gallup Terminal located at I-40 Exit 39, Jamestown NM 87347 (PO Box 929, Jamestown, NM)

Bloomfield Terminal located at 50 County Rd 4990, Bloomfield NM 87413

El Paso Terminal located at 6500 Trowbridge Dr, El Paso TX 79905

Las Vegas (KM) Terminal located at 5049 N. Sloan Lane, Las Vegas NV 89115

Las Vegas (HEP) Terminal located at 6226 W Sahara Ave, Las Vegas NV 89146

Imperial (KM) Terminal located at 345 W Aten Rd, Imperial CA 92251

Road Forks (DIG) Terminal located at 3155 Highway 80, Road Forks NM 88045

 

Exhibit B

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

EXHIBIT C

PRODUCT PRICING

*** [three pages omitted]

 

Exhibit C

Page 1 of 1


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

EXHIBIT D

PRODUCT SALES TERMS

Capitalized terms used but not defined in this Exhibit D have the meanings given to them in the Agreement.

1. Invoicing/Payment .

(a) In connection with each sale of a Product to Buyer, Seller will issue a provisional invoice calculated using the applicable Price for the Product. Buyer’s payment terms shall be ***, and payment shall be by EFT. Notwithstanding the foregoing, if, at any time during the Term of this Agreement, the amount of Buyer’s accounts receivable less its accounts payable (each calculated in accordance with generally accepted accounting principles consistently applied) (“ Buyer’s Net Working Capital ”) is more than $*** million (such excess, the “ NWC Excess ”), Buyer may provide written notice to Seller of such NWC Excess, together with documentation supporting such NWC Excess. Buyer agrees to use commercially reasonable efforts to reduce such NWC Excess, and Seller agrees to revise the payment terms set forth in this Section 1(a) as may be reasonably necessary to mitigate the amount of any NWC Excess.

(b) A final invoice for all Products sold by Seller to Buyer in a Supply Period, calculated using the applicable Product Prices under the formulas set forth on Exhibit B to the Agreement, will be issued by Seller on or before the 15th Day of the following Supply Period.

(c) Buyer shall pay Seller for delivered Product(s) in U.S. dollars without any adjustments, discounts, or setoffs, on or before the due date. All past due payments hereunder shall bear interest from the date due until the date paid at the rate of one and one-half percent (1  1 / 2 %) per Month or at the maximum rate authorized by law, whichever is less. Buyer shall pay all Seller’s costs (including court costs and reasonable attorney’s fees) of collecting past due payments. Accounts that are past due will be ineligible for applicable allowance, deductions, or discounts, if any.

(d) Refunds due from Seller to Buyer under a final invoice on Buyer’s purchases of a Product in a Supply Period will be credited to Seller’s invoices for Buyer’s purchases of the Product in the following Supply Period, commencing with Buyer’s first purchase of the Product in the following Supply Period and continuing until the refund is credited in full.

2. Taxes . When applicable laws, ordinances, regulations and other governmental directives (hereinafter referred to as the “laws”) permit, Buyer shall assume and be responsible to the proper governmental units for any and all federal, state, and local taxes, excise, charges and inspection and other fees (hereinafter referred to as “taxes”) now or hereafter imposed by any Governmental Authority or authority that may be applicable to the sale, delivery or

 

Exhibit D

Page 1 of 4


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

transportation of the Products sold hereunder. In those cases in which the laws impose upon Seller the obligation to collect or pay such taxes, Seller shall pay the amounts for which Seller shall be liable, however Buyer shall reimburse to Seller the amount of any such taxes paid by Seller, as any such payment is not included in the prices for Products otherwise herein provided for, and shall be in addition thereto. If any such payment from Buyer to Seller is prohibited by existing or future act or request of a Governmental Authority or person purporting to act with governmental authority, Seller shall have the right to terminate this Agreement upon 30 Days’ notice to Buyer. If Buyer is entitled to purchase Products free of any such tax, or at a reduced rate of tax, Buyer shall furnish to Seller proper exemption certificates, or other required documentation, to cover such purchase or purchases.

3. Delivery . All sales shall be free on board the relevant Terminal. Title and risk of loss shall pass to Buyer at the relevant Terminal as Product passes the transport truck or railcar inlet flange, barge permanent hose connection, or pipeline upstream flange, as applicable. Prior to such point, Seller shall have full title and risk of loss to such Product.

4. Quantity and Inspection . Unless otherwise agreed, quantities delivered to Buyer shall be determined into or from pipelines according to terminal tank gauges or calibrated meters. Either Party may require that Product quantity and quality be determined by a jointly-selected, licensed petroleum inspector, whose findings shall be conclusive. Customary inspection costs shall be shared equally, but additional services shall be paid for by the Party requesting them. Objections to measurement, including claims for shortage, for quantities delivered from Seller’s facility must be made to Seller within ten (10) Days from the date of delivery. All volumes of delivered Product(s) shall be corrected for temperature to 60 degrees Fahrenheit. This correction shall be made for any petroleum Products delivered hereunder in accordance with ASTM D-1250, Table 6B in its latest revision. The term “gallon” means a U.S. gallon of 231 cubic inches. All measurements and/or tests shall be made in accordance with the latest standards or guidelines published by the American Petroleum Institute or ASTM International (“ ASTM ”).

5. Compliance With Laws . Seller shall comply with all laws, regulations, and standards applicable to the manufacture, storage, sale, and transportation of motor fuel applicable at the relevant Terminal. Buyer shall include provisions in its agreements requiring its customers to comply with all laws, regulations and standards applicable to the transportation, storage, use, and disposition of Products, and Buyer shall not deliver, or allow to be delivered, to a RVP or RFG control area any Product that would be in violation of Environment Protection Agency regulations applicable to that area.

6. Safety and Health . Buyer acknowledges receipt of Seller’s Material Safety Data Sheet for the Product and is aware of the known hazards and risks in handling the Product. Buyer shall take all necessary steps to inform its employees, agents, and customers of any hazards and risks associated with use or handling of the Product including distribution of the Material Safety Data Sheet.

 

Exhibit D

Page 2 of 4


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

7. Warranties .

(a) SELLER WARRANTS THAT THE PRODUCT SOLD IS OF THE KIND AND QUALITY DESCRIBED IN THIS AGREEMENT, AND THAT SELLER HAS GOOD TITLE TO THE PRODUCT. THIS WARRANTY IS EXCLUSIVE AND IS IN LIEU OF ANY OTHER WARRANTY, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO DESCRIPTION OF THE PRODUCT, QUALITY OF THE PRODUCT, WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A PARTICULAR USE OR OTHER WARRANTY OF QUALITY, WHETHER EXPRESS OR IMPLIED. BUYER ACKNOWLEDGES THAT SELLER SHALL IN NO WAY BE RESPONSIBLE OR LIABLE TO BUYER OR ANY OTHER PARTY FOR ANY USE OF THE PRODUCT. BUYER ACKNOWLEDGES THAT BUYER HAS NOT AND DOES NOT RELY ON SELLER’S SKILL OR JUDGMENT WITH REGARD TO THE SELECTION OF THE PRODUCT AS FIT OR SUITABLE FOR ANY PARTICULAR PURPOSE. BUYER’S EXCLUSIVE REMEDY FOR ANY AND ALL LOSSES AND OTHER DAMAGE RESULTING FROM SALE OF PRODUCT PURSUANT TO THE AGREEMENT, ANY SPECIAL PROVISIONS AND THESE GENERAL TERMS AND CONDITIONS, INCLUDING, WITHOUT LIMITATION, CLAIMS FOR BREACH OF WARRANTY, BREACH OF CONTRACT, NEGLIGENCE OR STRICT LIABILITY SHALL BE LIMITED, AT SELLER’S OPTION, EITHER TO REPLACEMENT OF THE PRODUCT OR REFUND OF THE PURCHASE PRICE FOR THE NONCONFORMING PRODUCT.

(b) Should it appear that Seller furnished nonconforming Product, Buyer must provide written proof thereof in sufficient detail for Seller to evaluate the claim within ten (10) Days of the date on which Buyer learned that such Product was nonconforming. Seller retains the right to test any sample of the Products taken, to inspect the facility from which the sample was taken or to take its own sample of any allegedly defective or off specification Products.

8. Waiver of Consequential Damages . NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE AGREEMENT, AND NOTWITHSTANDING KNOWLEDGE, IF ANY, OF A PARTY OF THE POSSIBILITY OF SUCH DAMAGES, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY, FOR ANY LOST PROFITS, OR SPECIAL, CONSEQUENTIAL, PUNITIVE, EXEMPLARY, INCIDENTAL OR INDIRECT DAMAGES OR LOSSES, INCLUDING BUT NOT LIMITED TO LOST PROFITS, FROM SALE OF PRODUCT UNDER THE AGREEMENT OR FROM THE USE OR RESALE THEREOF, HOWEVER SAME MAY BE CAUSED AND REGARDLESS OF THE SOLE OR CONCURRENT NEGLIGENCE OF THE OTHER PARTY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF, OR OTHERWISE COULD HAVE ANTICIPATED THE POSSIBILITY OF, SUCH DAMAGES OR LIABILITIES IN ADVANCE. THE PARTIES AGREE THAT THE RESTRICTIONS AND LIMITATIONS ON DAMAGES CONTAINED IN THIS AGREEMENT DO NOT DEPRIVE THE PARTIES OF MINIMUM ADEQUATE REMEDIES AS CONTEMPLATED IN TEXAS UCC SECTION 2-719. The foregoing limitation is not intended and shall not limit any damages incurred by any third party and covered under any indemnity hereunder.

 

Exhibit D

Page 3 of 4


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

9. Survival of Obligations . Obligations arising under paragraphs 2, 5, 7, and 8 shall survive termination or expiration of the Agreement.

 

Exhibit D

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

EXHIBIT E

TRACKING ACCOUNT ILLUSTRATION

 

     Month
1
    Month
2
     Month
3
    Month
4
     Month
5
     Month
6
     Month
7
     Month
8
     Month
9
     Month
10
     Month
11
     Month
12
     Month
13
 

Margin (shortfall) / Surplus (millions $)

   ($ 10   $ 0       ($ 3   $ 1       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 4       $ 4   

Payment to Seller from Buyer

   $ 10      $ 0       $ 3      $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0   

Credit to Buyer from Seller

   $ 0      $ 0       $ 0      $ 1       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 4       $ 3   

Aging drop off at month end

   $ 0      $ 0       $ 0      $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 5       $ 0   

“Tracking Account” at month end

   $ 10      $ 10       $ 13      $ 12       $ 12       $ 12       $ 12       $ 12       $ 12       $ 12       $ 12       $ 3       $ 0   

In Month 12, $4 goes against the Month 1 shortfall which when combined with the $1 from Month 4 makes a total of $5 that should be applied to the Month 1 shortfall payment - thus the remaining $5 of the Month 1 shortfall payment drops off. As a result, $3 would remain in the Tracking Account from Month 3.

In month 13, $3 is still left in the Tracking Account and available for “repayment” back to Buyer.

 

Exhibit E

Page 1 of 1

Exhibit 10.2

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

FUEL DISTRIBUTION AND SUPPLY AGREEMENT

Between

WESTERN REFINING WHOLESALE, LLC

And

WESTERN REFINING SOUTHWEST, INC.

Dated as of October 15, 2014


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

TABLE OF CONTENTS

 

1.    Term      1   
2.    Fuel Sales      1   
3.    Shortfall Payment and Pricing Adjustments      2   
4.    Volume Increases      4   
5.    Products; Terms of Sale      4   
6.    Allocations      4   
7.    Credit Cards      5   
8.    Trademarks      6   
9.    Customer Service and Complaints      8   
10.    Quality, Specification or Name of Product      8   
11.    Force Majeure; Failure To Perform      8   
12.    Purchaser’s Insurance Requirements      9   
13.    Suspension of Deliveries; Termination      9   
14.    Other Provisions      10   

 

Schedule 1: List of Initial WNR Stores and Cardlock Outlets

 

EXHIBITS

  
A    Commodity Schedule
B    Additional Sales Terms
C    Increased Commitment Fee Calculation
D    Tracking Account Illustration

 

i


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

FUEL DISTRIBUTION AND SUPPLY AGREEMENT

This Fuel Distribution and Supply Agreement (this “ Agreement ”) is dated as of October 15, 2014 (the “ Effective Date ”), and is made and entered into by and between Western Refining Wholesale, LLC, a Delaware limited liability company (“ Seller ”), and Western Refining Southwest, Inc., an Arizona corporation (“ WRSW ” and, collectively with all of its divisions, subsidiaries or affiliates, other than the Partnership (as defined below) and its subsidiaries, “ Purchaser ”). Seller and Purchaser are individually referred to as a “ Party ” and collectively as the “ Parties .”

RECITALS

WHEREAS, Seller is a wholly-owned subsidiary of Western Refining Logistics, LP, a Delaware limited partnership (the “ Partnership ”).

WHEREAS, the Partnership, Western Refining Logistics GP, LLC, a Delaware limited liability company and the general partner of the Partnership (the “ General Partner ”), WRSW and Western Refining, Inc., a Delaware corporation (“ WNR ”), have entered into a Contribution, Conveyance and Assumption Agreement of even date herewith in which the Partnership and WRSW agreed to enter into a fuel distribution agreement for the exclusive right and obligation of the Partnership to distribute motor fuels sold by the Purchaser at the WNR Sites (defined below) pursuant to the terms of this Agreement.

WHEREAS, WRSW, Western Refining Company, L.P., a Delaware limited partnership (“ WRC ”), and Seller have entered into a Product Supply Agreement of even date herewith (the “ Product Supply Agreement ”), pursuant to which WRSW and WRC have agreed to provide certain volumes of Product (as defined therein) to Seller.

In consideration of the mutual promises herein contained, the Parties hereby agree as follows:

1. Term .

(a) Unless earlier terminated as provided herein, this Agreement shall be effective as of the Effective Date and will remain in effect until the ten (10) year anniversary of the Effective Date (the “ Initial Term ”).

(b) The Initial Term and any mutually agreed extensions thereof shall be referred to herein as the “ Term ”.

2. Fuel Sales .

(a) Subject to the terms and conditions set forth in this Agreement, Seller shall sell and deliver to Purchaser, and Purchaser shall purchase and accept delivery of, 645,000

 

1


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

Barrels per Month (as defined below) (as increased pursuant to Section 4 , the “ Committed Volume ”) of branded and unbranded motor fuels required by Purchaser for resale at all WNR Stores and all Cardlock Outlets listed on Schedule 1 attached hereto (as amended from time to time, the “ WNR Sites ”).

(b) Purchaser shall purchase, receive and pay for such branded and unbranded motor fuels, including branded product(s) under designated trademarks, service marks, trade names, brand names, or other brand identifications (the “ Proprietary Marks ”) and other unbranded products, under the terms and conditions specifically set forth in the commodity schedule attached hereto as Exhibit A and made a part hereof (the “ Commodity Schedule ”). Seller’s counterparties under certain agreements (“ Branded Marketer Agreements ”), pursuant to which Seller has the right to provide branded products under each such counterparty’s Proprietary Marks (for example, Shell Oil Products, USA), and their successor(s) and assigns are each referred to hereinafter as the “ Branded Marketer ” and collectively as “ Branded Marketers ”.

(c) Nothing in this Agreement grants Purchaser an exclusive territory to market and resell any petroleum products. Seller reserves the right to market and sell, and authorize others to market and sell, petroleum products in any manner Seller chooses, including through its own retail outlets or through designated wholesalers or other retailers.

(d) Purchaser shall purchase all branded and unbranded motor fuels on a Ratable Basis during each Month. Seller may restrict or deny supply of branded and unbranded motor fuels on any given day when Purchaser is not purchasing such product on a Ratable Basis; however, any such restriction imposed by Seller on any given day will not reduce the Committed Volume for that Month. Subject to this Section 2(d) , Seller shall deliver the Committed Volumes.

(e) For purposes of the foregoing:

(i) “ Barrel ”, “ barrel ”, or “ BBL ” means a volume equal to 42 U.S. gallons at 60 degrees Fahrenheit under one atmosphere of pressure. “ bpd ” means Barrels per day.

(ii) “ Daily Committed Volume ” means the Committed Volume divided by the number of days in the applicable Month.

(iii) “ Month ” means a calendar month.

(iv) “ Ratable Basis ” means the purchase by Purchaser on a daily basis of a volume of branded and unbranded motor fuels that is less than 200% of the Daily Committed Volume.

3. Shortfall Payment and Pricing Adjustments .

 

2


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(a) In any Month where Purchaser fails to purchase at least the Committed Volume of branded and unbranded motor fuels (a “ Shortfall Month ”), Purchaser agrees to pay to Seller an amount equal to the product of the (i) Committed Volume Shortfall and (ii) three cents ($0.03) per gallon (each a “ Shortfall Payment ”). Such amount shall be due within fifteen (15) days after the last day of such Shortfall Month.

(b) Any Shortfall Payments paid by Purchaser under this Agreement shall be added to a virtual tracking account (the “ Tracking Account ”) and will remain “available” for repayment (i.e., included in the balance of the Tracking Account) in the form of an Applicable Credit Amount (as defined below) for a period of twelve (12) Months from the end of the Shortfall Month for which such payments relate. The amount of any Shortfall Payments included in the Tracking Account will be reduced by the sum of (i) the amount of any Applicable Credit Amounts where such Applicable Credit Amounts are applied to reduce the balance of the oldest Shortfall Payment made within the previous twelve (12) Months and (ii) the amount of any Shortfall Payments that are no longer “available” for repayment because they were not “repaid” within twelve (12) Months from the end of the Shortfall Month for which they were made. An illustration of the Tracking Account calculation is set forth on Exhibit D . The funds in the Tracking Account will be available to be “repaid” by Purchaser in the form of an Applicable Credit Amount in any subsequent Overage Month (as defined below).

(c) In any Month where Purchaser purchases volumes in excess of the Committed Volume (an “ Overage Month ”), Seller will apply as a credit for purchases in such Month, the Applicable Credit Amount, if any, for such Overage Month; provided that, such credit will only be due if and to the extent that the Tracking Account has a positive balance.

(d) Within fifteen (15) days after the end of each Month, Seller will deliver to Purchaser a statement showing the purchases by Purchaser of branded and unbranded motor fuels during the Month just-ended and stating the amount of any Shortfall Payment or Applicable Credit Amount due for such Month.

(e) For purposes of the foregoing:

(i) “ Committed Volume Shortfall ” means, for any Shortfall Month, an amount (converted to gallons) equal to the difference between (A) the Committed Volume and (B) the actual amount of branded and unbranded motor fuels purchased by Purchaser during such Month. The Committed Volume Shortfall cannot be less than zero.

(ii) “ Committed Volume Overage ” means, for any Overage Month, an amount (converted to gallons) equal to the difference between (A) the actual amount of branded and unbranded motor fuels purchased by Purchaser during such Month and (B) the Committed Volume. The Committed Volume Overage cannot be less than zero.

 

3


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(iii) “ Applicable Credit Amount ” means, for any Overage Month, an amount equal to the product of (A) three cents ($0.03) per gallon and (B) the amount of the Committed Volume Overage for such Month.

4. Volume Increases .

(a) Purchaser may increase its purchased volumes by up to 5 million gallons in any calendar year to service the WNR Sites or new locations. If any such increase is effected, the Committed Volume going forward shall be deemed to be increased by a correlative amount. By way of example only, if Purchaser increases its purchased volumes by 4.2 million gallons in a given calendar year, then the Committed Volume going forward shall be increased by 8,333.33 Barrels per Month.

(b) If Purchaser desires to increase its purchased volumes by more than 5 million gallons during any calendar year:

(i) Purchaser must provide notice to Seller of the locations and the aggregate amount of gallons of product that Purchaser will require at such locations; and

(ii) if Seller agrees to provide this additional supply, then, the amount of the Committed Volume shall be adjusted accordingly and Seller shall pay Purchaser an amount calculated in accordance with Exhibit C .

(c) For purposes of clarity, Purchaser agrees that any of its incremental branded and unbranded motor fuel needs will first be offered to Seller and only if Seller is unwilling to make such volumes available to Purchaser for purchase in accordance with the terms of this Agreement will Purchaser be permitted to purchase such branded and unbranded motor fuel from a third party.

5. Products; Terms of Sale . The Commodity Schedule and the additional sales terms described in Exhibit B attached hereto (the “ Additional Sales Terms ”) describe all of the branded and unbranded motor fuels covered by this Agreement and shall apply to all sales of branded and unbranded motor fuels by Seller to Purchaser pursuant to this Agreement.

