Document:

utmd10k123108ex10-3.htm

    
      

      

    

    
      EXHIBIT
12

      

      SUMMARY
OF OFFICER AND DIRECTOR COMPENSATION

      

      

      Except
for the Employment Agreement in Exhibit 6 of this report, the Company does not
have any written contractual compensation arrangements with any of its employees
or directors, including Executive Officers.

      

      During
2009, the Company’s Chief Executive and Principal Financial Officers (the
Company’s “Named Executive Officers”) are scheduled to receive the following
compensation from the Company:

      
        
          	
                   

                  Compensation Arrangement

                	 
      	
                   

                  2009 Scheduled Amount

                
	
                  Base
      salary

                	 
      	
                  $  256,100
      (CEO); $99,000 (PFO)

                
	
                  401(k)
      matching contributions

                	 
      	
                          5,880
      (maximum)

                
	
                  Section
      125 plan matching contributions (1)

                	 
      	
                             450
      (maximum)

                
	
                  Management
      bonus

                	 
      	
                  will
      be determined at year-end

                
	
                  Pet
      health benefits (1)

                	 
      	
                             500
      (maximum)

                
	
                  Family
      medical benefits (1)

                	 
      	
                  will
      depend on future events

                
	
                  Travel
      expense reimbursement (2)

                	 
      	
                         8,000
      (CEO); 2,000 (PFO)

                

        

      

      

      

      During
2009, the Company’s Directors are scheduled to receive the following
compensation from the Company:

      

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                	
                                        Compensation Arrangement

                                      	 	
                                        Ernst Hoyer

                                      	 	 	
                                        Barbara Payne

                                      	 	 	
                                        James Beeson

                                      	 
	
                                        Base

                                      	 	$	21,000	 	 	$	21,000	 	 	$	21,000	 
	
                                        Executive
      Committee

                                      	 	 	4,000	 	 	 	-	 	 	 	-	 
	
                                        Audit
      Committee Chairman

                                      	 	 	2,000	 	 	 	-	 	 	 	-	 
	
                                        Travel
      Expense Reimbursement (2)

                                      	 	 	500	 	 	 	700	 	 	 	500	 

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

      

      (1)   CEO
and PFO participate on the same basis as other eligible employees.

      (2)   Estimated
2009 travel expenses on behalf of UTMD business.  The Company
reimburses its employees and directors for authorized business
expenses.Exhibit 10.35

 

	
  

  	
  CITGO Petroleum Corporation

  	
   

  

 

MARKETER FRANCHISE AGREEMENT

 

Between CITGO Petroleum Corporation and 
JEI DISTRIBUTING a LIMITED LIABILITY COMPANY

 

NOTICE

 

As
a Franchised Marketer, under this agreement you will be entitled to the protections
of the Petroleum Marketing Practices Act, a federal law which was enacted on June 19,
1978.  Title I of this law is intended to
protect you against any arbitrary or discriminatory termination or non-renewal
of your Franchise.  CITGO Petroleum
Corporation, as a Franchisor, is required to provide you with a summary of
title I of the Petroleum Marketing Practices Act whenever notification of
termination or non-renewal of your franchise is given.  However, CITGO wishes to ensure that you are
totally familiar with your rights in this regard even prior to executing this
Franchise Agreement.  Accordingly, on page 11
through 14 herein we have produced the concise summary of the provisions of
Title I as prepared and published by the secretary of energy in the Federal
Register.  Please review this summary
carefully.  You should resolve with your
lawyer or other appropriate parties any questions you might have, prior to
executing this franchise.

 

 

MARKETER FRANCHISE AGREEMENT

 

It is agreed this x 21st day of x December, 2009 between CITGO Petroleum
Corporation, a Delaware corporation, having a place of business at 1293
Eldridge Parkway, P. O. Box 4689, Houston, TX 77210-4689, hereinafter called “CITGO,”
and JEI DISTRIBUTING, a LIMITED LIABILITY COMPANY, a x                                    
corporation, having a principal office and place of business at 718 S
BUCHANAN ST.  LAFAYETTE, LA  70501  hereinafter called “MARKETER.”