6. Allocations . If during the Term of this Agreement, the amount of any branded and unbranded motor fuel volumes that Seller is required to deliver to Purchaser is prescribed by government rules, regulations or orders, or if for any reason Seller’s supplies of branded and unbranded motor fuel are inadequate to meet the needs of Purchaser and Seller’s other customers, Seller, in its sole discretion, may allocate branded and unbranded motor fuel to Purchaser and Seller’s other customers and any shortfall in volumes requested by Purchaser shall not be deemed to be a breach of this Agreement. In the event that Seller is unable to distribute all branded and unbranded motor fuel volumes that Purchaser desires to purchase from Seller, Purchaser may temporarily purchase from third parties its requirements of any branded and unbranded motor fuel volumes in excess of the amounts of such branded and unbranded motor fuel supplied by the Seller.

 

4


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

7. Credit Cards .

(a) As long as a Branded Marketer accepts specified credit cards, fleet cards, debit cards, or other similar transaction authorization cards (the “ Transaction Cards ”), Purchaser shall accept and honor all Transaction Cards identified in Branded Marketer’s Transaction Card manuals or other guidelines or agreements, whether in written or electronic form (the “ Branded Marketer Card Guide ”), for the purchase of authorized products and services at all locations branded with Branded Marketer’s Brand.

(b) Given how the Branded Marketer Agreements are structured, the money for Transaction Card transactions at the WNR Sites may be paid directly to Seller. In such instances, those amounts will be treated as a payment by Purchaser under this Agreement. For each Transaction Card transaction not authorized, disputed by a customer, or otherwise subject to charge back under the Branded Marketer Card Guide, Seller may either charge the amount to Purchaser’s account or require Purchaser to make immediate refund to Seller, including refund by draft or Electronic Funds Transfer (“ EFT ”), without any deduction for any processing fee. Notwithstanding anything contained herein, Purchaser shall be entirely responsible for all amounts due and payable hereunder and will only be entitled to a credit for amounts actually received and retained (i.e. not subsequently required to be repaid or otherwise returned) by Seller from Transaction Card transactions.

(c) Purchaser acknowledges receipt of a copy of the Branded Marketer Card Guide and shall comply fully with the operating rules, terms and conditions thereof. Without limiting any rights or remedies available to Seller, if Purchaser fails to comply with this Section 7 , Seller or Branded Marketer may limit or terminate Purchaser’s right to participate in Branded Marketer’s Transaction Card program or Purchaser’s right to use Branded Marketer’s Proprietary Marks.

(d) Purchaser understands and acknowledges that the Payment Card Industry Data Security Standard (as amended from time to time, the “ PCI DSS ”) contains clearly defined standards setting forth the duties of merchants, like the Purchaser, to secure sensitive cardholder data. Purchaser is and shall remain informed of the PCI DSS as the PCI DSS pertains to the Purchaser’s business at the WNR Sites. In addition to the requirements of the Branded Marketer Card Guide, Purchaser shall at all times during the term of this Agreement, and at its sole expense, (i) comply with the PCI DSS; (ii) cause all point-of-sale (“ POS ”) and other related network hardware and software at the WNR Sites to be, and remain, PCI DSS certified and compliant; (iii) regularly monitor, test, and/or assess the POS and related hardware and software at the WNR Sites pursuant to the PCI DSS; and (iv) permit Seller and/or any Branded Marketer and/or Transaction Card representative to inspect and/or test the POS and other related network hardware and software at the WNR Sites.

 

5


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(e) Purchaser shall indemnify, defend and hold Seller harmless for any and all losses, fines, penalties, damages, costs or expenses including without limitation attorney’s fees, arising out of the Purchaser’s breach or violation of, or failure to comply with, (i) the PCI DSS, (ii) any other requirements imposed on the operations of Purchaser’s WNR Sites under the Branded Marketer Agreements, including any Image and Operations Guidelines (as defined below), or (iii) the Branded Marketer Card Guide. The indemnity provision contained in this Section 7(e) shall survive termination or expiration of this Agreement.

8. Trademarks .

(a) Subject to the approval of the applicable Branded Marketers, Seller grants to Purchaser the non-exclusive right to use such Branded Marketer’s Proprietary Marks, if applicable, at the WNR Sites in connection with the advertising, marketing, and resale of the branded petroleum products purchased from Seller under this Agreement. Purchaser agrees that with respect to any WNR Site where it sells the product of a Branded Marketer, petroleum products of other Branded Marketers or unbranded products will not be sold by Purchaser under such Branded Marketer’s Proprietary Marks. Purchaser understands, acknowledges, and agrees that the applicable Branded Marketers may promulgate from time to time standards, policies, guidelines, procedures, marketing programs and other requirements regarding image, signage, appearance, station operations, and other matters related to the sale of branded and unbranded motor fuels under the Proprietary Marks of such Branded Marketers (“ Image and Operations Guidelines ”). Purchaser shall, at its own expense, comply fully with the Image and Operations Guidelines of the applicable Branded Marketers and cause its employees to do the same.

(b) Subject to Purchaser’s approval, which shall not be unreasonably withheld, Seller shall have the right to substitute the Proprietary Marks of another Branded Marketer or any new supplier for any existing Branded Marketer for any WNR Site (each such substitute, a “ Substituted Branded Marketer ”). In the event of such substitution, all references to the Branded Marketer in this Agreement shall be deemed to refer to the Substituted Branded Marketer and all references to the Proprietary Marks shall be deemed to refer to the Proprietary Marks of said Substituted Branded Marketer.

(c) Purchaser shall provide at least sixty (60) days’ advance written notice to Seller if Purchaser desires to a change of brand at any WNR Site, which notice shall include the site location, address, estimated volume by product, brand and effective date of such change. Seller shall use commercially reasonable efforts to obtain authorization from the requested Branded Marketer for such brand change. If brand authorization is not obtained, Seller shall either (i) continue supplying the existing brand, or (ii) supply unbranded product, subject to Purchaser reimbursing Seller for any costs incurred by Seller as the result of any such rebranding (or attempted rebranding).

(d) In all circumstances, any costs related to branding or debranding a WNR Site will be at the expense of Purchaser, and any penalties or costs, including, but not limited to, image repayment or recapture obligation, incurred by Seller as the result of debranding a site will be passed through to Purchaser.

 

6


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(e) Upon termination, nonrenewal, or expiration of this Agreement or prior thereto upon demand by Seller or Branded Marketer, Purchaser’s right to use the Proprietary Marks will terminate, and Purchaser shall discontinue the posting, mounting, display or other use of the applicable Branded Marketers’ Proprietary Marks. In the event that Purchaser fails to do so to the satisfaction of Seller or Branded Marketer, subject to applicable law, Seller and Branded Marketer (i) shall have the right to cause any and all signage, placards, and other displays bearing the Proprietary Marks to be removed from the WNR Sites; and (ii) shall have the right to use any means necessary to remove, cover or obliterate the Proprietary Marks, including entry to the WNR Sites to do so. In the event the Seller or Branded Marketer take any such action hereunder, Purchaser shall bear all costs and expenses thereof, including without limitation the costs of removing, obliterating, or covering the Proprietary Marks and attorney fees and other legal costs and expenses. Under no circumstances will Purchaser display signage bearing the Proprietary Marks of the applicable Branded Marketer at any WNR Site without the prior written approval of Seller.

(f) Purchaser acknowledges and understands that it is not an owner or a licensee of the Proprietary Marks. Purchaser shall not mix, commingle, blend, adulterate, or otherwise change the composition of any of the product(s) purchased hereunder and resold by Purchaser at a particular WNR Site under said Proprietary Marks of the Branded Marketer of such WNR Site with other products or substances in any manner.

(g) Seller and the applicable Branded Marketers are hereby given the right to enter the WNR Sites to examine at any time, and from time to time, the contents of Purchaser’s tanks or containers in which said product(s) purchased hereunder are stored and to take samples therefrom, and if in the opinion of Seller or Branded Marketer any samples thus taken are not said product(s) and in the condition in which delivered by Seller to Purchaser then Seller may at its option terminate this Agreement.

(h) Purchaser shall take no action, or otherwise do anything, or fail to do anything that will diminish, reduce, injure, dilute, or otherwise damage the value of the Proprietary Marks or trademarks or other identifications of Branded Marketer.

(i) Notwithstanding anything contained herein to the contrary, upon the termination or expiration of any Branded Marketer Agreement or Branded Marketer’s revocation of Seller’s right to use or grant the use of its Proprietary Marks, Seller may, in its sole and absolute discretion, upon sixty (60) days’ prior notice, either (a) terminate such affected WNR Sites from this Agreement, (b) substitute another Branded Marketer’s Proprietary Marks at Purchaser’s expense at such affected WNR Sites or (c) supply unbranded products at such affected WNR Sites. Seller will not be liable for the consequences of such loss.

 

7


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

9. Customer Service and Complaints . While using the Proprietary Marks, Purchaser shall render appropriate, prompt, efficient, courteous service at the WNR Stores to Purchaser’s customers for such product(s) and respond expeditiously to all complaints of such customers, making fair adjustment when appropriate.

10. Quality, Specification or Name of Product . From time to time, Seller’s Branded Marketers may change the quality, grade, specifications, or availability of products covered by this Agreement and in such event Seller may change or alter the quality, grade or specifications. Seller may, in its discretion, upon giving notice to Purchaser, either change or alter (a) the quality, grade, or specifications of any product(s) covered by this Agreement or (b) the availability of any such product(s). Any such change or discontinuation shall not affect the purchase requirements set forth in the Commodity Schedule attached hereto. Seller shall give Purchaser written notice of discontinuance of the manufacture of any product(s) covered by this Agreement. This Agreement shall terminate as to such discontinued product(s) when such notice is effective.

11. Force Majeure; Failure To Perform .

(a) As soon as possible upon the occurrence of a Force Majeure (as defined below), the Party affected by such Force Majeure shall provide written notice of the occurrence of such Force Majeure (a “ Force Majeure Occurrence Notice ”). The Party affected by such Force Majeure shall identify in such Force Majeure Occurrence Notice the approximate length of time that such Party reasonably believes in good faith such Force Majeure shall continue.

(b) The obligations under this Agreement of the Party affected by such Force Majeure shall be temporarily suspended during the occurrence of, and for the entire duration of, a Force Majeure. The Party affected by such Force Majeure shall use commercially reasonable efforts to overcome such Force Majeure but shall not be obligated under this Agreement to settle any strike or labor dispute.

(c) As soon as possible upon the cessation of a Force Majeure, the Party affected by such Force Majeure shall provide written notice of the cessation of such Force Majeure (a “ Force Majeure Cessation Notice ”). The Party restricted by such Force Majeure shall identify in such Force Majeure Cessation Notice the date on which such Force Majeure ceased to exist.

(d) Seller shall be under no obligation to make deliveries hereunder at any time when in Seller’s sole judgment it has reason to believe that such delivery would likely cause strikes to be called against it or cause its properties to be picketed.

(e) Seller shall not be required to make up deliveries omitted on account of any of the causes set forth in Sections 11(a) through (d) .

 

8


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(f) Nothing in this Section 11 shall excuse any Party from complying with its obligations under this Agreement arising prior to the occurrence of such Force Majeure, including any obligation to make payments when due under this Agreement.

(g) Notwithstanding anything contained herein to the contrary, if (i) the Party affected by an event of Force Majeure (the “ Affected Party ”) is unable to resume the performance of its obligations under this Agreement within two (2) years after the event of Force Majeure despite using its commercially reasonable efforts to overcome such event in accordance with this Section 11 , then the Affected Party may, upon written notice to the other Party, terminate this Agreement or (ii) the Affected Party is unable to resume performance of its obligations under this Agreement within six (6) Months after the event of Force Majeure, then the other Party may, upon written notice to the Affected Party, terminate this Agreement; provided that, in either case any payment obligations accruing up to and through the date of such termination shall remain outstanding and shall continue to be due and payable following the termination of this Agreement.

(h) “ Force Majeure ” means circumstances not reasonably within the control of the Parties and which, by the exercise of reasonable efforts, the Parties are unable to prevent or overcome that prevent (i) Seller from delivering products to Purchaser at the WNR Sites or (ii) Purchaser buying products, including: acts of God, strikes, lockouts or other industrial disturbances, wars, riots, fires, floods, storms, orders of courts or Governmental Authorities, governmental request or requisition for national defense, explosions, terrorist acts, breakage, accident to machinery, storage tanks or lines of pipe and inability to obtain or unavoidable delays in obtaining material or equipment, delays of other carriers, local or national disruptions to transportation networks or operations, fuel shortages and similar events and, as to Seller, the failure by either WRSW or WRC to provide supply under the Product Supply Agreement.

12. Purchaser’s Insurance Requirements . Purchaser shall maintain insurance policies of the type and amount as Purchaser has historically maintained. Pursuant to that certain Omnibus Agreement dated as of October 16, 2013, by and among WNR, Partnership, General Partner, Seller, WRSW, and WRC (the “ Omnibus Agreement ”), it is currently anticipated that WNR or one of its affiliates will provide Purchaser with all necessary insurance coverage and Purchaser shall reimburse WNR for the insurance premiums as set forth therein. To the extent that WNR fails or otherwise is no longer obligated to provide such insurance coverage pursuant to the Omnibus Agreement, Purchaser agrees to purchase replacement policies at its sole cost and expense. The insurance required hereunder in no way limits or restricts Purchaser’s obligations under law or this Agreement as to indemnification of Seller.

13. Suspension of Deliveries; Termination .

(a) Seller may suspend deliveries or terminate this Agreement if Purchaser: (i)(A) files a petition or otherwise commences, authorizes or acquiesces in the commencement of a proceeding or cause of action under any bankruptcy, insolvency, reorganization or similar

 

9


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

Applicable Law, or has any such petition filed or commenced against it, and, with respect to any involuntary filings, such filing has not been dismissed within sixty (60) days (B) makes an assignment or any general arrangement for the benefit of creditors, (C) otherwise becomes bankrupt or insolvent (however evidenced) or (D) has a liquidator, administrator, receiver, trustee, conservator or similar official appointed with respect to it or any substantial portion of its property or assets, and, with respect to any involuntary appointment, such appointment has not been dismissed within sixty (60) days; (ii) breaches any provision of this Agreement; or (iii) loses its charter or is otherwise prevented from doing business in accordance with applicable law.

(b) With one hundred eighty (180) days’ advance written notice, Purchaser may terminate this Agreement if Seller fails to cure a material breach within sixty (60) days of being notified in writing by Purchaser of such breach.

(c) Purchaser agrees not to engage in or permit any illegal or improper act or conduct, on or about the WNR Sites, which act or conduct is detrimental to Seller or any member of the public. Subject to any other requirements of law, at the option of Seller, Seller may cease deliveries to the applicable WNR Sites until the illegal acts or conduct have been remedied to the satisfaction of Seller and the applicable Branded Marketers or terminate this Agreement with respect to the applicable WNR Site without further notice, (i) upon the failure of Purchaser to desist from any such further acts or conduct after notice from Seller to do so, or (ii) upon Purchaser’s failure to pay any amount when and as due within forty-eight (48) hours of notice of such, and no forbearance, course of dealing, or prior payment shall affect these rights of termination.

(d) Termination of this Agreement by either Party for any reason shall not relieve any party of any obligation theretofore accrued under this Agreement. Sections 8(e) and 13 shall survive the execution and delivery and termination or expiration of this Agreement.

14. Other Provisions .

(a) Confidentiality.

(i) Each Party agrees that it will keep any and all Confidential Information of the other Party strictly confidential and that it will take such steps to protect such Confidential Information as it normally takes to preserve and safeguard its own Confidential Information. Each Party agrees that, without the prior written consent of the other Party, it will not: (A) disclose Confidential Information of the other Party in any manner whatsoever, in whole or in part; (B) use any Confidential Information of the other Party other than in connection with the transaction(s) that is the subject of this Agreement; or (C) transmit the Confidential Information of the other Party to any of its officers, directors, employees, affiliates, agents or representatives who (x) are not aware of the

 

10


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

confidential nature of such information, or (y) do not need to know the Confidential Information for the sole purpose of assisting with the transaction(s) (collectively, its “ Representatives ”). Each Party shall be responsible for the breach of this Section 14(a)(i) by any of its Representatives.

(ii) For purposes of this Agreement, “ Confidential Information ” shall mean all information, documents, data or materials that is now or in the future provided, acquired or received directly or indirectly by a Party or its agents, employees or contractors either in writing, orally or by observation, relating to the business or operations of other Party or its affiliates, including but not limited to the pricing of product, design, planning, operation or maintenance of the other Party’s equipment, products and business; formulas or process parameters relating to the other Party’s products or proposed products; plans for expansion; information relating to research, development, invention, manufacturing, purchasing, accounting, engineering, marketing, merchandising and selling not generally known in the industry in which the other Party is engaged; any other data, samples, material and/or information specifically identified by the other Party as “Confidential”; and any and all other data, information, findings, documents or other materials arising from or relating to the other Party or the transaction(s) or any work or services performed by it for the other Party, regardless of whether such Confidential Information is generated solely by or as a result of any of its activities; except that Confidential Information shall not include any information that (i) was, at the time of disclosure to the receiving Party, in the public domain; (ii) after disclosure to the receiving Party, is published or otherwise becomes part of the public domain through no fault of the receiving Party; (iii) was in the possession of the receiving Party at the time of disclosure to it and was not the subject of a pre-existing confidentiality obligation; (iv) was received after disclosure to the receiving Party from a third party (other than the disclosing Party’s Affiliates or subcontractors) that was not bound by any duty of confidentiality; or (v) was independently developed by the receiving Party without the use of the Confidential Information of the disclosing Party.

(b) Notices.

(i) Notices, correspondence, invoices, as applicable, and all other communications related to this Agreement shall be addressed as follows:

to Seller at:

1250 W. Washington Street, Suite 101

Tempe, Arizona 85281

Attn: President of Wholesale

 

11


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

and to Purchaser at:

1250 W. Washington Street, Suite 101

Tempe, Arizona 85281

Attn: General Counsel

With a copy to:

1250 W. Washington Street, Suite 101

Tempe, Arizona 85281

Attn: President of Refining & Marketing

(ii) All notices, requests, demands, and other communications hereunder will be in writing and will be deemed to have been duly given: (A) if by transmission by facsimile or hand delivery, when delivered; (B) by e-mail on the next Business Day after delivery, if receipt is confirmed, (C) if mailed via the US Postal Service, five (5) Business Days after mailing, provided said notice is sent first class, postage pre-paid, via certified or registered mail, with a return receipt requested; or (D) if mailed by an internationally recognized overnight express mail service such as Federal Express, UPS, or DHL Worldwide, one (1) Business Day after deposit therewith prepaid.

(iii) Each Party shall have the right, from time to time, to designate a different address by written notice given in conformity with this Section 14(b) .

(c) Entire Agreement . This Agreement and the attached Exhibits constitutes the entire agreement between the Parties and supersedes all prior agreements, representations, warranties, statements, promises, information, arrangements, and understandings, whether oral, written, expressed, or implied, with respect to the subject matter hereof.

(d) Construction . Unless the context requires otherwise: (i) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural, and vice-versa, (ii) the gender (or lack of gender) of all words used in this Agreement includes the masculine, feminine and neuter; (iii) references to Articles and Sections refer to Articles and Sections of this Agreement; (iv) references to Exhibits or Schedules refer to the Exhibits or Schedules attached to this Agreement, each of which is made a part hereof for all purposes; (v) the term “include”, “includes”, “including” or words of like report shall be deemed to be followed by the words “without limitation”; (vi) the terms “hereof”, “herein” or “hereunder” refer to this Agreement as a whole and not to any particular provision of this Agreement; (vii) references to money refer to legal currency of the United States of America; and (viii) when calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded.

 

12


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

The table of contents and headings contained in this Agreement are for reference purposes only, and shall not affect in any way the meaning or interpretation of this Agreement.

(e) Dispute Resolution; Governing Law; Jurisdiction.

(i) This Agreement shall be governed and construed in accordance with the substantive laws of the State of Texas without reference to principles of conflicts of law that would result in the application of the laws of another jurisdiction.