 

WITNESSETH:

 

WHEREAS, CITGO and Marketer intend by this
Agreement to create a “franchise relationship” within the meaning of the
Petroleum Marketing Practices Act; the parties expressly do not intend by this
Agreement to create a “franchise” within the meaning of any state law relating
to franchises; and

 

WHEREAS, CITGO and Marketer desire to provide
for Marketer’s purchase from CITGO of certain petroleum products for resale by
Marketer under CITGO’s trademarks to consumers and retailers in a manner that
will serve the interest of the consuming public and be of benefit to CITGO and
Marketer;

 

NOW, THEREFORE, CITGO and Marketer agree as
follows:

 

1.             TERM.           This
Agreement shall be effective for the term of five (5) years, beginning the
first day of December, 2009, and expiring on the last day of November,
2014 Unless validly terminated or non renewed as provided for in the
Petroleum Marketing Practices Act, this Agreement shall automatically renew for
successive three (3) year periods. 
Marketer shall have the right to terminate or non-renew this Agreement
after the Initial Term by providing CITGO with ninety (90) days written notice
prior to termination.

 

2.             QUANTITIES.           Marketer
shall purchase and lift or accept delivery of quantities of products as set
forth below during the respective monthly periods and CITGO shall sell and deliver
the specified quantities of products during the respective monthly periods.
Marketer hereby acknowledges and agrees that the purchase and ratable lifting
of the monthly quantities of product specified herein by Marketer are
reasonable, important and of material significance to the franchise
relationship. Marketer understands and agrees that any failure by Marketer to
purchase a minimum of ninety percent (90%) of the monthly quantity of gasoline
listed below during any month on a ratable basis shall be a violation of this
Agreement. CITGO shall have no obligation at any time to provide more than the
quantities listed below.

 

The monthly quantities of product set forth
below are based on the sales of motor fuels projected by the Marketer at
locations that CITGO has approved for branding with the CITGO trade name and
trademark. In the event that CITGO agrees to brand additional locations, the
monthly quantities of products set forth below shall be increased by the
projected sales of motor fuels at the newly branded locations. Likewise, if any
location is debranded, the monthly quantities of product set forth below shall
be decreased by the projected sales at such formerly branded location. These
increases/decreases shall be effective beginning with the month in which the
installation, or removal and return, of the CITGO sign and equipment is
completed, and shall be confirmed by an Amendment to this Agreement.  It is acknowledged that the purpose of this
paragraph is to allow the parties to adjust the volume requirements resulting
from new brandings and debrandings that may take place from time to time in the
ordinary course of Marketer’s business and does not supercede (i) a
branding commitment for a particular station agreed to by the Marketer in a
separate marketing agreement or program or (ii) other provisions of this
Agreement including 

 

2

 

the term of the Agreement. Marketer and CITGO
will review the addition or deletion of branded outlets at least on an annual
basis.

 

Marketer agrees that the monthly quantity of
gasoline set forth below shall be purchased and be lifted ratably during the
month.

 

CITGO may establish limitations and
restrictions, upon Marketer’s purchases of gasoline that in CITGO’s sole judgment,
are necessary or appropriate to enforce Marketer’s obligations to make ratable
purchases.

 

	
  GASOLINE

  	
   

  	
  2009

  	
   

  	
  2010

  	
   

  	
  2011

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  January

  	
   

  	
   

  	
   

  	
  200,000

  	
   

  	
  830,000

  	
   

  
	
  February

  	
   

  	
   

  	
   

  	
  400,000

  	
   

  	
  840,000

  	
   

  
	
  March

  	
   

  	
   

  	
   

  	
  600,000

  	
   

  	
  850,000

  	
   

  
	
  April

  	
   

  	
   

  	
   

  	
  850,000

  	
   

  	
  850,000

  	
   

  
	
  May

  	
   

  	
   

  	
   

  	
  850,000

  	
   

  	
  850,000

  	
   

  
	
  June

  	
   

  	
   

  	
   

  	
  850,000

  	
   

  	
  860,000

  	
   

  
	
  July

  	
   

  	
   

  	
   

  	
  850,000

  	
   

  	
  860,000

  	
   

  
	
  August

  	
   

  	
   

  	
   

  	
  850,000

  	
   

  	
  860,000

  	
   

  
	
  September

  	
   

  	
   

  	
   

  	
  850,000

  	
   

  	
  860,000

  	
   

  
	
  October

  	
   

  	
   

  	
   

  	
  850,000

  	
   

  	
  850,000

  	
   

  
	
  November

  	
   

  	
   

  	
   

  	
  840,000

  	
   

  	
  850,000

  	
   

  
	
  December

  	
   

  	
  75,000

  	
   

  	
  840,000

  	
   

  	
  840,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
  75,000

  	
   

  	
  8,830,000

  	
   

  	
  10,200,000

  	
   

  

 

Quantities shall be determined at time and
place of loading. All measurements with regard to deliveries into marine
vessel, pipeline or tank car shall be corrected to 60° F. in accordance with
prevailing ASTM procedures. With respect to all other deliveries under this
Agreement, Marketer elects to have quantities determined by liquid measure
Temperature Corrected  method. In any
jurisdiction where applicable law dictates the method of measurement, such
method shall be used.