(ii) THE PARTIES VOLUNTARILY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA IN HARRIS COUNTY, TEXAS, OVER ANY DISPUTE BETWEEN OR AMONG THE PARTIES ARISING OUT OF THIS AGREEMENT, OTHER THAN A DISPUTE SUBJECT TO SECTION 15(e)(iv) , AND EACH PARTY IRREVOCABLY AGREES THAT ALL SUCH CLAIMS IN RESPECT OF SUCH DISPUTE SHALL BE HEARD AND DETERMINED IN SUCH COURTS. THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH DISPUTE ARISING OUT OF THIS AGREEMENT BROUGHT IN SUCH COURT OR ANY DEFENSE OF INCONVENIENT FORUM FOR THE MAINTENANCE OF SUCH DISPUTE. EACH PARTY AGREES THAT A JUDGMENT IN ANY SUCH DISPUTE MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.

(iii) EACH OF THE PARTIES HEREBY VOLUNTARILY AND IRREVOCABLY WAIVES TRIAL BY JURY IN ANY DISPUTE OR OTHER PROCEEDING RELATED THERETO BROUGHT IN CONNECTION WITH THIS AGREEMENT.

(iv) Any dispute, controversy or claim, of any and every kind or type, whether based on contract, tort, statute, regulations, or otherwise, between the Parties, arising out of, connected with, or relating in any way to this Agreement or the obligations of the Parties hereunder, including any dispute as to the existence, validity, construction, interpretation, negotiation, performance, non-performance, breach, termination or enforceability of this Agreement (in each case, a “ Dispute ”), shall be resolved solely and exclusively in accordance with the procedures specified in this Section 14(e) . The Parties shall attempt in good faith to resolve any Dispute by mutual discussions within thirty (30) days after the date that one Party gives written notice to the other Parties of such a Dispute in

 

13


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

accordance with Section 14(b) . If the Dispute is not resolved within such thirty (30) day period, or such longer period that may subsequently be agreed to in writing by the parties to the Dispute, the Dispute shall be finally settled by arbitration administered by JAMS, Inc. (“ JAMS ”) under its Comprehensive Arbitration Rules & Procedures, and judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The arbitration shall be held in Houston, Texas, and presided over by three arbitrators. If the Dispute is not settled within the above operative time period, the Party providing the aforesaid notice or the Parties receiving such notice may initiate the arbitration with JAMS. The Party who initiates the arbitration with JAMS shall also provide notice to JAMS and the opposing Party at the time of the initiation of the arbitration of the name of the Party selected arbitrator. The opposing Party shall file their answering statement with JAMS within forty-five (45) days of their receipt of the notice of filing from JAMS. The name of their party appointed arbitrator shall be included in such answering statement. The two Party-appointed arbitrators shall select a third arbitrator, who shall serve as the chairperson. The arbitration award shall identify whether there is a prevailing party in the arbitration and include an award in favor of such prevailing party and against each losing party, jointly and severally, for costs and expenses, including the actual litigation fees and costs (including reasonable attorney fees) the prevailing party incurred, excluding any contingent or deferred fees and costs. This agreement to arbitrate shall be binding upon the successors, assignees and any trustee or receiver of any Party.

(f) Cooperation . Each Party will cooperate fully with the other and provide such further information as may be reasonably necessary to fulfill the objectives in this Agreement.

(g) Gifts . No director, employee or agent of Purchaser or of any subcontractor or vendor of Purchaser shall give or receive any commission, fee, rebate, or gift or entertainment of significant cost or value in connection with this Agreement, or enter into any business arrangement with any director, employee or agent of Seller or its parent or affiliated entities other than as a representative of Purchaser, without Seller’s prior written agreement. Purchaser shall promptly notify Seller of any violation of this Section 14(h) .

(h) Amendments . No amendment or modification of the terms of this Agreement shall be binding unless in writing and signed by each Party.

(i) Waiver . No waiver of any right, power, or privilege hereunder shall be binding upon any Party unless in writing and signed by or on behalf of the Party against which the waiver is asserted.

 

14


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(j) Assignment . Neither Party shall assign any of its rights or obligations under this Agreement without the other Party’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however: that either Party may assign this Agreement without the consent of the other Party to an affiliate or in connection with a sale of all or substantially all of the assets of such assigning Party. Any assignment that is not undertaken in accordance with the provisions set forth above shall be null and void ab initio. A Party making any assignment shall promptly notify the other Party of such assignment, regardless of whether consent is required. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

(k) Severability . Any term or provision of this Agreement that is held to be invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction.

(l) No Third Party Beneficiaries . It is expressly understood that the provisions of this Agreement do not impart enforceable rights in anyone who is not a Party or successor or permitted assignee of a Party.

(m) Counterparts . This Agreement may be executed in one or more counterparts, any or all of which shall constitute one and the same instrument. Either Party, at its option, may supply any document required by or referenced in this Agreement in either paper or electronic form (including, but not limited to, an electronically imaged, faxed, photocopied, or online posted version), and any such version shall be sufficient for all purposes under this Agreement.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

15


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

WESTERN REFINING WHOLESALE, LLC
By:  

/s/ Matthew L. Yoder

Name:   Matthew L. Yoder
Title:   Senior Vice President – Operations
WESTERN REFINING SOUTHWEST, INC.

(on behalf of itself, and all of its divisions, subsidiaries, and

Affiliates (other than the Partnership))

By:  

/s/ Mark J. Smith

Name:   Mark J. Smith
Title:   President – Refining and Marketing

 

[Signature Page for Fuel Distribution and Supply Agreement]


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

SCHEDULE 1

LIST OF INITIAL WNR STORES AND CARDLOCK OUTLETS

*** [eight pages omitted]

 

Schedule 1

Page 1 of 1


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

EXHIBIT A

COMMODITY SCHEDULE

This Commodity Schedule is attached to, and made a part of, a Fuel Distribution and Supply Agreement between Purchaser and Seller dated October 15, 2014 (the “ Agreement ”). Unless otherwise indicated, the capitalized terms used in this Commodity Schedule shall have the same meaning used in the Agreement.

1. Products . All motor fuel products allowed by law to be sold to the general public including branded (to the extent Seller may obtain such branded product) and unbranded motor fuels and shall include, but not limited to, unleaded gasoline, plus unleaded gasoline, supreme unleaded gasoline, diesel fuel. Gasoline products shall include conventional, reformulated and ethanol blended motor fuels.

2. Control . Purchaser is an independent business with the exclusive right to direct and control the business operation at the WNR Sites, including the establishment of the prices at which products are sold.

3. Quantity . All of Purchaser’s requirements for branded and unbranded motor fuels, for delivery upon reasonable notice to Seller at the WNR Sites or as otherwise reasonable directed in writing by the Purchaser.

4. Delivery . Delivery shall be complete on unloading of the tank wagon or transport truck at the designated delivery point (e.g., Purchaser’s retail location).

5. Title . Title to product covered under the Agreement shall pass to Purchaser as it is delivered to Purchaser’s tanks or other storage containers.

6. Risk of Loss . Risk of loss of product shall pass to Purchaser as it is delivered to Purchaser’s tanks or other storage containers.

7. Price .

(a) The Seller’s price per gallon to be paid by Purchaser shall be Seller’s net cost per gallon at the applicable terminal in effect at the time loading commences, plus (i) all applicable taxes and all fees, including State loading and environmental fees, if any, (ii) the cost of transporting the product to Purchaser and (iii) plus Seller’s Margin per gallon as set forth below. Seller will supply branded locations and charge licensing fees, additive costs and apply rebates and incentives as a direct pass through to Buyer and Buyer shall pay all such fees and costs.

 

Exhibit A

Page 1 of 2


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(b) Seller’s net cost per gallon shall be determined based on the prices paid under the Product Supply Agreement. All prices charged by Seller are subject to the provisions of applicable law.

(c) “ Seller’s Margin ” means, for volumes purchased at WNR Sites pursuant to this Agreement, an amount equal to three cents ($0.03) per gallon.

 

Exhibit A

Page 2 of 2


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

EXHIBIT B

ADDITIONAL SALES TERMS

Capitalized terms used but not defined in this Exhibit B have the meanings given to them in the Agreement.

1. Invoicing/Payment .

(a) The price of the product(s) covered by the Agreement shall be as stated in the Commodity Schedule attached to the Agreement as Exhibit A. Purchaser shall initially pay ***, which may be shortened or lengthened (provided no longer than thirty (30) days) as necessary to be concurrent with Seller’s applicable payment due date to Branded Marketer, by way of EFT, or such other means approved by Seller, for all goods delivered to Purchaser hereunder.

(b) Purchaser will establish a commercial account with a financial institution that provides EFT services and will authorize Seller to initiate transfers of funds between Purchaser’s account and Seller’s accounts for payment of all amounts due to Seller under this Agreement. Should any EFT transaction be rejected by Purchaser’s financial institution for any reason, Seller may, at its sole discretion, require subsequent payments be made in cash or by other means satisfactory to Seller.

(c) If at any time the financial responsibility of Purchaser shall become impaired or unsatisfactory to Seller, or should Purchaser be in arrears in his accounts with Seller, Seller may require, as a condition of making further deliveries under this Agreement, payment by Purchaser of all past due accounts and cash payment prior to, or upon, all such future deliveries or may require Purchaser to provide to Seller adequate assurance of its performance.

(d) All past due payments hereunder shall bear interest from the date due until the date paid at the rate of one and one-half percent (1  1 / 2 %) per Month or at the maximum rate authorized by law, whichever is less. Purchaser shall pay all Seller’s costs (including court costs and reasonable attorney’s fees) of collecting past due payments. Accounts that are past due will be ineligible for applicable allowance, deductions, or discounts, if any.

2. Taxes . When applicable laws, ordinances, regulations and other governmental directives (hereinafter referred to as the “laws”) permit, Purchaser shall assume and be responsible to the proper governmental units for any and all federal, state, and local taxes, excise, charges and inspection and other fees (hereinafter referred to as “taxes”) now or hereafter imposed by any governmental agency or authority that may be applicable to the sale, delivery or transportation of the branded and unbranded motor fuels (“Products”) sold hereunder. In those cases in which the laws impose upon Seller the obligation to collect or pay such taxes, Seller shall pay the amounts for which Seller shall be liable, however Purchaser shall reimburse to Seller the amount of any such taxes paid by Seller, as any such payment is not included in the

 

Exhibit B

Page 1 of 4


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

prices for Products otherwise herein provided for, and shall be in addition thereto. If any such payment is prohibited by existing or future act or request of a governmental authority or person purporting to act with governmental authority, Seller shall have the right to terminate this Agreement upon thirty (30) days’ notice to Purchaser. If Purchaser is entitled to purchase Products free of any such tax, or at a reduced rate of tax, Purchaser shall furnish to Seller proper exemption certificates, or other required documentation, to cover such purchase or purchases.

3. Quantity and Inspection . Unless otherwise agreed, quantities delivered to Purchaser shall be determined into or from tank wagon or transport trucks according to meters at Seller’s facility or standard tank car tables. Either party may require that Product quantity and quality be determined by a jointly-selected, licensed petroleum inspector, whose findings shall be conclusive. Customary inspection costs shall be shared equally, but additional services shall be paid for by the party requesting them. Objections to measurement, including claims for shortage, for quantities delivered from Seller’s facility must be made to Seller within ten (10) calendar days from the date of delivery. All volumes of delivered Product(s) shall be corrected for temperature to 60 degrees Fahrenheit. This correction shall be made for any petroleum Products delivered hereunder in accordance with ASTM D-1250, Table 6B in its latest revision. All measurements and/or tests shall be made in accordance with the latest standards or guidelines published by the American Petroleum Institute or ASTM International (“ ASTM ”).

4. Inspection of Records; Audit . Seller and Branded Marketer have a right to inspect Purchaser’s operation of the businesses at the WNR Sites and to verify that Purchaser is complying with (a) all its contractual obligations contained in this Agreement; and (b) all federal, state and local laws and regulations pertaining to the environmental protection and trademark use. Purchaser shall permit Seller and Branded Marketer to enter the WNR Sites unimpeded to review and audit all station records including, but not limited to, all records of deliveries, sales and inventory reconciliation, to take samples of branded and unbranded motor fuels stored at the WNR Sites, and to inspect equipment. Seller and Branded Marketer may, at any reasonable time and without prior notice, conduct a walk through and visual inspection of the WNR Sites.

5. Compliance With Laws . Purchaser shall comply with all laws, statutes, regulations, ordinances, and rules of all applicable governmental authorities with respect to the operation of its business at the WNR Sites. It is the intention of neither Party to violate statutory nor common law and if any provision of this Agreement is in violation of any law, such provision shall be inoperative and the remainder of this Agreement shall remain binding upon the Parties.

6. Safety and Health . Purchaser acknowledges receipt of Seller’s Material Safety Data Sheet for the Product and is aware of the known hazards and risks in handling the Product. Purchaser shall take all necessary steps to inform its employees, agents, and customers of any hazards and risks associated with use or handling of the Product including distribution of the Material Safety Data Sheet.

 

Exhibit B

Page 2 of 4


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

7. Warranties .

(a) THE SELLER WARRANTS THAT THE PRODUCT SOLD IS OF THE KIND AND QUALITY DESCRIBED IN THIS AGREEMENT, AND THAT SELLER HAS GOOD TITLE TO THE PRODUCT. THIS WARRANTY IS EXCLUSIVE AND IS IN LIEU OF ANY OTHER WARRANTY, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO DESCRIPTION OF THE PRODUCT, QUALITY OF THE PRODUCT, WARRANTIES OF MERCHANTABILITY, WARRANTIES OF FITNESS FOR A PARTICULAR USE OR OTHER WARRANTY OF QUALITY, WHETHER EXPRESS OR IMPLIED. PURCHASER ACKNOWLEDGES THAT SELLER SHALL IN NO WAY BE RESPONSIBLE OR LIABLE TO PURCHASER OR ANY OTHER PARTY FOR ANY USE OF THE PRODUCT. PURCHASER ACKNOWLEDGES THAT PURCHASER HAS NOT AND DOES NOT RELY ON SELLER’S SKILL OR JUDGMENT WITH REGARD TO THE SELECTION OF THE PRODUCT AS FIT OR SUITABLE FOR ANY PARTICULAR PURPOSE. PURCHASER’S EXCLUSIVE REMEDY FOR ANY AND ALL LOSSES AND OTHER DAMAGE RESULTING FROM SALE OF PRODUCT PURSUANT TO THE AGREEMENT, ANY SPECIAL PROVISIONS AND THESE GENERAL TERMS AND CONDITIONS, INCLUDING, WITHOUT LIMITATION, CLAIMS FOR BREACH OF WARRANTY, BREACH OF CONTRACT, NEGLIGENCE OR STRICT LIABILITY SHALL BE LIMITED, AT SELLER’S OPTION, EITHER TO REPLACEMENT OF THE PRODUCT OR REFUND OF THE PURCHASE PRICE FOR THE NONCONFORMING PRODUCT.

(b) Should it appear that Seller furnished nonconforming Product, Purchaser must provide written proof thereof in sufficient detail for Seller to evaluate the claim within ten (10) calendar days of the date of delivery. Seller retains the right to test any sample of the Products taken, to inspect the facility from which the sample was taken or to take its own sample of any allegedly defective or off specification Products.

8. Indemnification . Neither Seller nor Branded Marketer shall be liable to Purchaser or to any other person for any damage to or loss of property, or for injury to or death of persons, or for the violation by Purchaser or any other person, of any governmental statute, law, regulation, rule, or ordinance, arising from the operation or activities of Purchaser or any other person pursuant to this Agreement. Purchaser shall indemnify, protect, defend, and save Seller, the Partnership and Branded Marketer harmless from and against any and all losses, claims, liabilities, environmental cleanup costs, fines, penalties, suits and actions, judgments and costs, including attorneys’ fees and the costs of litigation, which shall arise from or grow out of any injury to or death of persons, or damage to or loss of property, or violation by Purchaser or any other person, of any governmental statute, law, regulation, rule, or ordinance, directly or indirectly resulting from, or in any way connected with (i) Purchaser’s performance of this Agreement, (ii) operation of Purchaser, or activities of any other person, at the WNR Sites, or (iii) the condition of the WNR Sites or of the adjoining streets, sidewalks or ways, irrespective of whether such injury, death, damage or loss is sustained by Purchaser or any other person, firm or corporation which may seek to hold Seller liable. The existence or non-existence of any

 

Exhibit B

Page 3 of 4


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

insurance that may be required under this Agreement will not limit Purchaser’s indemnity or other obligations under this Agreement. This indemnity shall survive the termination or nonrenewal of this Agreement.

9. Waiver of Consequential Damages . NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE AGREEMENT, AND NOTWITHSTANDING KNOWLEDGE, IF ANY, OF A PARTY OF THE POSSIBILITY OF SUCH DAMAGES, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY, FOR ANY LOST PROFITS, OR SPECIAL, CONSEQUENTIAL, PUNITIVE, EXEMPLARY, INCIDENTAL OR INDIRECT DAMAGES OR LOSSES, INCLUDING BUT NOT LIMITED TO LOST PROFITS, FROM SALE OF PRODUCT UNDER THE AGREEMENT OR FROM THE USE OR RESALE THEREOF, HOWEVER SAME MAY BE CAUSED AND REGARDLESS OF THE SOLE OR CONCURRENT NEGLIGENCE OF THE OTHER PARTY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF, OR OTHERWISE COULD HAVE ANTICIPATED THE POSSIBILITY OF, SUCH DAMAGES OR LIABILITIES IN ADVANCE. THE PARTIES AGREE THAT THE RESTRICTIONS AND LIMITATIONS ON DAMAGES CONTAINED IN THIS AGREEMENT DO NOT DEPRIVE THE PARTIES OF MINIMUM ADEQUATE REMEDIES AS CONTEMPLATED IN TEXAS UCC SECTION 2-719. The foregoing limitation is not intended and shall not limit any damages incurred by any third party and covered under any indemnity hereunder.

10. Survival of Obligations . Obligations arising under paragraphs 2, 4, 6, 8 and 9 shall survive termination of the Agreement.

 

Exhibit B

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

EXHIBIT C

INCREASED COMMITMENT FEE CALCULATION

***

 

Exhibit C

Page 1 of 1


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

EXHIBIT D

TRACKING ACCOUNT ILLUSTRATION

 

     Month
1
    Month
2
     Month
3
    Month
4
     Month
5
     Month
6
     Month
7
     Month
8
     Month
9
     Month
10
     Month
11
     Month
12
     Month
13
 

Volume (shortfall) / Surplus (millions $)

   ($ 10   $ 0       ($ 3   $ 1       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 4       $ 4   

Payment to Seller from Purchaser

   $ 10      $ 0       $ 3      $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0   

Credit to Purchaser from Seller

   $ 0      $ 0       $ 0      $ 1       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 4       $ 3   

Aging drop off at month end

   $ 0      $ 0       $ 0      $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 5       $ 0   

“Tracking Account” at month end

   $ 10      $ 10       $ 13      $ 12       $ 12       $ 12       $ 12       $ 12       $ 12       $ 12       $ 12       $ 3       $ 0   

In Month 12, $4 goes against the Month 1 shortfall which when combined with the $1 from Month 4 makes a total of $5 that should be applied to the Month 1 shortfall payment - thus the remaining $5 of the Month 1 shortfall payment drops off. As a result, $3 would remain in the Tracking Account from Month 3.

In Month 13, $3 is still left in the Tracking Account available for “repayment” back to Purchaser.

 

Exhibit D

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Exhibit 10.3

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

CRUDE OIL TRUCKING TRANSPORTATION SERVICES AGREEMENT

This Crude Oil Trucking Transportation Services Agreement (this “ Agreement ”) is dated as of October 15, 2014 (the “ Effective Date ”), by and between (i) Western Refining Wholesale, LLC, a Delaware limited liability company (“ Carrier ”), and (ii) Western Refining Company, L.P., a Delaware limited partnership (“ WRC ”), and Western Refining Southwest, Inc., an Arizona corporation (“ WRSW ”). WRC and WRSW are individually and collectively referred to as “ Shipper ”) and shall be jointly and severally liable for all obligations of Shipper contained herein and, except as otherwise expressly contemplated by this Agreement, shall be treated for all purposes contained in this Agreement as a single Party. Carrier and Shipper are individually referred to as a “ Party ”, collectively to as “ Parties ”. Capitalized terms used throughout this Agreement shall have the meanings set forth in Exhibit A , unless otherwise specifically defined herein.

RECITALS

 

A. WRSW is the owner and operator of a refinery located near Gallup in the Four Corners region of northwest New Mexico (the “ Gallup Refinery ”).

 

B. WRC is the owner and operator of a refinery located in El Paso, Texas (the “ El Paso Refinery ” and, together with the Gallup Refinery, collectively, the “ Western Refineries ”).

 

C. Carrier owns and operates a truck-based crude oil gathering operation that can provide service to each of the Western Refineries and their interconnected pipelines (the “Western Logistics System”), using a combination of self-owned and third party trucks dispatched and scheduled by Carrier.

 

D. Shipper desires that Carrier (i) cause to be gathered certain crude oil from wellheads, fields, control tank batteries or related collection points in Colorado, New Mexico, Utah and Texas (the “ Service Areas ”), (ii) coordinate the pickup and delivery of such crude oil to the Western Logistics System or other delivery points (the “ Delivery Points ”), and (iii) provide Shipper with certain ancillary services with respect to such gathering and delivery, subject to and upon the terms and conditions of this Agreement.

 

E. Carrier will gather, coordinate the pickup of and deliver such crude oil, as well as provide the aforementioned ancillary services, subject to the terms and conditions of this Agreement.

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

NOW, THEREFORE, in consideration of the covenants and obligations contained herein, the Parties to this Agreement hereby agree as follows:

 

1. VOLUME COMMITMENT OF SHIPPER

(a) From the Effective Date through the end of the Term (as defined below), Shipper shall request that Carrier gather from the Service Areas and transport to the Delivery Points at least 1,525,000 Barrels of crude oil per Month (each Month, a “ Minimum Volume Commitment ”).

(b) Shipper may request that Carrier gather from the Service Areas volumes of crude oil in excess of the Minimum Volume Commitment (“ Excess Volumes ”) and transport and deliver such Excess Volumes to certain Delivery Points. Carrier shall use commercially reasonable efforts to gather, transport and deliver such Excess Volumes, subject to available capacity. Shipper shall not request that other Persons gather any Excess Volumes and transport and deliver such Excess Volumes unless (i) Shipper has previously requested Carrier to gather, transport, and deliver such Excess Volumes and (ii) Carrier declines to gather, transport, and deliver such Excess Volumes. Fees payable for any Excess Volumes shall be the same rates set forth in Section 4 .

 

2. SHORTFALL PAYMENTS

(a) In any Month where Shipper does not request Carrier to gather from the Service Areas and transport and deliver to the Delivery Points at least the Minimum Volume Commitment of crude oil (each such Month being a “ Shortfall Month ”), Shipper shall pay to Carrier an amount equal to the product of the (i) Committed Volume Shortfall for such Shortfall Month and (ii) *** (each a “ Shortfall Payment ”). Such amount shall be due from Shipper to Carrier within fifteen (15) days after the last day of such Shortfall Month.

(b) Any Shortfall Payments paid by Shipper under this Agreement shall be added to a virtual tracking account (the “ Tracking Account ”) and will remain “available” for repayment (i.e., included in the balance of the Tracking Account) in the form of an Applicable Credit Amount (as defined below) for a period of twelve (12) Months from the end of the Shortfall Month for which such payments relate. The amount of any Shortfall Payments included in the Tracking Account will be reduced by the sum of (i) the amount of any Applicable Credit Amounts where such Applicable Credit Amounts are applied to reduce the balance of the oldest Shortfall Payment made within the previous twelve (12) Months and (ii) the amount of any Shortfall Payments that are no longer “available” for repayment because they were not “repaid” within twelve (12) Months from the end of the Shortfall Month for which they were made. An illustration of the Tracking Account calculation is set forth on Exhibit B . The funds in the Tracking Account will be available to be “repaid” by Carrier in the form of an Applicable Credit Amount in any subsequent Overage Month (as defined below).

(c) In any Month where Carrier gathers from the Service Areas and transports and delivers to the Delivery Points volumes of crude oil in excess of the Minimum Volume Commitment (each such Month being an “ Overage Month ”), Carrier will apply, as a credit for purchases in such Month, the Applicable Credit Amount, if any, for such Month; provided that, such credit will only be due if and to the extent that the Tracking Account has a positive balance.

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(d) For purposes of the foregoing:

(i) “ Committed Volume Shortfall ” means, for any Shortfall Month, an amount equal to the difference between (A) the Minimum Volume Commitment and (B) the actual number of Barrels of crude oil transported by Carrier for Shipper during such Shortfall Month. The Committed Volume Shortfall cannot be less than zero.

(ii) “ Committed Volume Overage ” means, for any Overage Month, an amount equal to the difference between (A) the actual number of Barrels of crude oil transported by Carrier for Shipper during such Overage Month and (B) the Minimum Volume Commitment. The Committed Volume Overage cannot be less than zero.

(iii) “ Applicable Credit Amount ” means, for any Overage Month, an amount equal to the product of (A) *** and (B) the Committed Volume Overage for such Overage Month.

 

3. TERM OF AGREEMENT

(a) Unless otherwise terminated as provided herein, this Agreement shall be effective as of the Effective Date and will remain in effect until the ten (10) year anniversary of the Effective Date (the “ Initial Term ”).

(b) The Initial Term and any mutually agreed upon extensions thereof shall be referred to herein as the “ Term ”.

 

4. FEES; ADJUSTMENTS; AND REIMBURSEMENT FOR CAPITAL EXPENDITURES

(a) Base Rate : Shipper shall pay Carrier in accordance with the rates per Barrel for delivery to each Delivery Point as set forth on Schedule 4 (the “ Base Rates ”) for providing trucking, dispatch, delivery and accounting/data services under this Agreement. Carrier shall be the Party responsible for determining when it will use LVC trucks to provide its services under this Agreement. Carrier shall endeavor to use LVC trucks to the extent (i) the use of such trucks is (A) feasible for delivery to a given Delivery Point, (B) permitted by Applicable Law, (C) consistent with Prudent Industry Practices and (ii) such trucks are actually available in Carrier’s existing fleet.

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(b) Fuel Adjustments and Surcharges : In addition to the Base Rates, Carrier shall charge, and Shipper shall pay the following additional amounts (the Base Rates, together with the fuel adjustments and surcharges set forth in this Section 4(b) , are referred to as the “ Trucking Rate ”):

(i) a Monthly per Barrel adjustment calculated in the manner described in Schedule 4(b)(i) to cover any increase (or decrease) in fuel prices (as determined by reference to the U.S. Energy Information Administration’s On-Highway Diesel Prices for the PAD III Region) incurred or experienced by Carrier during such Month in connection with providing truck gathering services under this Agreement; provided, however, that such adjustment shall never be of an amount less than zero;

(ii) a Monthly surcharge on the services provided hereunder to cover Shipper’s proportionate share of the costs of complying with any new laws or regulations or material changes to any existing laws or regulations, in each case occurring after the Effective Date, that affect the services provided to Shipper, if, after Carrier has made commercially reasonable efforts to mitigate the effect of such laws or regulations (or such changes to existing laws or regulations), such new laws or regulations (or such changes to existing laws or regulations) require Carrier to make unanticipated capital expenditures. Carrier will reasonably determine the amount of any such Monthly surcharge and shall provide Shipper with written notice of the amount of such Monthly surcharge along with supporting calculations and documentation.

(c) Reimbursements : Shipper shall reimburse Carrier for the actual costs of any capital expenditures Carrier agrees to make at Shipper’s request to provide services hereunder.

(d) Fees for Other Services : In addition to the transportation services contemplated by this Agreement, Carrier may, from time to time, upon request from Shipper, provide the additional services described on Schedule 4(d) to Shipper, and Shipper shall pay Carrier for such services in accordance with the rates set forth on Schedule 4(d) .

(e) Taxes . Shipper agrees to be liable for and to pay directly or reimburse Carrier for, promptly when due, all sales, use, excise and other taxes or charges (including any interest and penalties), now or hereafter imposed by any governmental body or agency upon Carrier or with respect to the services or payments hereunder (excluding (a) taxes on or measured by the net income of Carrier, (b) taxes related to Carrier’s employees or property and (c) ad valorem or any other tax based on the value of Carrier’s transport vehicles or other equipment used to provide the services, each of which Carrier shall be liable for and pay).

 

5. PAYMENTS

(a) Carrier shall invoice Shipper on a Monthly basis, and Shipper shall pay all amounts due (including any Shortfall Payments and payments for Excess Volumes) no later than fifteen (15) calendar days after Shipper’s receipt of Carrier’s invoices.

(b) Any past due amounts owed by Shipper to Carrier shall accrue interest, payable on demand, at a rate equal to the lesser of: (i) the Wall Street Journal prime rate plus two hundred basis points or (ii) the maximum rate permitted by applicable law, from the due date of the payment through the actual date of payment.

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

6. SERVICES PROVIDED BY CARRIER; VOLUME LOSSES

(a) Requests for the gathering of crude oil under this Agreement and/or the provision of the other services described on Schedule 4(d) shall be made by Shipper or its crude oil suppliers on a “call and demand” basis. Carrier shall use commercially reasonable efforts to schedule and dispatch all pick-ups of crude oil requested by Shipper or its crude oil suppliers on such “call and demand” basis.

(b) Carrier shall load only that crude oil which it is authorized to load pursuant to directions received from Shipper. The quality and quantity of the crude oil received by Carrier shall be determined by sampling, verification and measurement conducted by Carrier or its designee. Carrier shall not mix different grades of crude oil, unless authorized by Shipper, or adulterate the crude oil with motor fuel or with any chemical or other material whatsoever. The crude oil hauled on a transport truck prior to loading a new delivery must be compatible with the crude oil that is being loaded so as to not cause contamination of loaded or stored crude oil. Shipper, as part of its quality control, may test the quality of crude oil delivered by Carrier. Carrier agrees to abide by the quality control procedures mutually agreed by the Parties from time to time. Shipper shall at all times retain title to the crude oil gathered, transported and delivered by Carrier hereunder.

(c) Shipper shall remain responsible for all risk of loss, damage, deterioration, or contamination as to such crude oil, except for that caused by the negligence, gross negligence, willful misconduct or breach of this Agreement of Carrier, its agents, employees or contractors.

(d) Immediately upon receipt of crude oil from any designated pick-up location, Carrier shall expeditiously transport the crude oil to the Delivery Points. Upon arrival at the Delivery Points, Carrier shall unload the crude oil in compliance with this Agreement unless otherwise specified in writing.

(e) Carrier shall maintain a true and correct set of records related to the services hereunder, including invoices, bills of lading, receipt tickets, transportation records, and delivery tickets, showing the date, volumes, receipt location and delivery location for all crude oil transported by Carrier in detail sufficient to provide reasonable verification of any charges to Shipper hereunder. Carrier will provide Shipper with a secure electronic data feed, which shall accurately report all the above information and other information mutually agreed upon by the Parties on a current, daily basis. Carrier shall maintain such records for a period not less than two (2) years. Shipper, or its representatives, may from time to time, at Shipper’s expense, audit any such records and Carrier agrees to permit Shipper, or its representative, access to examine and audit such records at all reasonable times and upon receipt of reasonable advance notice. Carrier shall promptly refund to Shipper any amounts paid by Shipper in excess of amounts properly payable under the terms of the Agreement.

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(f) Carrier shall have no obligation to measure volume gains and losses and shall have no liability whatsoever for normal course physical losses that may result from the handling and transporting of crude oil through trucks that Carrier dispatches, REGARDLESS OF WHETHER ANY OF THE ABOVE ARE ATTRIBUTABLE TO OR ARISE FROM THE JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR RESPONSIBILITY OF CARRIER, except where such losses are the direct result of the willful misconduct or gross negligence of Carrier.

 

7. SAFETY/PREVENTION

(a) Carrier agrees that transportation services provided hereunder shall be conducted in accordance with all Applicable Laws and Prudent Industry Practices.

(b) Carrier shall only employ for the provision of services contemplated under this Agreement such employees that have been properly instructed, trained and certified as to the characteristics and safe loading, handling, hauling, delivery, and unloading methods associated with crude oil in accordance with Applicable Law and Prudent Industry Practices. Carrier shall ensure, in accordance with Prudent Industry Practices, that its employees comply with all safety rules to avoid, injury to workers and others, and damage to equipment and property.

 

8. ACCIDENT REPORTING; HAZARDOUS CONDITIONS; SPILL RESPONSE PLAN

(a) Carrier hereby acknowledges and agrees that Shipper has retained Carrier to transport petroleum products, and understands that such products may constitute or contain Hazardous Materials, as defined in the Hazardous Materials Transportation Act, 49 U.S.C. §5101 et seq. , as amended, and the regulations of the U.S. Department of Transportation made thereunder. Carrier represents and warrants that it is fully qualified and authorized to transport Hazardous Materials in the United States. Carrier and Shipper certify that they are familiar with U.S. laws and regulations applicable to transportation of Hazardous Materials and that they will comply with all such laws and regulations.

(b) Carrier will observe and comply with all of Shipper’s reasonable standard loading and unloading procedures, including any truck loading sequence procedures. Upon Carrier request, Shipper will provide a copy of the Material Safety Data Sheet for the Hazardous Materials.

(c) Carrier shall use its commercially reasonable efforts to reduce and minimize accidents arising in connection with the services hereunder and shall promptly report to Shipper all accidents or occurrences resulting in injuries to any of Shipper’s employees or third parties, and/or any damage to any property of Shipper or any third party, arising out of or during the performance of services under this Agreement.

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(d) In the event there is a release of crude oil or damage to the environment by Carrier in performing the services provided hereunder, Carrier shall clean up such spill and remediate such damage in accordance with Applicable Law, and if a “clean and clear” letter from the applicable oversight agency is provided to Carrier, a copy of such clean and clear letter will be sent Shipper promptly after its receipt thereof. Carrier shall inform Shipper of any notices, warnings, or asserted violations issued by any Governmental Authorities relative to any service performed by Carrier pursuant to this Agreement.

(e) In the event Carrier becomes aware of any environmental, health or safety conditions that violate any Applicable Law or any other conditions concerning the Western Logistics System, any of Shipper’s premises or facilities that create a hazardous condition, Carrier shall promptly provide Shipper with telephonic notice at the numbers set forth herein, informing Shipper about the details of the condition.

(f) Upon request, Carrier shall provide a copy of the spill contingency plans to Shipper, and Carrier must meet minimum requirements for rapid response and short-term containment. If Shipper believes Carrier does not respond promptly to any type of hazard, Shipper may respond and any such response shall not be considered an act as a volunteer, and Carrier will be liable for the reasonable costs of the Shipper response.

 

9. INSURANCE

Carrier shall maintain insurance policies of the type and amount as Carrier has historically maintained. Pursuant to that certain Omnibus Agreement dated as of October 16, 2013, by and among Western Refining, Inc., a Delaware corporation (“ WRI ”), Western Refining Logistics, LP, a Delaware limited partnership, Western Refining Logistics GP, LLC, a Delaware limited liability company, WRSW, WRC, and Carrier (the “ Omnibus Agreement ”), it is currently anticipated that WRI or one of its affiliates will provide Carrier with all necessary insurance coverage and Carrier shall reimburse WRI for the insurance premiums as set forth therein. To the extent that WRI fails or otherwise is no longer obligated to provide such insurance coverage pursuant to the Omnibus Agreement, Carrier agrees to purchase replacement policies at its sole cost and expense. The insurance required hereunder in no way limits or restricts Carrier’s obligations under law or this Agreement as to indemnification of Shipper.

 

10. INDEMNITY

NEITHER PARTY SHALL BE LIABLE FOR ANY ACTIONS OR OMISSIONS TO ACT OF THE OTHER PARTY, OR OF ANY OF ITS EMPLOYEES, AGENTS OR REPRESENTATIVES. SUBJECT TO THE LIMITATIONS SET FORTH IN THIS AGREEMENT, EACH PARTY (THE “ INDEMNIFYING PARTY ”) AGREES THAT (EXCEPT AS PROVIDED FOR IN SECTION 6 ) IT SHALL, TO THE EXTENT PERMITTED BY LAW, DEFEND, INDEMNIFY, AND HOLD HARMLESS THE OTHER PARTY, ITS MEMBERS, DIRECTORS, OFFICERS, MANAGERS, AGENTS AND EMPLOYEES, FROM

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

AND AGAINST ANY AND ALL CLAIMS, DEMANDS, DAMAGES, LOSSES, LIABILITIES, CAUSES OF ACTION, JUDGMENTS, ASSESSMENTS, PENALTIES, COSTS, AND EXPENSES OF ANY KIND OR NATURE, INCLUDING REASONABLE ATTORNEYS FEES, EXPENSES OF LITIGATION AND COURT COSTS, WITHOUT REGARD TO THE AMOUNT (COLLECTIVELY “ LOSSES ”) TO THE EXTENT SUCH LOSSES ARE, DIRECTLY OR INDIRECTLY CAUSED BY, CONNECTED WITH, OR ARISE OUT OF THE INDEMNIFYING PARTY’S FAILURE TO COMPLY, OR ANY PRODUCTS SHIPPED BY THE INDEMNIFYING PARTY’S FAILURE TO COMPLY WITH ALL APPLICABLE FEDERAL, STATE AND LOCAL LAWS, ORDINANCES, ORDERS, RULES AND REGULATIONS OR FROM ANY INTENTIONAL OR UNINTENTIONAL ACTION OR OMISSION TO ACT OF THE INDEMNIFYING PARTY, OR ITS MEMBERS, DIRECTORS, OFFICERS, MANGERS, AGENTS AND EMPLOYEES. IN THE EVENT THAT ANY SUCH INCIDENT THAT LEADS TO ANY CLAIM FOR INDEMNIFICATION IS THE RESULT OF INTENTIONAL OR UNINTENTIONAL CONDUCT OF BOTH PARTIES, EACH PARTY AGREES THAT IT SHALL BE LIABLE TO REIMBURSE AND INDEMNIFY THE OTHER PARTY TO THE EXTENT THAT LIABILITY AND RESPONSIBILITY WOULD BE APPORTIONED TO SUCH PARTY IN ACCORDANCE WITH THE LAWS OF COMPARATIVE NEGLIGENCE. TO RECEIVE THE FOREGOING INDEMNITY, THE PARTY SEEKING INDEMNIFICATION MUST NOTIFY THE INDEMNIFYING PARTY IN WRITING OF A CLAIM PROMPTLY AND PROVIDE ALL COOPERATION REASONABLY REQUESTED BY THE INDEMNIFYING PARTY (AT THE EXPENSE OF THE INDEMNIFYING PARTY). For the avoidance of doubt, WRC and WRSW shall be treated as a single Party for purposes of this Section 10 .

 

11. WAIVER OF CONSEQUENTIAL DAMAGES

NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE AGREEMENT, AND NOTWITHSTANDING KNOWLEDGE, IF ANY, OF A PARTY OF THE POSSIBILITY OF SUCH DAMAGES, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY, FOR ANY LOST PROFITS, OR SPECIAL, CONSEQUENTIAL, PUNITIVE, EXEMPLARY, INCIDENTAL OR INDIRECT DAMAGES OR LOSSES, INCLUDING BUT NOT LIMITED TO LOST PROFITS, FROM SALE OF PRODUCT UNDER THE AGREEMENT OR FROM THE USE OR RESALE THEREOF, HOWEVER SAME MAY BE CAUSED AND REGARDLESS OF THE SOLE OR CONCURRENT NEGLIGENCE OF THE OTHER PARTY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF, OR OTHERWISE COULD HAVE ANTICIPATED THE POSSIBILITY OF, SUCH DAMAGES OR LIABILITIES IN ADVANCE. THE PARTIES AGREE THAT THE RESTRICTIONS AND LIMITATIONS ON DAMAGES CONTAINED IN THIS AGREEMENT DO NOT DEPRIVE THE PARTIES OF MINIMUM ADEQUATE REMEDIES AS CONTEMPLATED IN TEXAS UCC SECTION 2-719. The foregoing limitation is not intended and shall not limit any damages incurred by any third party and covered under any indemnity hereunder.

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

12. TERMINATION; RIGHT TO ENTER NEW AGREEMENT

(a) Termination for Default. A Party shall be in default under this Agreement if:

(i) such Party materially breaches any provision of this Agreement and such breach is not cured within thirty (30) days after notice thereof (which notice shall describe such breach in reasonable detail) is received by such Party from any other non-breaching Party; or

(ii) such Party (A)(1) files a petition or otherwise commences, authorizes or acquiesces in the commencement of a proceeding or cause of action under any bankruptcy, insolvency, reorganization or similar Applicable Law, or has any such petition filed or commenced against it, (2) makes an assignment or any general arrangement for the benefit of creditors, (3) otherwise becomes bankrupt or insolvent (however evidenced) or (4) has a liquidator, administrator, receiver, trustee, conservator or similar official appointed with respect to it or any substantial portion of its property or assets, and, with respect to any involuntary filings, and (B) such Party fails to remedy the same within sixty (60) days of the date of such filing.