 

3.             DELIVERY OF PRODUCTS.           Products
will be made available at terminals or other locations selected by CITGO or,
upon mutual agreement, may be delivered to destination by transportation
selected by CITGO. Marketer shall strictly comply with all applicable rules and
regulations of terminals and facilities at which Marketer receives motor fuel
from CITGO. Marketer shall ensure that all trucks, tankers and lines are clean
and ready to receive CITGO’s motor fuel, so that said fuel is not mixed,
blended or adulterated with any other substance or product. CITGO or the
terminal operator may refuse to make delivery into any vehicle which, in the
sole judgment of CITGO or the terminal operator, is unsafe or inadequate.
Marketer agrees to provide such proof of insurance as required by CITGO
covering Marketer’s liability for any negligent or willful acts it commits in
connection with the loading, transporting and delivery of products. Title and
risk of loss on all products covered by this Agreement shall pass to Marketer
at the time and place of delivery. Time and place of delivery shall be when and
at the point that products pass connections between the terminal’s truck rack
or pipeline flange and Marketer or its agent’s receiving connections, transport
trucks, tank cars, or vessels.  All
demurrage is Marketer’s responsibility.

 

4.             PRICES.           Marketer
shall pay CITGO’s Marketer prices in effect at time and place of delivery. Such
prices will be established by CITGO on an FOB, terminal basis, or other point
of sale basis, including, upon mutual agreement, on a delivered basis. Marketer
shall also pay CITGO amounts equivalent to any tax, duty or impost now or
hereafter imposed by the United States and or any state and/or municipality,
and/or any other governmental authority on all Temperature Corrected gallons
delivered under the terms of this Agreement.

 

5.             TERMS
OF PAYMENT.

 

a.             Marketer agrees to pay CITGO
in accordance with such terms as CITGO’s Credit Department, in its sole
discretion may from time to time prescribe in writing. At the present time,
CITGO’s credit 

 

3

 

terms are one percent (1%)
Electronic Funds Transfer (EFT) ten (10) days. The failure by Marketer to
pay any invoice within the terms then prescribed by CITGO’s Credit Department
may result in the restriction of credit, the denial of access to the petroleum
terminals from which Marketer is authorized to obtain its supply of petroleum
products, the withholding of any rebates, discounts or benefits from CITGO
programs that may otherwise be available to Marketer and shall constitute
grounds for termination and or non-renewal of this Agreement.  Further, failure to make payment within
payment terms authorizes the imposition of finance charges in an amount equal
to the lesser of (i) the maximum amount allowed by applicable law or (ii) one
and one-half percent (1.5%) per month. 
Marketer and its parent company, Jacobs Entertainment, Inc.,agree
to provide CITGO’s Credit Department with a current, audited or certified
financial statement within ninety (90) days after the end of each fiscal year
and such other business related information as may be requested by CITGO’s
Credit Department from time to time.

 

b.             At the time of execution of
this Agreement and thereafter upon CITGO’s request, in order to maintain a
credit line, Marketer may be required to furnish CITGO with letters of credit
that may be requested by CITGO.

 

c.             If Marketer fails to comply
with the terms and conditions of payment and credit established by CITGO, of if
CITGO has reasonable grounds for insecurity with respect to Marketer’s
performance of any of Marketer’s obligations 
under this Agreement, then, in addition to all other rights and remedies
afforded to CITGO under this Agreement and applicable law, CITGO may take such
action as CITGO deems reasonable.

 

6.             BRANDS AND TRADE NAMES.                Subject
to the following, CITGO hereby grants to Marketer for the term of this
Agreement, the right to use CITGO’s applicable brand names, trademarks and
other forms of CITGO’s identification, in the manner established by CITGO from
time to time, in connection with the resale by Marketer of products acquired
under CITGO’s brand names.