(b) If any of the Parties is in default as described above, then any other Party may (1) notwithstanding the terms of Section 3 , terminate this Agreement upon notice to the defaulting Party; (2) withhold any payments due to the defaulting Party under this Agreement; and/or (3) pursue any other remedy at law or in equity.

(c) If this Agreement is terminated by or as to either WRSW or WRC, but not both, then this Agreement shall remain in full force and effect with respect to the remaining Parties unless and until terminated thereby in accordance with this Section 12 .

 

13. FORCE MAJEURE

(a) As soon as possible upon the occurrence of a Force Majeure (as defined below), the Party affected by such Force Majeure shall provide the other Party with written notice of the occurrence of such Force Majeure (a “ Force Majeure Occurrence Notice ”). The Party affected by such Force Majeure shall identify in such Force Majeure Occurrence Notice the approximate length of time that such Party reasonably believes in good faith such Force Majeure shall continue.

(b) The obligations under this Agreement of the Party affected by such Force Majeure shall be temporarily suspended during the occurrence of, and for the entire duration of, a Force Majeure. The Party affected by such Force Majeure shall use commercially reasonable efforts to overcome such Force Majeure but shall not be obligated under this Agreement to settle a strike or labor dispute.

(c) As soon as possible upon the cessation of a Force Majeure, the Party affected by such Force Majeure shall provide the other Party with written notice of the cessation of such

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

Force Majeure (a “ Force Majeure Cessation Notice ”). The Party affected by such Force Majeure shall identify in such Force Majeure Cessation Notice the date on which such Force Majeure ceased to exist.

(d) Nothing in this Section 13 shall excuse any Party from complying with its obligations under this Agreement arising prior to the occurrence of such Force Majeure, including any obligation to make payments when due under this Agreement.

(e) Notwithstanding anything contained herein to the contrary, if (i) the Party affected by an event of Force Majeure (the “ Affected Party ”) is unable to resume the performance of its obligations under this Agreement within two (2) years after the event of Force Majeure despite using its commercially reasonable efforts to overcome such event in accordance with this Section 13 , then the Affected Party may, upon written notice to the other Party, terminate this Agreement or (ii) the Affected Party is unable to resume performance of its obligations under this Agreement within six (6) Months after the event of Force Majeure, then the other Party may, upon written notice to the Affected Party, terminate this Agreement; provided that, in either case any payment obligations accruing up to and through the date of such termination shall remain outstanding and shall continue to be due and payable following the termination of this Agreement.

(f) “ Force Majeure ” means circumstances not reasonably within the control of a Party and which, by the exercise of reasonable efforts, such Party is unable to prevent or overcome that prevent performance of such Party’s obligations under this Agreement, including: acts of God, strikes, lockouts or other industrial disturbances, wars, riots, fires, floods, storms, orders of courts or Governmental Authorities, governmental request or requisition for national defense, explosions, terrorist acts, breakage, accident to machinery, storage tanks or lines of pipe and inability to obtain or unavoidable delays in obtaining material or equipment, delays of other carriers, local or national disruptions to transportation networks or operations, fuel shortages and similar events.

 

14. COMPLIANCE WITH LAWS

(a) Prior to transporting any crude oil covered hereunder, Carrier shall make or cause to be made, the following certifications on the delivery receipt or bill of lading covering the crude oil received if required by 49 CFR 172.204, or such other certification(s) as may be required by applicable law:

“This is to certify that the above-named materials are properly classified, described, packaged, marked and labeled, and are in proper condition for transportation according to the applicable regulations of the Department of Transportation.”

(b) Carrier hereby certifies that all transport vehicles to be used by Carrier in provided the services hereunder shall be (i) clean and free of contaminants, (ii) in material compliance with all Applicable Laws and (iii) proper and appropriate in accordance with Prudent Industry Practices for the transport of crude oil.

 

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SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(c) Shipper certifies that none of the crude oil covered by this Agreement will be produced or withdrawn from storage in violation of any Applicable Law.

(d) The Parties are entering into this Agreement in reliance upon and shall fully comply with all Applicable Law which directly or indirectly affect the crude oil gathered hereunder, or any receipt, throughput, delivery, transportation, handling or storage of crude oil hereunder or the ownership, operation or condition of the gathering operation, trucks and truck unloading facilities. Each Party shall be responsible for compliance with all Applicable Laws associated with such Party’s respective performance hereunder and the operation of such Party’s facilities, and, including without limitation any and all certifications required by the Department of Transportation. In the event any action or obligation imposed upon a Party under this Agreement shall at any time be in conflict with any requirement of Applicable Law, then this Agreement shall immediately be modified to conform the action or obligation so adversely affected to the requirements Applicable Law, and all other provisions of the Agreement shall remain effective.

(e) New or Changed Applicable Law . If during the Term, any new Applicable Law becomes effective or any existing Applicable Law is materially changed, which change is not addressed by another provision of this Agreement and has an adverse economic impact upon a Party, then either Party, acting in good faith, shall have the option to request renegotiation of the relevant provisions of this Agreement with respect to future performance. The Parties shall then meet and negotiate in good faith amendments to this Agreement that will conform this Agreement to the new Applicable Law (or material change to an existing Applicable Law) while preserving the Parties’ economic, operational, commercial and competitive arrangements in accordance with the understandings set forth herein.

(f) Carrier shall secure and maintain current all required permits, licenses, certificates, and approvals for the services.

 

15. OTHER PROVISIONS

(a) Independent Contractor . It is expressly agreed that Carrier is acting hereunder solely as an independent contractor and that all persons performing services hereunder for Carrier shall be deemed agents, servants or employees of Carrier and that none of such persons shall be deemed agents, servants or employees of Shipper. As between the Parties, Carrier shall have the sole and exclusive responsibility for the costs and over the manner in which its employees and/or independent contractors perform the services provided hereunder, including the equipment provided.

(b) Subcontractors . Other than those subcontractors set forth in Schedule 16(b) , Carrier agrees not to subcontract, broker, interline, or to use “substituted services” by rail or motor carrier without the approval of Shipper, which shall not be unreasonably withheld, conditioned or delayed.

 

11


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(c) Assignment .

(i) WRSW shall not assign any of its rights or obligations under this Agreement without the prior written consent of Carrier and WRC, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however; that WRSW may assign this Agreement without such consent to an affiliate or in connection with a sale by WRSW of the Gallup Refinery so long as the transferee: (A) agrees to assume all of WRSW’s obligations under this Agreement and (B) is financially and operationally capable of fulfilling the terms of this Agreement, which determination shall be made by Carrier in its reasonable judgment.

(ii) WRC shall not assign any of its rights or obligations under this Agreement without the prior written consent of Carrier and WRSW, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however; that WRC may assign this Agreement without such consent to an affiliate or in connection with a sale by WRC of the El Paso Refinery so long as the transferee: (A) agrees to assume all of WRC’s obligations under this Agreement and (B) is financially and operationally capable of fulfilling the terms of this Agreement, which determination shall be made by Carrier in its reasonable judgment.

(iii) Carrier shall not assign any of its rights or obligations under this Agreement without Shipper’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however; that (A) Carrier may assign this Agreement without Shipper’s consent to an affiliate or in connection with a sale by Carrier of Carrier’s truck gathering operation so long as the transferee: (x) agrees to assume all of Carrier’s obligations under this Agreement and (y) is financially and operationally capable of fulfilling the terms of this Agreement, which determination shall be made by Shipper’s in its reasonable judgment; and (B) Carrier shall be permitted to make a collateral assignment of this Agreement to obtain financing.

(iv) Any assignment that is not undertaken in accordance with the provisions set forth above shall be null and void ab initio . A Party making any assignment shall promptly notify the other Party of such assignment, regardless of whether consent is required.

(v) This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

 

12


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(d) Notices .

(i) Notices, correspondence, invoices, as applicable, and all other communications related to this Agreement shall be addressed as follows:

 

to Shipper at:

WRSW:

1250 W. Washington Street, Suite 101

Tempe, Arizona 85281

Attn: General Counsel

With a copy to:

1250 W. Washington Street, Suite 101

Tempe, Arizona 85281

Attn: President of Refining & Marketing

WRC:

1250 W. Washington Street, Suite 101

Tempe, Arizona 85281

Attn: General Counsel

With a copy to:

1250 W. Washington Street, Suite 101

Tempe, Arizona 85281

Attn: President of Refining & Marketing

and to Carrier at:

1250 W. Washington Street, Suite 101

Tempe, Arizona 85281

Attn: President of Wholesale

(ii) All notices, requests, demands, and other communications hereunder will be in writing and will be deemed to have been duly given: (A) if by transmission by facsimile or hand delivery, when delivered; (B) by e-mail on the next Business Day after delivery, if receipt is confirmed, (C) if mailed via the US Postal Service, five (5) Business Days after mailing, provided said notice is sent first class, postage pre-paid, via certified or registered mail, with a return receipt requested; or (D) if mailed by an internationally recognized overnight express mail service such as Federal Express, UPS, or DHL Worldwide, one (1) Business Day after deposit therewith prepaid.

(iii) Each Party shall have the right, from time to time, to designate a different address by written notice given in conformity with this Section 15(d) .

(iv) For the avoidance of doubt, any notice, correspondence, invoice or other communication under this Agreement that is required to be provided by Shipper shall be provided to both WRSW and WRC hereunder but shall be deemed given upon delivery in accordance with this Section 15(d) to either WRSW or WRC.

 

13


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(e) Dispute Resolution; Governing Law; Jurisdiction .

(i) This Agreement shall be governed and construed in accordance with the substantive laws of the State of Texas without reference to principles of conflicts of law that would result in the application of the laws of another jurisdiction.

(ii) THE PARTIES VOLUNTARILY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA IN HARRIS COUNTY, TEXAS, OVER ANY DISPUTE BETWEEN OR AMONG THE PARTIES ARISING OUT OF THIS AGREEMENT, OTHER THAN A DISPUTE SUBJECT TO SECTION 15(e)(iv) , AND EACH PARTY IRREVOCABLY AGREES THAT ALL SUCH CLAIMS IN RESPECT OF SUCH DISPUTE SHALL BE HEARD AND DETERMINED IN SUCH COURTS. THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH DISPUTE ARISING OUT OF THIS AGREEMENT BROUGHT IN SUCH COURT OR ANY DEFENSE OF INCONVENIENT FORUM FOR THE MAINTENANCE OF SUCH DISPUTE. EACH PARTY AGREES THAT A JUDGMENT IN ANY SUCH DISPUTE MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.

(iii) EACH OF THE PARTIES HEREBY VOLUNTARILY AND IRREVOCABLY WAIVES TRIAL BY JURY IN ANY DISPUTE OR OTHER PROCEEDING RELATED THERETO BROUGHT IN CONNECTION WITH THIS AGREEMENT.

(iv) Any dispute, controversy or claim, of any and every kind or type, whether based on contract, tort, statute, regulations, or otherwise, between the Parties, arising out of, connected with, or relating in any way to this Agreement or the obligations of the Parties hereunder, including any dispute as to the existence, validity, construction, interpretation, negotiation, performance, non-performance, breach, termination or enforceability of this Agreement (in each case, a “ Dispute ”), shall be resolved solely and exclusively in accordance with the procedures specified in this Section 15(e) . The Parties shall attempt in good faith to resolve any Dispute by mutual discussions within thirty (30) days after the date that one Party gives written notice to the other Parties of such a Dispute in accordance with Section 15(d) . If the Dispute is not resolved within such thirty (30) day period, or such longer period that may subsequently be agreed to in writing by the parties to the Dispute, the Dispute shall be finally settled by arbitration administered by JAMS, Inc. (“ JAMS ”) under its Comprehensive Arbitration Rules & Procedures, and judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The arbitration shall be held in Houston, Texas, and presided over by three arbitrators. If the Dispute is not settled within the above operative

 

14


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

time period, the Party providing the aforesaid notice or the Parties receiving such notice may initiate the arbitration with JAMS. The Party who initiates the arbitration with JAMS shall also provide notice to JAMS and the opposing Party at the time of the initiation of the arbitration of the name of the Party selected arbitrator. The opposing Party shall file their answering statement with JAMS within forty-five (45) days of their receipt of the notice of filing from JAMS. The name of their party appointed arbitrator shall be included in such answering statement. The two Party-appointed arbitrators shall select a third arbitrator, who shall serve as the chairperson. The arbitration award shall identify whether there is a prevailing party in the arbitration and include an award in favor of such prevailing party and against each losing party, jointly and severally, for costs and expenses, including the actual litigation fees and costs (including reasonable attorney fees) the prevailing party incurred, excluding any contingent or deferred fees and costs. This agreement to arbitrate shall be binding upon the successors, assignees and any trustee or receiver of any Party.

(f) Confidential Information.

(i) Each Party agrees that it will keep any and all Confidential Information of the other Party strictly confidential and that it will take such steps to protect such Confidential Information as it normally takes to preserve and safeguard its own Confidential Information. Each Party agrees that, without the prior written consent of the other Party, it will not: (A) disclose Confidential Information of the other Party in any manner whatsoever, in whole or in part; (B) use any Confidential Information of the other Party other than in connection with the transaction(s) that is the subject of this Agreement; or (C) transmit the Confidential Information of the other Party to any of its officers, directors, employees, affiliates, agents or representatives who (x) are not aware of the confidential nature of such information, or (y) do not need to know the Confidential Information for the sole purpose of assisting with the transaction(s) (collectively, its “ Representatives ”). Each Party shall be responsible for the breach of this Section 15(f) by any of its Representatives.

(ii) For purposes of this Agreement, “ Confidential Information ” shall mean all information, documents, data or materials that is now or in the future provided, acquired or received directly or indirectly by a Party or its agents, employees or contractors either in writing, orally or by observation, relating to the business or operations of other Party or its affiliates, including but not limited to the pricing of product, design, planning, operation or maintenance of the other Party’s equipment, products and business; formulas or process parameters relating to the other Party’s products or proposed products; plans for expansion; information relating to research, development, invention, manufacturing, purchasing, accounting, engineering, marketing, merchandising and selling not generally known in the industry in which the other Party is engaged; any other data, samples, material and/or information specifically identified by the other Party as “Confidential”; and any and all other data, information, findings, documents or other materials arising from or relating to the other Party or the transaction(s) or any work or services performed by it for the other Party, regardless of whether such Confidential Information is generated solely by or as a result of any of its activities; except that Confidential Information

 

15


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

shall not include any information that (A) was, at the time of disclosure to the receiving Party, in the public domain; (B) after disclosure to the receiving Party, is published or otherwise becomes part of the public domain through no fault of the receiving Party; (C) was in the possession of the receiving Party at the time of disclosure to it and was not the subject of a pre-existing confidentiality obligation; (D) was received after disclosure to the receiving Party from a third party (other than the disclosing Party’s Affiliates or subcontractors) that was not bound by any duty of confidentiality; or (E) was independently developed by the receiving Party without the use of the Confidential Information of the disclosing Party.

(g) Use of Name . Neither Party may use the other’s name, trademarks, or trade names, or those of its subsidiaries or affiliates, in any manner, especially advertising, without the other’s express written consent, which may be withheld in such Party’s sole discretion.

(h) Gifts . No director, employee or agent of Carrier or of any subcontractor or vendor of Carrier shall give or receive any commission, fee, rebate, or gift or entertainment of significant cost or value in connection with this Agreement, or enter into any business arrangement with any director, employee or agent of Shipper or its parent or affiliated entities other than as a representative of Carrier, without Shipper’s prior written agreement. Carrier shall promptly notify Shipper of any violation of this Section 15(h) .

(i) Time of the Essence . Time is of the essence to this Agreement. Waiver by either Party of a breach by the other of any provision of this Agreement shall not be deemed a waiver of any other provision or future compliance with all provisions hereunder, and all such provisions shall remain in full force and effect. Failure of either Party to enforce any right hereunder shall not be deemed a waiver of any subsequent right hereunder.

(j) Construction . Unless the context requires otherwise: (i) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural, and vice-versa, (ii) the gender (or lack of gender) of all words used in this Agreement includes the masculine, feminine and neuter; (iii) references to Articles and Sections refer to Articles and Sections of this Agreement; (iv) references to Schedules or Exhibits refer to the Schedules and Exhibits attached to this Agreement, each of which is made a part hereof for all purposes; (v) the term “include”, “includes”, “including” or words of like report shall be deemed to be followed by the words “without limitation”; (vi) the terms “hereof”, “herein” or “hereunder” refer to this Agreement as a whole and not to any particular provision of this Agreement; (g) references to money refer to legal currency of the United States of America; and (vii) when calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. The table of contents and headings contained in this Agreement are for reference purposes only, and shall not affect in any way the meaning or interpretation of this Agreement.

 

16


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

(k) Severability . Any term or provision of this Agreement that is held to be invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction.

(l) Entire Agreement . This Agreement and the attached Exhibits and Schedules constitute the entire agreement between the Parties hereto and supersedes all prior agreements, representations, warranties, statements, promises, information, arrangements, and understandings, whether oral, written, expressed, or implied, with respect to the subject matter hereof.

(m) Amendment . No amendment or modification of the terms of this Agreement shall be binding unless in writing and signed by the Parties.

(n) Waiver . No waiver of any right, power, or privilege hereunder shall be binding upon any Party unless in writing and signed by or on behalf of the Party against which the waiver is asserted.

(o) Representation . The Parties agree that each Party and its counsel have had the opportunity to fully participate in the review of this Agreement and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of this Agreement, including all Appendices hereto.

(p) Counterparts . This Agreement may be executed in one or more counterparts, any or all of which shall constitute one and the same instrument. Either Party, at its option, may supply any document required by or referenced in this Agreement in either paper or electronic form (including, but not limited to, an electronically imaged, faxed, photocopied, or online posted version), and any such version shall be sufficient for all purposes under this Agreement.

[SIGNATURE PAGES FOLLOW]

 

17


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the date first written above.

 

WESTERN REFINING SOUTHWEST, INC.
By:  

/s/ Mark J. Smith

Name:   Mark J. Smith
Title:   President – Refining and Marketing
WESTERN REFINING COMPANY, L.P.
By:  

/s/ Mark J. Smith

Name:   Mark J. Smith
Title:   President – Refining and Marketing
WESTERN REFINING WHOLESALE, LLC
By:  

/s/ Matthew L. Yoder

Name:   Matthew L. Yoder
Title:   Senior Vice President - Operations

 

[Signature Page for Crude Oil Trucking Transportation Services Agreement]


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

SCHEDULE 4

BASE RATES

*** [five pages omitted]

 

Schedule 4

Page 1 of 1


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

SCHEDULE 4(b)(i)

MONTHLY PER BARREL ADJUSTMENT EXAMPLE

*** [six pages omitted]

 

Schedule 4(b)(i)

Page 1 of 1


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

SCHEDULE 4(d)

OTHER SERVICES

***

 

Schedule 4(d)

Page 1 of 1


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

SCHEDULE 16(b)

SUBCONTRACTORS

***

 

Schedule 16(b)

Page 1 of 1


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

EXHIBIT A

DEFINITIONS

Capitalized terms used throughout the Agreement and not otherwise specifically defined elsewhere shall have the meanings set forth in this Exhibit A .

Applicable Law ” means any applicable statute, law, regulation, ordinance, rule, determination, judgment, rule of law, order, decree, permit, approval, concession, grant, franchise, license, requirement, or any similar form of decision of, or any provision or condition of any permit, license or other operating authorization issued by any Governmental Authority having or asserting jurisdiction over the matter or matters in question, whether now or hereafter in effect.

Barrel ”, “ barrel ”, or “ BBL ” means a volume equal to 42 U.S. gallons at 60 degrees Fahrenheit under one atmosphere of pressure. “ bpd ” means Barrels per day.

$ ” means U.S. Dollars.

Business Day ” means a day, other than a Saturday or Sunday, on which banks in New York, New York are open for the general transaction of business.

CERCLA ” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, state and local analogs, and all rules and regulations and requirements thereunder in each case as now or hereafter in effect.

Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract, or otherwise.

Environment ” shall have the meaning set forth in 42 U.S.C. 9601(8) (1988).

Environmental Law ” means, as to any Party, all laws, statutes, ordinances, decrees, requirements, orders, judgments, rules, regulations (or official interpretations of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority or common law theories applicable to such Party arising from, relating to, or in connection with the Environment, health, or safety, including without limitation CERCLA, relating to (a) pollution, contamination, injury, destruction, loss, protection, cleanup, reclamation or restoration of the air, surface water, groundwater, land surface or subsurface strata, or other natural resources; (b) solid, gaseous or liquid waste generation, treatment, processing, recycling, reclamation, cleanup, storage, disposal or transportation; (c) exposure to pollutants, contaminants, hazardous, or toxic substances, materials or wastes; (d) the safety or health of employees; or (e) the manufacture, processing, handling, transportation, distribution in commerce, use, storage or disposal of hazardous or toxic substances, materials or wastes.

 

Exhibit A

Page 1 of 2


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

Governmental Authority ” means any federal, state, local or foreign government or any provincial, departmental or other political subdivision thereof, or any entity, body or authority exercising executive, legislative, judicial, regulatory, administrative or other governmental functions or any court, department, commission, board, bureau, agency, instrumentality or administrative body of any of the foregoing.

Hazardous Substance ” means the substances identified as such pursuant to CERCLA and those regulated under any other Environmental Law, including without limitation pollutants, contaminants, petroleum, petroleum products, radionuclides, radioactive materials, and medical and infectious waste.

Month ” means a calendar month.

Person ” means any individual, partnership, limited partnership, joint venture, corporation, limited liability company, limited liability partnership, trust, unincorporated organization or Governmental Authority or any department or agency thereof.

Prudent Industry Practices ” means those practices, methods, equipment, specifications and standards of safety and performance, as the same may change from time to time, as are commonly used by operators of truck-based crude oil gathering operations of a type and size similar to Carrier’s operation as good, safe, and prudent practices in connection with the gathering, transport, and delivery of crude oil. Prudent Industry Practices are not intended to be limited to the optimum practice or method to the exclusion of others, but rather to be a spectrum of possible but reasonable practices and methods.

U.S. ” means the United States of America.

 

Exhibit A

Page 2 of 2


SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT OF THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH THREE ASTERISKS (***).

 

EXHIBIT B

TRACKING ACCOUNT ILLUSTRATION

 

     Month
1
    Month
2
     Month
3
    Month
4
     Month
5
     Month
6
     Month
7
     Month
8
     Month
9
     Month
10
     Month
11
     Month
12
     Month
13
 

Volume (shortfall) / Surplus (millions $)

   ($ 10   $ 0       ($ 3   $ 1       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 4       $ 4   

Payment to Shipper from Carrier

   $ 10      $ 0       $ 3      $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0   

Credit to Shipper from Carrier

   $ 0      $ 0       $ 0      $ 1       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 4       $ 3   

Aging drop off at month end

   $ 0      $ 0       $ 0      $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 0       $ 5       $ 0   

“Tracking Account” at month end

   $ 10      $ 10       $ 13      $ 12       $ 12       $ 12       $ 12       $ 12       $ 12       $ 12       $ 12       $ 3       $ 0   

In Month 12, $4 goes against the Month 1 shortfall which when combined with the $1 from Month 4 makes a total of $5 that should be applied to the Month 1 shortfall payment - thus the remaining $5 of the Month 1 shortfall payment drops off. As a result, $3 would remain in the Tracking Account from Month 3.

In Month 13, $3 is still left in the Tracking Account and available for “repayment” back to Purchaser.

 

Exhibit B

Page 1 of 1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Unitholders of

Western Refining Logistics, LP

We consent to the incorporation by reference in Registration Statement (333-191676) on Form S-8 of Western Refining Logistics, LP of our report dated October 15, 2014, relating to the combined financial statements of Western Refining Wholesale Segment as of and for the years ended December 31, 2013 and 2012 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the combined financial statements which were derived from the consolidated financial statements and accounting records of Western Refining, Inc. and to the allocation of certain corporate expenses historically provided by Western Refining, Inc.), included in this Current Report on Form 8-K of Western Refining Logistics, LP filed on October 16, 2014.

/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona

October 16, 2014

Exhibit 99.1

 

Investor and Analyst Contact:     Media Contact:
Michelle Clemente     Gary Hanson
(602) 286-1533     (602) 286-1777
Jeffrey S. Beyersdorfer    
(602) 286-1530    

WESTERN REFINING LOGISTICS CLOSES THE PREVIOUSLY ANNOUNCED

ACQUISITION OF WESTERN REFINING’S SOUTHWEST WHOLESALE BUSINESS

EL PASO, Texas – October 15, 2014 –Western Refining, Inc. (NYSE:WNR) (“Western” or “WNR”) and Western Refining Logistics, LP (NYSE:WNRL) (the “Partnership” or “WNRL”) today announced that WNRL has closed the previously announced acquisition of WNR’s southwest wholesale business. The purchase price paid to WNR consisted of $320 million in cash and $40 million in WNRL common units.

WNR’s southwest wholesale business includes:

    fuel sales of approximately 79,000 barrels per day (bpd) to third party customers and to WNR’s retail and unmanned fleet fueling cardlock businesses
    rapidly growing crude oil trucking operations in the expanding Permian and San Juan basins
    a lubricant products distribution business

In connection with the closing, WNR and WNRL have entered into a 10-year product supply agreement, a 10-year fuel distribution and supply agreement, and a 10-year crude oil trucking transportation services agreement, which include certain minimum volume commitments by WNR. The southwest wholesale business is expected to contribute EBITDA of approximately $40 million in 2015.

The cash consideration for the transaction was funded by $51 million of cash-on-hand and $269 million in borrowings under the Partnership’s revolving credit facility. The number of Partnership common units issued, approximately 1.16 million, was based upon the volume-weighted average price per unit for the 10-day trading period ended September 25, 2014.

Non-GAAP Financial Measures

This press release includes the non-GAAP measure earnings before interest, taxes, depreciation and amortization (EBITDA). We believe certain investors and financial analysts use EBITDA to evaluate WNRL’s financial performance and compare WNRL’s performance to certain competitors. EBITDA is also included to help facilitate comparisons of the forecasted operating performance of the wholesale business to be acquired with other companies in our industry. The GAAP measure most directly comparable to EBITDA is net income. This non-GAAP measure should not be considered as an alternative to net income or any other measure of financial performance presented in accordance with GAAP. EBITDA excludes some, but not all, items that affect net income. Additionally, because EBITDA may be defined differently by other companies in our industry, our definition of EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.


The following table reconciles forecasted net income to forecasted EBITDA for the wholesale business for the twelve months ended December 31, 2015 (in millions):

 

     Ended Dec. 31, 2015  

Net income

   $ 36   

Add: Depreciation and Amortization

     4   
  

 

 

 

EBITDA

   $ 40   
  

 

 

 

About Western Refining Logistics, LP

Western Refining Logistics, LP is a principally fee-based, growth-oriented master limited partnership formed by Western Refining, Inc. (NYSE: WNR) to own, operate, develop, and acquire terminals, storage tanks, pipelines, and other logistics assets related to the terminalling, transportation, and storage of crude oil and refined products. Headquartered in El Paso, Texas, Western Refining Logistics’ assets include approximately 300 miles of pipelines, approximately eight million barrels of active storage capacity, distribution of wholesale petroleum products, and crude oil trucking.

More information about Western Refining Logistics is available at www.wnrl.com .

About Western Refining

Western Refining, Inc. is an independent refining and marketing company headquartered in El Paso, Texas. The refining segment operates refineries in El Paso, and Gallup, New Mexico. The retail segment includes retail service stations, convenience stores, and unmanned fleet fueling locations in Arizona, Colorado, New Mexico, and Texas.

Western Refining, Inc. also owns the general partner and approximately 66% of the limited partnership interest in Western Refining Logistics, LP (NYSE:WNRL) and the general partner and approximately 39% of the limited partnership interest in Northern Tier Energy LP (NYSE:NTI).

More information about Western Refining is available at www.wnr.com .

Cautionary Statement on Forward-Looking Statements

This press release contains forward-looking statements which are protected as forward-looking statements under the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained herein include statements about: future fuel sales; growth of crude oil trucking; continued expansion of the Permian and San Juan basins; and the expected EBITDA of the southwest wholesale business. These statements are subject to the general risks inherent in WNR’s and WNRL’s businesses and may or may not be realized. Some of our expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, each of WNR’s and WNRL’s business and operations involve numerous risks and uncertainties, many of which are beyond WNR’s and WNRL’s control, which could materially affect each of WNR’s and WNRL’s financial condition, results of operations and cash flows. Additional information relating to the uncertainties affecting each of WNR’s and WNRL’s business is contained in each of their respective filings with the Securities and Exchange Commission. The forward-looking statements are only as of the date made, and neither WNR nor WNRL undertakes any obligation to (and each expressly disclaims any obligation to) update any forward-looking statements to reflect events or circumstances after the date such statements were made, or to reflect the occurrence of unanticipated events.

Exhibit 99.2

THE WHOLESALE SEGMENT

COMBINED FINANCIAL STATEMENTS

AS OF JUNE 30, 2014 (UNAUDITED) AND DECEMBER 31, 2013 AND 2012

AND FOR THE SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED) AND 2013 (UNAUDITED)

AND THE YEARS ENDED DECEMBER 31, 2013 AND 2012


Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

Western Refining, Inc.

El Paso, Texas

We have audited the accompanying combined balance sheets of Western Refining Wholesale Segment (the “Wholesale Segment”) as of December 31, 2013 and 2012, and the related combined statements of operations, segment equity, and cash flows for each of the two years in the period ended December 31, 2013. These combined financial statements are the responsibility of the Wholesale Segment’s management. Our responsibility is to express an opinion on the combined financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Wholesale Segment is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Wholesale Segment’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such combined financial statements present fairly, in all material respects, the financial position of Western Refining Wholesale Segment at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

As described in Note 1, the accompanying combined financial statements have been derived from the consolidated financial statements and accounting records of Western Refining, Inc. The combined financial statements also include expense allocations for certain corporate functions historically provided by Western Refining, Inc. These allocations may not be reflective of the actual expense which would have been incurred had the Wholesale Segment operated as a separate entity apart from Western Refining, Inc.

/s/ Deloitte & Touche LLP

Phoenix, Arizona

October 15, 2014


THE WHOLESALE SEGMENT

COMBINED BALANCE SHEETS

(In thousands)

 

     June 30,      December 31,      December 31,  
     2014      2013      2012  
     (Unaudited)                
ASSETS         

Current assets:

        

Cash and cash equivalents

   $ 29,983       $ 6,886       $ 30   

Accounts receivable:

        

Third-party, net of a reserve for doubtful accounts of $412, $692 and $1,126, respectively

     141,567         134,172         123,491   

Affiliate

     7,574         29,016         32,777   

Inventories

     20,218         19,633         17,147   

Prepaid expenses

     11,227         5,941         5,557   

Other current assets

     10,436         7,009         5,714   
  

 

 

    

 

 

    

 

 

 

Total current assets

     221,005         202,657         184,716   

Property, plant and equipment, net

     46,789         46,714         37,679   

Intangible assets, net

     4,463         4,741         5,022   

Other assets, net

     1,384         1,696         839   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 273,641       $ 255,808       $ 228,256   
  

 

 

    

 

 

    

 

 

 
LIABILITIES AND EQUITY         

Current liabilities:

        

Accounts payable

   $ 46,263       $ 42,252       $ 40,172   

Accrued liabilities

     19,258         20,281         21,084   

Current portion of long-term debt

     206         217         206   
  

 

 

    

 

 

    

 

 

 

Total current liabilities

     65,727         62,750         61,462   
  

 

 

    

 

 

    

 

 

 

Long-term liabilities:

        

Long-term debt, less current portion

     —           96         313   

Other liabilities

     521         546         535   
  

 

 

    

 

 

    

 

 

 

Total long-term liabilities

     521         642         848   
  

 

 

    

 

 

    

 

 

 

Commitments and contingencies

        

Equity:

        

Segment equity, net

     207,393         192,416         165,946   
  

 

 

    

 

 

    

 

 

 

Total liabilities and equity

   $ 273,641       $ 255,808       $ 228,256   
  

 

 

    

 

 

    

 

 

 

The accompanying notes are an integral part of these combined financial statements

 

1


THE WHOLESALE SEGMENT

COMBINED STATEMENTS OF OPERATIONS

(In thousands)

 

     Six Months Ended     Year Ended  
     June 30,     December 31,  
     2014     2013     2013     2012  
     (Unaudited)              

Revenues:

        

Affiliate

   $ 443,925      $ 425,846      $ 853,447      $ 849,143   

Third-party

     2,036,115        1,950,202        3,926,042        4,011,148   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     2,480,040        2,376,048        4,779,489        4,860,291   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating costs and expenses:

        

Cost of products sold:

        

Affiliate

     443,925        425,846        853,447        849,143   

Third-party

     1,972,568        1,891,504        3,813,924        3,898,934   

Operating and maintenance expenses

     38,662        32,788        67,137        67,491   

Selling, general and administrative expenses

     7,548        7,690        14,676        13,875   

Loss (gain) on disposal of assets, net

     13        (61     (87     (518

Depreciation and amortization

     2,420        1,965        4,057        3,814   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

     2,465,136        2,359,732        4,753,154        4,832,739   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     14,904        16,316        26,335        27,552   

Other income (expense):

        

Interest expense

     (11     (13     (23     (40

Other, net

     84        80        158        330   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 14,977      $ 16,383      $ 26,470      $ 27,842   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these combined financial statements

 

2


THE WHOLESALE SEGMENT

COMBINED STATEMENTS OF CASH FLOWS

(In thousands)

 

     Six Months Ended     Year Ended  
     June 30,     December 31,  
     2014     2013     2013     2012  
     (Unaudited)              

Cash flows from operating activities:

        

Net income

   $ 14,977      $ 16,383      $ 26,470      $ 27,842   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

        

Depreciation and amortization

     2,420        1,965        4,057        3,814   

Reserve for doubtful accounts

     239        81        121        155   

Loss (gain) on disposal of assets, net

     13        (61     (87     (518

Changes in operating assets and liabilities:

        

Accounts receivable - third-party

     (7,634     (42,592     (10,802     2,064   

Accounts receivable - affiliate

     21,442        39,889        3,761        (143,582

Inventories

     (585     (3,130     (2,486     64,374   

Prepaid expenses

     (5,286     (9,340     (384     19,096   

Other assets

     (2,689     2,484        (2,322     187   

Accounts payable and accrued liabilities

     2,988        23,247        9,622        22,110   

Other long-term liabilities

     (41     (24     (22     (38
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     25,844        28,902        27,928        (4,496
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Capital expenditures

     (3,024     (3,835     (11,872     (4,255

Proceeds from the sale of assets

     384        19        36        66   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (2,640     (3,816     (11,836     (4,189
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Payments on long-term debt

     (107     (101     (206     (345

Increase (decrease) in bank overdraft

     —          (9,030     (9,030     9,030   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (107     (9,131     (9,236     8,685   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

     23,097        15,955        6,856        —     

Cash and cash equivalents at beginning of period

     6,886        30        30        30   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 29,983      $ 15,985      $ 6,886      $ 30   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-cash investing activities:

        

Accrued capital expenditures

   $ —        $ —        $ 685      $ —     

The accompanying notes are an integral part of these combined financial statements

 

3


THE WHOLESALE SEGMENT

COMBINED STATEMENTS OF SEGMENT EQUITY

(In thousands)

 

Balance at December 31, 2011

   $ 138,104   

Net income

     27,842   
  

 

 

 

Balance at December 31, 2012

     165,946   

Net income

     26,470   
  

 

 

 

Balance at December 31, 2013

     192,416   

Net income (unaudited)

     14,977   
  

 

 

 

Balance at June 30, 2014 (unaudited)

   $ 207,393   
  

 

 

 

The accompanying notes are an integral part of these combined financial statements

 

4


THE WHOLESALE SEGMENT

NOTES TO COMBINED FINANCIAL STATEMENTS

1.     Description of Business and Basis of Presentation

The Wholesale Segment, or “the Segment”, “we”, “our” or “us” includes several lines of business including lubricant distributions, bulk distribution of petroleum fuels in the U.S. southwest and northeast, unmanned fleet fueling operations and a fleet of crude oil and refined product truck transports. We distribute commercial wholesale petroleum products primarily in Arizona, California, Colorado, Maryland, Nevada, New Mexico, Texas and Virginia. We are a wholly-owned division of Western Refining, Inc. (“Western”). The Segment receives its product supply from Western’s refining business and third-party suppliers.

The accompanying combined financial statements and related notes present the combined financial position, results of operations, cash flows and equity of the entities included within the Segment. The combined financial statements of the Segment have been derived from Western’s consolidated financial statements and accounting records, as if the Segment operated on a stand-alone basis and prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). All intercompany transactions and account balances within the Segment have been eliminated. We have not reported comprehensive income due to the absence of items of other comprehensive income or loss during the periods presented. The combined statements of operations also includes expense allocations for certain functions historically performed by Western and not allocated to the Segment, including allocations of general corporate expenses related to executive oversight, accounting, treasury, tax, legal, information technology and procurement. These allocations were based on relative values of net property, plant and equipment, level of effort and Western employee head count. Our management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocation of expenses from Western are reasonable. The combined financial statements may not include all of the expenses that would have been incurred had we been a stand-alone company during the periods presented and may not reflect our combined results of operations, financial position or cash flows had we been a stand-alone company during the periods presented.

The unaudited combined financial statements as of June 30, 2014 and for the six months ended June 30, 2014 and 2013, included herein, have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, we have included all adjustments (consisting of normal recurring accruals) that are necessary for a fair presentation. Results of operations for the six month period ended June 30, 2014, are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2014 or for any other period.

With respect to the audited and unaudited financial statements, we evaluated subsequent events through October 15, 2014, the date the audited annual financial statements were issued. Any material subsequent events that occurred during this time have been properly recognized or disclosed in our financial statements.

2.     Summary of Accounting Policies

Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

 

5


THE WHOLESALE SEGMENT

NOTES TO COMBINED FINANCIAL STATEMENTS

 

Accounts Receivable

Affiliate receivables are generated by product sales to affiliates and other net amounts due to and from affiliates. We extend credit for non-affiliated customers based on an evaluation of our customer’s financial condition. Past due or delinquency status of our third-party accounts receivable are generally based on contractual arrangements with our customers. We charge uncollectible accounts receivable against the reserve for doubtful accounts when we have exhausted all reasonable efforts to collect the amounts due. Reserves for doubtful accounts related to trade receivables were $0.7 million and $1.1 million for the years ended December 31, 2013 and 2012, respectively. Additions, reductions and balances for the reserve for doubtful accounts are presented below:

 

     December 31,  
     2013     2012  
     (In thousands)  

Balance at January 1

   $ 1,126      $ 1,801   

Reductions

     (1,234     (1,592

Additions

     800        917   
  

 

 

   

 

 

 

Balance at December 31

   $ 692      $ 1,126   
  

 

 

   

 

 

 

Inventories

The Segment’s lubricant and refined product inventories are determined using the first-in, first-out (“FIFO”) inventory valuation method. All lubricant inventories are purchased from third parties. Refined product inventories are purchased from either Western’s refineries or from third-party purchases.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is provided on the straight-line method at rates based upon the estimated useful lives of the various classes of depreciable assets. The lives used in computing depreciation for such assets are as follows:

 

Buildings and improvements    5-30 years
Machinery and equipment    3-10 years
Transport and related equipment    3-7 years

Leasehold improvements are depreciated on the straight-line method over the shorter of the lease term or the improvement’s estimated useful life.

Expenditures for periodic maintenance and repair costs are expensed when incurred. Such expenses are reported in operating and maintenance expenses in our Combined Statements of Operations.

Intangible Assets

Intangible assets, net, consist of amortizable intangible assets, net of accumulated amortization. These intangible assets are comprised of customer relationships. We amortize our intangible asset over their estimated economic useful lives. We consider factors such as the asset’s history, our plans for that asset and the market for products associated with the asset when the intangible asset is acquired.

Amortizable intangible assets must be tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. Amortizable intangible assets are not recoverable if their carrying amount exceeds the sum of the undiscounted cash flows expected to result from their use and eventual disposition. If an amortizable intangible asset is not recoverable, an impairment loss is recognized in an amount that its carrying amount exceeds its fair value generally based on discounted estimated net cash flows.

In order to test amortizable intangible assets for recoverability, management must make estimates of projected cash flows related to the asset being evaluated that include, but are not limited to, assumptions about the use or disposition of the asset, its estimated remaining life and future expenditures necessary to maintain its existing service potential. In order to determine fair value, management must make certain estimates and assumptions including, among other things, an assessment of market conditions, projected volumes, margins, cash flows, investment rates, interest/equity rates and growth rates, that could significantly impact the fair value of the asset being tested for impairment.