 

a.             CITGO reserves the right to
control fully the quality and branding of products which may, from time to
time, be sold and/or distributed under CITGO’s brands and trade names,
including the right to terminate or add to such products, or to change the name
or names of any products. Marketer shall sell all branded products delivered
hereunder under such brand names, trademarks and trade names of CITGO as may be
in use at the time of sale thereof. Marketer shall not change or alter by any
means whatsoever the nature, quality or appearance of any of the products
purchased hereunder. However, if Marketer elects to sell product(s) not
purchased or acquired under this Agreement, Marketer shall not allow nor permit
the use of CITGO’s brand names, trademarks, trade dress, and all other forms of
CITGO identification, in connection with the resale of such product(s). CITGO’s
“brand names and trademarks,’ as used herein, include CITGO’s logos, brand
identification, product and service advertising, credit cards, product names
and service marks. CITGO’s “trade dress” refers to the manner and style of
advertising material, including color graphics and art work on product labels,
point of sale material, buildings, signs, pumps and other equipment. Any other
product(s) shall be clearly identified and labeled in such language and
print at least comparable in size to CITGO’s brand names, trademarks, trade
dress, and other forms of CITGO identification, used on identical or similar
product(s) to make it unmistakably clear that CITGO brand product(s) are
not sold and to preclude any likelihood of confusion, mistake or deception of
the public. As an example, but not by way of limitation, if a Marketer sells
from a product dispenser a fuel which was not purchased or acquired under this
Agreement, the Marketer shall completely obliterate the CITGO brand names,
trademarks, trade dress, and all other forms of CITGO identification with the
following designation in print at least comparable in size to the largest CITGO
identification which is being used on any similar product dispenser: “NO BRAND,
THIS IS NOT A CITGO PRODUCT”. Marketer agrees that if a customer of the
Marketer requests a CITGO product(s) and such product(s) is not
available, the customer of the Marketer will be orally advised by the Marketer
that such CITGO product(s) is not available. Marketer hereby agrees to
defend. indemnify and hold CITGO harmless from any and all claims, damages,
actions or fines (including costs and attorneys’ fees actually incurred)
arising out of Marketer’s purchase, storage or sale of non-CITGO products.

 

4

 

b.             Marketer recognizes that the
identification, trademark and brand names of CITGO are the property of CITGO
and that CITGO’s requirements as herein stated relating to the use of such
identification and Marketers advertising (to include motor vehicles and
dispensing equipment) are reasonable and of material significance to the
franchise relationship. Accordingly, it is further agreed that a failure by the
Marketer to comply with the terms and provisions of this Section 6 shall
constitute grounds for termination and/or non-renewal of this Agreement.

 

c.             All signs, poles and
identification items furnished or leased to Marketer by CITGO, for display at
premises through which Marketer supplies products for resale, shall be erected,
installed and maintained in accordance with CITGO’s specifications, shall
remain the property of CITGO and shall be detached by the Marketer, or by CITGO
(at Marketers expense), at CITGO’s option, from the premises and be safely
stored and made available for repossession by CITGO upon CITGO’s request.
Marketer agrees to advise its dealers and/or the owners and occupants of the
retail facilities of CITGO’s ownership of said signs, poles and identification
items and of the right of Marketer or CITGO or their agents to remove same from
the premises at any time. Marketer understands and agrees that CITGO’s
identification items will only be provided for those premises that fulfill
CITGO’s standards and requirements. Therefore, Marketer shall not make available
or erect any such CITGO identification items at any location that has not been
approved in writing by CITGO nor shall Marketer relocate any CITGO
identification items without CITGO’s prior written consent. Marketer hereby
agrees to install all said signs, poles and identification items in accordance
with CITGO’s specifications and to maintain all said equipment in good repair.
Marketer shall bear all responsibility for costs involved in such maintenance
and repair as well as removal. Marketer agrees to purchase insurance sufficient
to cover the repair and/or replacement value of all said signs, poles and
identification items. CITGO retains title and all ownership rights in all such
signs, poles and identification items that bear CITGO’s name, trademarks and/or
trade dress.  Marketer further agrees to
indemnify and hold CITGO harmless from any and all damages and/or claims for
damages arising out of the installation, use, repair, maintenance, or removal
of all signs, poles, equipment and identification items furnished or leased to
Marketer by CITGO.

 

d.             Marketer agrees to comply
with applicable laws regarding the filing and payment of applicable local ad
valorem taxes regarding all signage, Branding Material and POS and credit card
equipment.

 

e.             The poles, signs and
branding material including any installation costs paid or furnished by CITGO
(collectively, the “Branding Material”) that have been furnished by CITGO for
each station shall be amortized over a sixty (60) month period on a
straightline basis.  Should a station be
debranded within the sixty (60) month amortization period, the Marketer shall
pay to CITGO the unamortized portion of the Branding Material as of the date of
debranding.  Upon such payment the
ownership of that portion of the Branding Material that does not contain CITGO’s
name and trademarks shall pass to Marketer. 
Furthermore, after the branding material is fully amortized, title to
such Branding Material shall pass to Marketer. 
Notwithstanding anything to the contrary, CITGO shall always retain
ownership of sign faces, decals and other identification items that contain
CITGO’s name and trademarks.