The risk of intangible asset impairment losses may increase to the extent that our results of operations or cash flows decline. Impairment losses may result in a material, non-cash write-down of intangible assets. Furthermore, impairment losses could have a material effect on our results of operations and shareholders’ equity.

Impairment of Long-Lived Assets

We review the carrying values of our long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets to be held and used may not be recoverable. A long-lived asset is not recoverable if its carrying amount exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. If a long-lived asset is not recoverable, an impairment loss is recognized in an amount by which its carrying amount exceeds its fair value.

 

6


THE WHOLESALE SEGMENT

NOTES TO COMBINED FINANCIAL STATEMENTS

 

In order to test long-lived assets for recoverability, we must make estimates of projected cash flows related to the asset being evaluated, which include, but are not limited to, assumptions about the use or disposition of the asset, its estimated remaining life, and future expenditures necessary to maintain its existing service potential. In order to determine fair value, we must make certain estimates and assumptions including, among other things, an assessment of market conditions, projected volumes, margins, cash flows, investment rates, interest/equity rates and growth rates, that could significantly impact the estimated fair value of the asset being tested for impairment.

The risk of long-lived asset impairment losses may increase to the extent that our results of operations or cash flows decline. Impairment losses may result in a material, non-cash write-down of long-lived assets. Furthermore, impairment losses could have a material effect on our results of operations and equity.

For assets to be disposed of, we report long-lived assets at the lower of carrying amount or fair value less cost to sell.

Revenue Recognition

We record revenues for products sold upon delivery of the products to customers, the point at which title is transferred, the customer has the assumed risk of loss and when payment has been received or collection is reasonably assured. We record freight revenues for crude oil and refined petroleum product transportation based on the delivery of actual volumes transported at agreed upon rates. Transportation, shipping and handling costs incurred are included in cost of products sold. Excise and other taxes collected from customers and remitted to governmental authorities are not included in revenues or cost of products sold.

A substantial portion of our revenue was derived from our sales to Western, and the agreed upon rates do not necessarily reflect market rates for the historical periods presented. Our sales to Western or their affiliates accounted for approximately 18% of our combined net revenues for all periods presented.

On August 31, 2012, we transferred all of our Northeast wholesale inventories to a third party and entered into an exclusive supply and marketing agreement with the third party covering activities related to our refined product supply, hedging and sales in the Mid-Atlantic region. We accounted for the refined product inventory transfer as a product exchange with the net difference in settlement recorded in cost of products sold. This agreement did not have a significant impact on our results of operations for the years ended December 31, 2013 or 2012 or the six month period ended June 30, 2014. Related to this agreement, we had an asset of $2.3 million at December 31, 2013 and a liability of $0.1 million at December 31, 2012 recorded in our Combined Balance Sheets. The third party maintains all open inventory hedge positions on its balance sheet. Net revenues and costs that we recorded under this agreement included $2.7 million and $0.5 million in net hedging gains for the years ended December 31, 2013 and 2012, respectively. We recorded $1.5 million in liabilities at June 30, 2014 related to this agreement in our Combined Balance Sheets. Net revenues and costs that we recorded under this agreement included $9.4 million in net hedging losses and $2.3 million in net hedging gains for the six months ended June 30, 2014 and 2013, respectively.

Prior to September 2012, we purchased refined products for resale in the Mid-Atlantic region from various third parties. During periods prior to September 2012, we periodically entered into derivative contracts to facilitate the supply of finished products to customers. We entered into net forward, fixed-price contracts to physically receive and deliver crude oil that qualified as normal purchases and normal sales that were exempt from derivative reporting requirements. We recorded the related net gain or loss within cost of products sold in our Statements of Operations. Prior to September 2012, we recorded realized hedging losses of $23.6 million.

Cost Classifications

Cost of products sold includes the cost of fuel and lubricants, transportation and distribution costs, service parts and labor. Prior to September 2012, cost of products sold also included realized gains and losses related to our commodity hedging activities.

Operating and maintenance expenses include direct costs of labor, maintenance materials and services, natural gas, additives, utilities and other direct operating expenses. Operating and maintenance expenses also include insurance expense and property taxes.

We have included indirect charges for executive oversight, accounting, treasury, tax legal and information technology and similar items that Western provides to the Wholesale Segment. We have included these indirect charges in our selling, general and administrative expenses in the accompanying Statements of Operations. Indirect charges were $1.3 million and $1.6 million for the six months ended June 30, 2014 and 2013, respectively, and $3.2 million and $3.5 million for the years ended December 31, 2013 and 2012, respectively. Our management believes the indirect charges allocated to us are a reasonable reflection of the utilization of services provided. However, those allocations may not fully reflect the expenses that would have been incurred had we been a stand-alone company during the periods presented.

 

7


THE WHOLESALE SEGMENT

NOTES TO COMBINED FINANCIAL STATEMENTS

 

Financial Instruments and Fair Value

Financial instruments that potentially subject us to concentrations of credit risk primarily consist of accounts receivable and cash and cash equivalents. We believe that our credit risk is minimized as a result of the credit quality of our customer base, see Note 11, Concentration of Risk , and of the financial institution where we hold a substantial portion of our total cash balance. The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximate their fair values due to their short-term maturities.

Asset Retirement Obligations

We are required to recognize certain obligations for the retirement of our tangible long-lived assets that result from acquisition, construction, development and normal operation. A retirement obligation exists if a party is required to settle an obligation as a result of an existing or enacted law, statute, ordinance or written or oral contract or by legal construction of a contract under the doctrine of promissory estoppel. We record the fair value of a liability for an asset retirement obligation (“ARO”) in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The increase in the ARO due to the passage of time is recorded as an operating expense (accretion expense). For each of the periods ending June 30, 2014, and December 31, 2013 and 2012, the Segment recorded ARO liabilities of $0.5 million.

Environmental and Other Loss Contingencies

We record liabilities for loss contingencies, including environmental remediation costs when such losses are probable and can be reasonably estimated. Loss contingency accruals, including those for environmental remediation are subject to revision as further information develops or circumstances change and such accruals can take into account the legal liability of other parties. Where the available information is sufficient to estimate the amount of liability, that estimate is used. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than another, the lower end of the range is used.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized to reflect temporary differences between the basis of assets and liabilities for financial reporting purposes and income tax purposes. Our taxable income was included in the consolidated U.S. federal income tax returns of Western and in a number of consolidated state income tax returns. We believe that excluding a provision for income taxes from the historical results of operations of the Segment more accurately portrays the potential income allocable to unit holders. Texas Margin tax is applicable to the Segment, however taxable margin from sales in Texas were not material during the periods presented and did not produce a significant state tax allocable to the Segment.

Liabilities created for unrecognized tax benefits are presented as a separate liability and are not combined with deferred tax liabilities or assets. We classify interest to be paid on an underpayment of income taxes and any related penalties as income tax expense.

Segment Reporting

Due to the similarity of the assets we operate and how we manage our business, we have a single reportable operating segment for disclosure purposes. The Segment reflects the way in which we internally report the financial information used to make decisions and allocate resources in connection with our operations.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

The accounting provisions covering the recognition and reporting of revenues were amended to remove inconsistencies in revenue requirements and to provide a more complete framework for addressing revenue issues across a broad range of industries and transaction types. The revised standard’s core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. These provisions are effective for the first interim or annual period beginning after December 15, 2016, and are to be applied retrospectively, with early adoption not permitted. We do not expect the adoption of this guidance to materially affect our financial position, results of operations or cash flows.

New provisions that require management of an entity to evaluate whether there is substantial doubt about the entity’s

 

8


THE WHOLESALE SEGMENT

NOTES TO COMBINED FINANCIAL STATEMENTS

 

ability to continue as a going concern and to provide related footnote disclosures will become effective for annual periods beginning after December 15, 2016, and for annual periods and interim periods thereafter with early application permitted. The changed requirements are intended to reduce diversity in the timing and content of footnote disclosures. We do not expect the adoption of these new provisions to materially affect our financial position, results of operations or cash flows as they only affect future disclosures.

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on our accounting and reporting. We believe that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on our accounting or reporting or that such impact will not be material to our financial position, results of operations or cash flows when implemented.

3.     Fair Value Measurement

We utilize the market approach when measuring fair value for our financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

The fair value hierarchy consists of the following three levels:

 

  Level 1 Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

  Level 2 Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs that are derived principally from or corroborated by observable market data.

 

  Level 3 Inputs are derived from valuation techniques that one or more significant inputs or value drivers are unobservable and cannot be corroborated by market data or other entity-specific inputs.

The carrying amounts of cash and cash equivalents, which we classify as Level 1, approximated their fair values at June 30, 2014, December 31, 2013 and December 31, 2012, due to their short-term maturities. The carrying amount of our long-term debt is the amount reflected on the combined balance sheets including the current portion. We determined the fair value of the debt, which approximates its carrying, using Level 2 inputs. Our fair value assessment incorporates a variety of considerations, including the short-term duration of the instruments (less than one percent of our account receivables and payables are outstanding for greater than 90 days) and the expected future insignificance of bad debt expense that includes an evaluation of counterparty credit risk.

We have no financial instruments carried at fair value as of June 30, 2014, December 31, 2013 and December 31, 2012.

4.     Inventories

Inventories were as follows:

 

     June 30,      December 31,  
     2014      2013      2012  
            (In thousands)         
     (Unaudited)                

Refined products

   $ 3,531       $ 3,601       $ 3,768   

Lubricants

     16,687         16,032         13,379   
  

 

 

    

 

 

    

 

 

 

Inventories

   $ 20,218       $ 19,633       $ 17,147   
  

 

 

    

 

 

    

 

 

 

 

9


THE WHOLESALE SEGMENT

NOTES TO COMBINED FINANCIAL STATEMENTS

 

5.     Prepaid Expenses

Prepaid expenses were as follows:

 

     June 30,      December 31,  
     2014      2013      2012  
            (In thousands)         
     (Unaudited)                

Prepaid refined product inventories

   $ 8,678       $ 2,972       $ 2,073   

Prepaid insurance and other

     2,549         2,969         3,484   
  

 

 

    

 

 

    

 

 

 

Prepaid expenses

   $ 11,227       $ 5,941       $ 5,557   
  

 

 

    

 

 

    

 

 

 

6.     Other Current Assets

Other current assets were as follows:

 

     June 30,      December 31,  
     2014      2013      2012  
            (In thousands)         
     (Unaudited)                

Excise and other taxes refunds receivable

   $ 9,834       $ 3,767       $ 4,026   

Material and chemical inventories

     406         285         285   

Other receivables

     196         2,957         1,403   
  

 

 

    

 

 

    

 

 

 

Other current assets

   $ 10,436       $ 7,009       $ 5,714   
  

 

 

    

 

 

    

 

 

 

7.     Property, Plant and Equipment, Net

Property, plant and equipment, net was as follows:

 

     June 30,     December 31,  
     2014     2013     2012  
           (In thousands)        
     (Unaudited)              

Land, buildings and improvements

   $ 38,102      $ 39,014      $ 35,560   

Transportation equipment

     18,337        17,063        10,000   

Machinery, tankage and related equipment

     10,708        9,264        7,577   

Other

     6,293        6,421        6,755   
  

 

 

   

 

 

   

 

 

 
     73,440        71,762        59,892   

Accumulated depreciation

     (26,651     (25,048     (22,213
  

 

 

   

 

 

   

 

 

 

Property, plant and equipment, net

   $ 46,789      $ 46,714      $ 37,679   
  

 

 

   

 

 

   

 

 

 

Depreciation expense was $2.1 million, $1.7 million, $3.5 million and $3.3 million for the six months ended June 30, 2014 and 2013 and for the years ended December 31, 2013 and 2012, respectively.

 

10


THE WHOLESALE SEGMENT

NOTES TO COMBINED FINANCIAL STATEMENTS

 

8.     Intangible Assets, Net

The Segment’s intangible assets consist of customer relationships. A summary of the Segment’s intangible assets, net is presented in the table below:

 

     June 30,     December 31,  
     2014     2013     2012  
           (In thousands)        
     (Unaudited)              

Gross carrying value

   $ 7,551      $ 7,551      $ 7,300   

Accumulated amortization

     (3,088     (2,810     (2,278
  

 

 

   

 

 

   

 

 

 

Intangible assets, net

   $ 4,463      $ 4,741      $ 5,022   
  

 

 

   

 

 

   

 

 

 

Intangible asset amortization expense was $0.3 million, $0.3 million, $0.5 million and $0.5 million for the six months ended June 30, 2014 and 2013 and for the years ended December 31, 2013 and 2012, respectively, based upon estimates of useful lives ranging from 7 to 15 years. The weighted average amortization period as of June 30, 2014 and December 31, 2013 was 8.0 and 8.5, respectively.

Estimated amortization expense for the next five fiscal years is as follows (in thousands):

 

2014

   $  556   

2015

     556   

2016

     556   

2017

     556   

2018

     556   

9.     Accrued Liabilities

Accrued liabilities were as follows:

 

     June 30,      December 31,  
     2014      2013      2012  
            (In thousands)         
     (Unaudited)                

Excise taxes

   $ 11,462       $ 11,429       $ 10,303   

Sales and use taxes

     3,740         4,768         5,604   

Payroll and related costs

     2,879         2,734         3,322   

Professional and other

     934         1,077         1,557   

Property taxes

     243         273         298   
  

 

 

    

 

 

    

 

 

 

Accrued liabilities

   $ 19,258       $ 20,281       $ 21,084   
  

 

 

    

 

 

    

 

 

 

Our long-term debt consists of a promissory note scheduled to mature on May 31, 2015. The note bears interest annually at a rate of 5.5%. The total carrying amount, including current portion, of our long-term debt was $0.2 million, $0.3 million and $0.5 million as of June 30, 2014, December 31, 2013 and December 31, 2012, respectively.

10.     Contingencies

Our operations are subject to extensive and periodically changing federal and state environmental regulations governing air emissions, wastewater discharges and solid and hazardous waste management activities. Many of these regulations are becoming increasingly stringent, and we can expect the cost of compliance to increase over time. Our policy is to accrue environmental and clean-up related costs of a non-capital nature when it is probable that a liability exists and when we can reasonably estimate the amount. We may revise such estimates in the future as regulations and other conditions change. We may receive communications from various federal, state and local governmental authorities asserting violations of environmental laws and/or regulations. These governmental entities may also propose or assess fines or require corrective action for such asserted violations. We intend to respond in a timely manner to all such communications and to take appropriate corrective action.

We are not currently aware of any environmental or other asserted or unasserted claims against us that would be expected to have a material effect on our financial condition, results of operations or cash flows.

 

11


THE WHOLESALE SEGMENT

NOTES TO COMBINED FINANCIAL STATEMENTS

 

11.     Concentration of Risk

Significant Customers

We sell a variety of refined products to a diverse customer base. Sales to Kroger Company accounted for 17.8%, 20.0%, 19.3% and 18.7% of consolidated net sales for the six months ended June 30, 2014 and 2013 and the years ended December 31, 2013 and 2012, respectively. Sales to Western’s retail group accounted for 16.8%, 17.4%, 17.2% and 17.0% of consolidated net sales for the six months ended June 30, 2014 and 2013 and the years ended December 31, 2013 and 2012, respectively. Sales of finished product to Western’s retail segment were historically at no margin.

12.     Leases and Other Commitments

We have commitments under various operating leases with initial terms greater than one year for buildings, warehouses, unmanned fleet fueling locations, railcars and other facilities. These leases have terms that will expire on various dates through 2036.

We expect that in the normal course of business, these leases will be renewed or replaced by other leases. Certain of our lease agreements provide for the fair value purchase of the leased asset at the end of the lease. Rent expense for operating leases that provide for periodic rent escalations or rent holidays over the term of the lease is recognized on a straight-line basis.

The following table presents our annual minimum rental payments under non-cancelable operating leases that have lease terms of one year or more (in thousands) as of December 31, 2013:

 

2014

   $ 7,615   

2015

     6,514   

2016

     5,121   

2017

     3,211   

2018

     1,063   

2019 and thereafter

     4,282   
  

 

 

 
   $ 27,806   
  

 

 

 

Total rental expense was $4.3 million, $3.4 million, $7.3 million and $7.2 million for the six months ended June 30, 2014 and 2013 and for the years ended December 31, 2013 and 2012, respectively. Contingent rentals and subleases were not significant in any year.

 

12

Exhibit 99.3

UNAUDITED WESTERN REFINING LOGISTICS, LP

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2014 AND FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND

AND THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

Set forth below are the unaudited pro forma condensed consolidated balance sheet of Western Refining Logistics, LP (the “Partnership”) as of June 30, 2014 and the unaudited pro forma condensed consolidated statements of operations of the Partnership for the six months ended June 30, 2014 and the years ended December 31, 2013, 2012 and 2011. References to “we,” “our,” and “us” mean the Partnership and its consolidated subsidiaries, unless the context otherwise requires. References to “Western” mean Western Refining, Inc. and its consolidated subsidiaries other than us and our consolidated subsidiaries and our general partner. We have derived the pro forma condensed consolidated financial statements for the Partnership from the historical condensed consolidated financial statements of Western Refining Logistics, LP and the combined financial statements of Western’s Wholesale Segment (the “Wholesale Segment”) that are qualified in their entirety by reference to such historical financial statements and related notes contained therein. The Wholesale Segment has historically provided commercial sales and logistics services to other businesses of Western and third parties and has been reported as a standalone operating segment by Western. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the accompanying notes and with the historical financial statements and related notes set forth elsewhere in this exhibit.

The sale of Wholesale Segment assets from Western to the Partnership represents a sale of assets between entities under common control. Western is the owner of the Partnership’s general partner.

We derived the pro forma balance sheet and the pro forma statements of operations by adjusting the historical condensed consolidated financial statements of the Partnership. The pro forma adjustments are based upon currently available information and certain estimates and assumptions; therefore, actual results may differ from the pro forma adjustments. Management believes that our assumptions provide a reasonable basis for presenting the significant effects of the contemplated transactions, are factually supportable, directly attributable, and are expected to have a continuing impact on profit and loss and that the pro forma adjustments give appropriate effect to management’s assumptions and are properly applied in the pro forma condensed consolidated financial information.

We have prepared the pro forma adjustments as if the transactions to be effected had taken place on June 30, 2014, in the case of the unaudited pro forma condensed consolidated balance sheet, and as of January 1, 2011, in the case of the unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2014 and the years ended December 31, 2013, 2012 and 2011.

The unaudited pro forma condensed consolidated financial statements may not be indicative of the results that actually would have occurred if the Partnership had assumed the operations of the Wholesale Segment during the periods presented.

 

1


WESTERN REFINING LOGISTICS, LP

CONDENSED CONSOLIDATED BALANCE SHEET

AS OF JUNE 30, 2014

(Unaudited)

(In thousands)

 

                               Western  
     Western                         Refining  
     Refining      Wholesale      Pro Forma           Logistics, LP  
     Logistics, LP      Segment      Adjustments           Pro Forma  
ASSETS             

Current assets:

            

Cash and cash equivalents

   $ 79,395       $ 29,983       $ (29,983     (a   $ 28,395   
           269,000        (b  
           (320,000     (c  

Accounts receivable:

            

Third-party, net of a reserve for doubtful accounts of $412

     12,476         141,567         (141,567     (a     12,476   

Affiliate

     288         7,574         (7,574     (a     288   

Inventories

     —           20,218         (3,531     (a     16,687   

Prepaid expenses

     1,513         11,227         (8,678     (a     4,062   

Other current assets

     951         10,436         (10,436     (a     951   
  

 

 

    

 

 

        

 

 

 

Total current assets

     94,623         221,005             62,859   

Property, plant and equipment, net

     147,808         46,789         (18,178     (a     176,419   

Intangible assets, net

     —           4,463             4,463   

Other assets, net

     2,298         1,384         (1,106     (a     2,576   
  

 

 

    

 

 

        

 

 

 

Total assets

   $ 244,729       $ 273,641           $ 246,317   
  

 

 

    

 

 

        

 

 

 
LIABILITIES AND EQUITY             

Current liabilities:

            

Accounts payable:

            

Affiliate

   $ 3,591       $ —             $ 3,591   

Third-party

     3,244         46,263         (46,263     (a     3,244   

Accrued liabilities

     6,532         19,258         (19,258     (a     6,532   

Current portion of long-term debt

     —           206         (206     (a     —     
  

 

 

    

 

 

        

 

 

 

Total current liabilities

     13,367         65,727             13,367   
  

 

 

    

 

 

        

 

 

 

Long-term liabilities:

            

Long-term debt, less current portion

     —           —           269,000        (b     269,000   

Other liabilities

     10         521         (521     (a     10   
  

 

 

    

 

 

        

 

 

 

Total long-term liabilities

     10         521             269,010   
  

 

 

    

 

 

        

 

 

 

Commitments and contingencies

            

Equity:

            

WNRL unitholders

     231,352         —           52,588        (a     (36,060
           40,000        (c  
           (360,000     (c  

Segment equity, net

     —           207,393         (154,805     (a     —     
           (52,588     (a  
  

 

 

    

 

 

        

 

 

 

Total equity

     231,352         207,393             (36,060
  

 

 

    

 

 

    

 

 

     

 

 

 

Total liabilities and equity

   $ 244,729       $ 273,641       $ —          $ 246,317   
  

 

 

    

 

 

    

 

 

     

 

 

 

 

2


WESTERN REFINING LOGISTICS, LP

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2014

(Unaudited)

(In thousands, except per unit data)

 

                             Western  
     Western                       Refining  
     Refining     Wholesale     Pro Forma           Logistics, LP  
     Logistics, LP     Segment     Adjustments           Pro Forma  

Revenues:

          

Affiliate

   $ 66,380      $ 443,925      $ 110,118        (d   $ 623,638   
         3,807        (d  
         (592     (e  

Third-party

     1,358        2,036,115        (114,924     (d     1,325,234   
         (597,315     (e  
  

 

 

   

 

 

       

 

 

 

Total revenues

     67,738        2,480,040            1,948,872   
  

 

 

   

 

 

       

 

 

 

Operating costs and expenses:

          

Cost of products sold:

          

Affiliate

     —          443,925        108,985        (d     552,910   

Third-party

     —          1,972,568        (108,985     (d     1,266,617   
         (363     (e  
         (596,603     (e  

Operating and maintenance expenses

     34,089        38,662        (2,094     (e     70,657   

General and administrative expenses

     4,118        7,548        (778     (e     10,888   

Loss on disposal of assets, net

     —          13        (13     (e     —     

Depreciation and amortization

     6,711        2,420        (519     (e     8,612   
  

 

 

   

 

 

       

 

 

 

Total operating costs and expenses

     44,918        2,465,136            1,909,684   
  

 

 

   

 

 

       

 

 

 

Operating income

     22,820        14,904            39,188   

Other income (expense):

          

Interest expense

     (452     (11     11        (e     (3,827
         (3,375     (f  

Amortization of loan fees

     (259     —              (259

Other income, net

     3        84        (84     (e     3   
  

 

 

   

 

 

       

 

 

 

Income before income taxes

     22,112        14,977            35,105   

Provision for income taxes

     (204     —          (149     (g     (353
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income

   $ 21,908      $ 14,977      $ (2,133     $ 34,752   
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income per limited partner unit:

          

Common - basic

   $ 0.48            $ 0.73   

Common - diluted

     0.48              0.73   

Subordinated - basic and diluted

     0.48              0.76   

Weighted average limited partner units outstanding:

          

Common - basic

     22,811              23,971   

Common - diluted

     22,838              23,998   

Subordinated - basic and diluted

     22,811              22,811   

Cash distributions declared per common unit

   $ 0.5382           

 

3


WESTERN REFINING LOGISTICS, LP

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2013

(Unaudited)

(In thousands, except per unit data)

 

                             Western  
     Western                       Refining  
     Refining     Wholesale     Pro Forma           Logistics, LP  
     Logistics, LP     Business     Adjustments           Pro Forma  

Revenues:

          

Affiliate

   $ 28,928      $ 853,447      $ 217,330        (d   $ 1,106,191   
         7,688        (d  
         (1,202     (e  

Third-party

     1,901        3,926,042        (225,446     (d     2,525,975   
         (1,176,522     (e  
  

 

 

   

 

 

       

 

 

 

Total revenues

     30,829        4,779,489            3,632,166   
  

 

 

   

 

 

       

 

 

 

Operating costs and expenses:

          

Cost of products sold:

          

Affiliate

     —          853,447        215,082        (d     1,068,529   

Third-party

     —          3,813,924        (215,082     (d     2,426,270   
         (655     (e  
         (1,171,917     (e  

Operating and maintenance expenses

     72,455        67,137        (4,285     (e     135,307   

Selling, general and administrative expenses

     4,445        14,676        (1,373     (e     17,748   

Gain on disposal of assets, net

     —          (87     87        (e     —     

Depreciation and amortization

     13,042        4,057        (1,128     (e     15,971   
  

 

 

   

 

 

       

 

 

 

Total operating costs and expenses

     89,942        4,753,154            3,663,825   
  

 

 

   

 

 

       

 

 

 

Operating income (loss)

     (59,113     26,335            (31,659

Other income (expense):

          

Interest expense

     (190     (23     23        (e     (6,940
         (6,750     (f  

Amortization of loan fees

     (109     —              (109

Other, net

     16        158        (158     (e     16   
  

 

 

   

 

 

       

 

 

 

Income (loss) before income taxes

     (59,396     26,470            (38,692

Provision for income taxes

     (95     —          (280     (g     (375
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss)

     (59,491   $ 26,470      $ (6,046       (39,067
    

 

 

   

 

 

     

Less Predecessor loss prior to initial public offering on October 16, 2013

     68,019              68,019   
  

 

 

         

 

 

 

Limited partners’ interest in net income subsequent to initial public offering

   $ 8,528            $ 28,952   
  

 

 

         

 

 

 

Net income per limited partner unit:

          

Common - basic

   $ 0.19            $ 0.60   

Common - diluted

     0.19              0.60   

Subordinated - basic and diluted

     0.19              0.63   

Weighted average limited partner units outstanding:

          

Common - basic

     22,811              23,971   

Common - diluted

     22,813              23,973   

Subordinated - basic and diluted

     22,811              22,811   

 

4


WESTERN REFINING LOGISTICS, LP

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2012

(Unaudited)

(In thousands, except per unit data)

 

                             Western  
     Western                       Refining  
     Refining     Wholesale     Pro Forma           Logistics, LP  
     Logistics, LP     Business     Adjustments           Pro Forma  

Revenues:

          

Affiliate

   $ 3,167      $ 849,143      $ 214,023        (d   $ 1,072,596   
         7,377        (d  
         (1,114     (e  

Third-party

     678        4,011,148        (223,877     (d     2,623,724   
         (1,164,225     (e  
  

 

 

   

 

 

       

 

 

 

Total revenues

     3,845        4,860,291            3,696,320   
  

 

 

   

 

 

       

 

 

 

Operating costs and expenses:

          

Cost of products sold:

          

Affiliate

     —          849,143        212,153        (d     1,061,296   

Third-party

     —          3,898,934        (212,153     (d     2,529,944   
         (565     (e  
         (1,156,272     (e  

Operating and maintenance expenses

     58,667        67,491        (10,784     (e     115,374   

Selling, general and administrative expenses

     4,227        13,875        (1,282     (e     16,820   

Gain (loss) on disposal of assets, net

     335        (518     518        (e     335   

Depreciation and amortization

     11,620        3,814        (1,120     (e     14,314   
  

 

 

   

 

 

       

 

 

 

Total operating costs and expenses

     74,849        4,832,739            3,738,083   
  

 

 

   

 

 

       

 

 

 

Operating income (loss)

     (71,004     27,552            (41,763

Other income (expense):

          

Interest expense

     —          (40     40        (e     (6,750
         (6,750     (f  

Other, net

     12        330        (330     (e     12   
  

 

 

   

 

 

       

 

 

 

Income (loss) before income taxes

     (70,992     27,842            (48,501

Provision for income taxes

     —          —          (287     (g     (287
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss)

   $ (70,992   $ 27,842      $ (5,638     $ (48,788
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss) per limited partner unit:

          

Common - basic

           $ (1.02

Common - diluted

             (1.02

Subordinated - basic and diluted

             (1.07

Weighted average limited partner units outstanding:

          

Common - basic

             23,971   

Common - diluted

             23,973   

Subordinated - basic and diluted

             22,811   

 

5


WESTERN REFINING LOGISTICS, LP

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2011

(Unaudited)

(In thousands, except per unit data)

 

                             Western  
     Western                       Refining  
     Refining     Wholesale     Pro Forma           Logistics, LP  
     Logistics, LP     Business     Adjustments           Pro Forma  

Revenues:

          

Affiliate

   $ 2,439      $ 721,000      $ 183,638        (d   $ 912,078   
         6,410        (d  
         (1,409     (e  

Third-party

     992        4,032,790        (191,758     (d     2,503,292   
         (1,338,732     (e  
  

 

 

   

 

 

       

 

 

 

Total revenues

     3,431        4,753,790            3,415,370   
  

 

 

   

 

 

       

 

 

 

Operating costs and expenses:

          

Cost of products sold:

          

Affiliate

     —          721,000        181,756        (d     902,756   

Third-party

     —          3,924,851        (181,756     (d     2,414,707   
         (767     (e  
         (1,327,621     (e  

Operating and maintenance expenses

     53,766        65,829        (9,479     (e     110,116   

Selling, general and administrative expenses

     4,045        13,680        (1,082     (e     17,643   
         1,000        (f  

Gain on disposal of assets, net

     (26,687     (6     6        (e     (26,687

Depreciation and amortization

     12,694        4,312        (1,370     (e     15,636   
  

 

 

   

 

 

       

 

 

 

Total operating costs and expenses

     43,818        4,729,666            3,434,171   
  

 

 

   

 

 

       

 

 

 

Operating income (loss)

     (40,387     24,124            (18,801

Other income (expense):

          

Interest income

     —          38        (38     (e     —     

Interest expense

     —          (16     16        (e     (6,750
         (6,750     (f  

Other, net

     14        510        (510     (e     14   
  

 

 

   

 

 

       

 

 

 

Income (loss) before income taxes

     (40,373     24,656            (25,537

Provision for income taxes

     —          —          (267     (g     (267
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss)

   $ (40,373   $ 24,656      $ (10,087     $ (25,804
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss) per limited partner unit:

          

Common - basic

           $ (0.54

Common - diluted

             (0.54

Subordinated - basic and diluted

             (0.57

Weighted average limited partner units outstanding:

          

Common - basic

             23,971   

Common - diluted

             23,973   

Subordinated - basic and diluted

             22,811   

 

6


1.     Basis of Presentation

The unaudited condensed consolidated financial statements present the impact on our financial position and results of operations of our acquisition (the “Transaction”) from Western Refining, Inc. of certain assets and operations of the Wholesale Segment, including assets and related inventories of the Segment’s lubricant distributions, southwest bulk petroleum fuels distributions and products transportation, for consideration of $360.0 million. Historical assets and related results of operations for the wholesale service department, unmanned fleet fueling operations and refined product sales in the Mid-Atlantic region have been excluded from the Transaction.

The unaudited pro forma condensed consolidated financial statements as of and for the six months ended June 30, 2014 have been prepared based on certain pro forma adjustments to our unaudited consolidated financial statements. The pro forma adjustments have been prepared as if the Transaction had taken place as of June 30, 2014, in the case of the pro forma balance sheet, and as of January 1, 2011, in the case of the pro forma statements of operations. The condensed consolidated financial statements include financial data at historical cost as the sale of assets is considered to be a reorganization of entities under common control. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the accompanying notes and with the historical consolidated financial statements and related notes thereto. Pro forma adjustments are discussed below under Note 2, Pro Forma Adjustments and Assumptions .

The pro forma adjustments are based upon currently available information and certain estimates and assumptions; actual results may differ from the pro forma adjustments. Management believes that our assumptions provide a reasonable basis for presenting the significant effects of the contemplated transactions, are factually supportable, directly attributable, and are expected to have a continuing impact on profit and loss and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the pro forma condensed consolidated financial information.

The unaudited pro forma condensed consolidated financial statements may not be indicative of the results that would have actually occurred if we had assumed the operations of the Wholesale Segment during the periods presented.

2.     Pro Forma Adjustments and Assumptions

The pro forma adjustments are based upon currently available information and certain estimates and assumptions. Actual results may differ from the pro forma adjustments. Rates and fees used in the Wholesale Segment are those rates and fees that have been historically applied for business conducted with third-parties. Sales of finished product to Western’s retail segment were historically at no margin. From the transaction date forward, the Partnership will contractually make $0.03 per gallon sold to Western’s retail segment.

We expect to borrow under our Senior Secured Revolving Credit Agreement (the “Credit Agreement”) to fund a portion of the consideration paid to Western in conjunction with the Transaction. The pro forma adjustments in items (b) and (f) relate to the new debt, corresponding interest expense and fees on borrowings under the Credit Agreement.

Adjustments to cash and cash equivalents include items (a) through (c) resulting in a net decrease in pro forma cash and cash equivalents of $51.0 million. Our pro forma adjustments and assumptions are as follows:

 

  a. Reflects the transfer of certain Wholesale Segment net assets resulting from the sale to the Partnership and the elimination of certain net assets that will be retained by Western. As the Partnership and the Wholesale Segment are under common control, the transfer of these net assets was at the Wholesale Segment’s historical book values. The historical book value of net assets sold to the Partnership is $52.6 million.

 

  b. Reflects borrowings under the Credit Agreement of $269.0 million with an annual interest rate of 2.50% assuming a three month LIBOR rate of 0.25% plus an applicable margin of 2.25%. The Credit Agreement matures on October 16, 2018.

 

  c. Reflects the payment of $320.0 million in cash and the issuance of $40.0 million in common partnership units to Western, resulting in total consideration paid to Western of $360.0 million in exchange for the assets received. We determined the amount of common partnership units to be issued based on a ten-day volume weighted average price per unit, resulting in 1,160,092 common partnership units delivered to Western. Upon issuance of the 1,160,092 common partnership units to Western, Western will own an approximate 66.2% limited partner interest and the public will hold an approximate 33.8% limited partner interest.

 

  d.

Reflects the adjustment to remove unmanned fleet fueling sales from third-party revenues and corresponding changes in margins resulting from the commercial agreements that we will enter into with Western in connection with the closing of the Transaction. Unmanned fleet fueling operations were historically included within the Wholesale Segment but are excluded from assets that we will purchase. Western will continue to own and operate these assets and we will supply fuel inventories to Western for third-party sale from unmanned fleet fueling operations. Our pro forma adjustment reduces historical unmanned fleet fueling revenue by $0.14 per gallon for the six months ended

 

7


  June 30, 2014 and $0.12, $0.15 and $0.14 per gallon for the years ended December 31, 2013, 2012 and 2011, respectively. This reduction produces a margin per gallon of $0.03, in all periods, representing our contractual margin on sales to Western’s unmanned fleet fueling operations upon closing of the Transaction.

Additional adjustments reflect the changes in margin to $0.03 per gallon for sales to Western’s retail stores, for all periods, resulting from the commercial agreements that we will enter into with Western in connection with the closing of the Transaction.

 

  e. To eliminate revenues, cost of product sold and operating costs related to the historical assets and related results of operations for the wholesale service department, unmanned fleet fueling operations and refined product sales in the Mid-Atlantic region that have been excluded from the Transaction. These pro forma adjustments resulted in a net reduction of consolidated income before income taxes of $2.5 million for the six months ended June 30, 2014 and $1.7 million, $4.4 million and $0.7 million for the years ended December 31, 2013, 2012 and 2011, respectively.

 

  f. Reflects annual cash interest expense and $1.0 million of one-time fees and expenses related to closing of the Transaction. We reported the expenses in the condensed consolidated statement of operations for the period ending December 31, 2011. Interest expense was $3.4 million for the six months ended June 30, 2014 and $6.8 million in each of the three years ended December 31, 2013, 2012 and 2011. The pro forma adjustment for interest expense on borrowings under the Credit agreement assumes an estimated annual interest rate of 2.50%, while the actual interest rate secured on Credit Agreement borrowings may vary from this estimate based on fluctuations in LIBOR or the applicable margin applied above LIBOR. An incremental increase or decrease of 0.25% from this estimated interest rate would result in a corresponding increase or decrease in annual interest expense of $0.7 million.

 

  g. Reflects the change to the provision for income taxes resulting from the Texas margin tax for net changes in pro forma revenues and costs.

3.     Pro Forma Net Income or Loss Per Limited Partner Unit

Our net income or loss is allocated to the general partner and the limited partners in accordance with their respective ownership percentages, after allocating Available Cash generated during the period in accordance with our partnership agreement.

The Partnership computes net income per unit using the two-class method. Net income available to common and subordinated unitholders for purposes of the basic income per unit computation is allocated between the common and subordinated unitholders by applying the provisions of the partnership agreement as if all net income for the period had been distributed as cash. Under the two-class method, any excess of distributions declared over net income will be allocated to the partners based on their respective sharing of income specified in the Partnership agreement. For purposes of the pro forma calculation, we have assumed that distributions were declared for each common and subordinated unit equal to the minimum quarterly distribution for the quarter ended June 30, 2014.

Pro forma basic net income per unit is determined by dividing the pro forma net income available to common and subordinated unitholders of the Partnership by the number of common and subordinated units expected to be outstanding at the closing of the Transaction. For purposes of this calculation, the number of common and subordinated units outstanding was assumed to be 24.0 million units and 22.8 million units, respectively. All units were assumed to have been outstanding since we completed our initial public offering on October 16, 2013.

Pursuant to the partnership agreement, the general partner is entitled to receive certain incentive distributions that, when applying the provisions of the partnership agreement as if all net income for the period had been distributed as cash, will result in less net income allocable to common and subordinated unitholders provided that the net income exceeds certain targets. The incentive distribution rights are a separate equity interest and represent participating securities. No cash distributions would have been declared to the incentive distribution rights during any of the periods presented, based upon the assumption that distributions were declared equal to the minimum quarterly distribution.

4.     Commercial Agreements with Western

In connection with the closing of this transaction, we entered into various agreements with Western as described below. All of the listed agreements have an initial ten-year term and are subject to extensions or renewal as may be mutually agreed upon by the Partnership and Western.

 

8


   

Product supply agreement - under this agreement, Western will supply and the Partnership will purchase approximately 79,000 barrels per day (“bpd”) of refined products. The price per barrel will be based upon OPIS or Platts indices on the day of delivery. Pricing is subject to annual revision based on mutual agreement between the Partnership and Western. The agreement provides for make-up payments to the Partnership in any month that the Partnership’s average margin on non-delivered rack sales is less than $0.02 per gallon equal to the average margin short-fall for such month times the amount of the Partnership’s non-delivered rack sales not to exceed 31.5 million gallons per month. In any month in which the Partnership’s average margin on non-delivered rack sales is greater than $0.02 per gallon, the Partnership will pay Western an amount equal to the excess margin times the amount of the Partnership’s non-delivered rack sales until the balance of the trailing twelve month make-up payments is reduced to $0.

 

   

Fuel distribution agreement - under the fuel distribution agreement, Western agreed to purchase all of its retail requirements for branded and unbranded motor fuels for its retail and unmanned fleet fueling sites at a price per gallon that is $0.03 above the Partnership’s cost. Western has agreed to purchase a minimum of 645,000 barrels of branded and unbranded motor fuels for its retail and unmanned fleet fueling sites. In any month that Western doesn’t purchase the minimum volume, Western will pay the Partnership $0.03 per gallon shortfall. In any month in which Western purchases volumes in excess of the minimum, the Partnership will pay Western $0.03 per gallon over the minimum until the balance of the trailing twelve month shortfall payments is reduced to $0.

 

   

Crude oil trucking agreement - Western has agreed to pay a flat rate per mile per barrel plus monthly fuel adjustments and customary applicable surcharges. The rates are subject to adjustment annually based on mutual agreement between the Partnership and Western. Western has agreed to contract a minimum of 1.525 million barrels of crude oil to the Partnership for hauling each month. In the event Western falls short of the monthly minimum commitment, it will pay the Partnership $3.00 per barrel below the minimum commitment. In any month in which Western exceeds the minimum hauling commitment, the Partnership will pay Western $3.00 per barrel over the minimum commitment until the balance of the trailing twelve month shortfall payments is reduced to $0.

If Western changes its business strategy or is unable to satisfy its obligations under the above listed commercial agreements for any reason, our revenues would decline and our financial condition, results of operations, cash flows and ability to make distributions to our unitholders would be adversely affected.

 

9