 

7.             MINIMUM RETAIL STANDARDS.           Marketer
shall operate or cause to operate retail facilities including all buildings,
equipment, restrooms, and driveways which are owned, operated, supplied,
leased, licensed or franchised by Marketer in a clean, neat, safe, lawful and
healthful manner, and in compliance with CITGO’s image standards. Marketer
further acknowledges that CITGO does not want its name and trademarks
associated with illegal merchandise and/or pornographic materials.  Therefore, Marketer will not sell or allow
its dealers to sell illegal or pornographic materials upon premises displaying
the CITGO name and trademarks.  CITGO
shall have the right to debrand or require Marketer to debrand any retail
facility failing to meet the provisions of this Section 7.  CITGO shall have the right to inspect all
CITGO branded facilities and to obtain samples of all CITGO branded gasoline
products that are sold at the facilities. 
Should CITGO determine that such samples are not CITGO products, CITGO
may take such action as it deems appropriate including imposing fines,
debranding the facility or terminating this Marketer Franchise Agreement.  CITGO shall also have the right to audit all
delivery, inventory and sales records of the Marketer and of the CITGO branded
facility relating to the petroleum products that are sold at a CITGO branded
facility.  Marketer shall provide to
CITGO access to Marketer’s CITGO branded 

 

5

 

facilities during normal business hours.  Marketer shall participate in CITGO’s
national/regional sales and advertising programs including displaying POS
advertising materials where legally permissible.  Marketer shall also have its dealers agree to
comply with CITGO’s image standards and other applicable provisions of this
Paragraph 7.

 

8.             ALLOCATION.           If
CITGO, because of a shortage of crude oil, raw materials, products, or refining
capacity, either of its own, or of its other regular sources of supply, or in
the industry generally, or because of governmental regulations, or for any
reason, deems that it may be unable to meet all of its supply requirements,
CITGO may allocate its products equitably among its various customers pursuant
to a plan, method or formula as CITGO believes fair and reasonable. Marketer
agrees to be bound by any such allocation. During the period of such
allocation, the provisions of Paragraph 2 relating to volume requirements shall
not be effective, and the quantity deliverable under this Agreement shall then
be such quantity as CITGO determines it can equitably allocate to Marketer.
Upon cessation of any such period of allocation neither CITGO nor Buyer shall
be obligated to make up any quantities omitted pursuant to the provisions
herein.

 

9.             CLAIMS.           Any
claim for defect or variance in quality of product furnished hereunder shall be
made in writing to CITGO within five (5) days after discovery of the
defect or variance. CITGO shall be furnished samples adequate to test the
products claimed to be defective and shall be afforded the opportunity to take
its own samples. Any and all claims not made within the time and in the manner
herein provided shall be deemed waived and released by the Marketer.

 

10.           WARRANTIES AND DISCLAIMERS.

 

a.             CITGO warrants that at the
time the Branded Fuels are delivered to Marketer, as set forth in Paragraph 3,
the Branded Fuels: (1) will meet, in all material respects, CITGO’s
specifications for the Branded Fuels, and (2) will meet the octane rating
specified by CITGO for the Branded Fuels.

 

b.             CITGO MAKES NO OTHER
WARRANTIES OF ANY KIND OR NATURE WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.

 

11.           LIMITATION OF LIABILITY.

 

a.             MARKETER’S SOLE AND
EXCLUSIVE REMEDY FOR ANY CLAIM ARISING FROM OR IN CONNECTION WITH ANY ALLEGED
FAILURE OF OR DEFECT IN ANY BRANDED FUELS SOLD BY CITGO (WHETHER THAT CLAIM IS
FOR BREACH OF CONTRACT OR WARRANTY OR IS UNDER TORT, STRICT LIABILITY, STATUTE
OR OTHERWISE) IS (1) AT CITGO’S OPTION, REPLACEMENT OF THE FAILED,
DEFECTIVE OR NON-CONFORMING BRANDED FUELS OR REIMBURSEMENT OF THE PURCHASE
PRICE THEREOF, AND (2) REIMBURSEMENT OF THE REASONABLE COST OF REPAIR
OR  REPLACEMENT OF ANY PARTS THAT ARE
DAMAGED DIRECTLY BY THE USE OF THE FAILED, DEFECTIVE OR NON-CONFORMING BRANDED
FUELS.

 

b.             IN NO EVENT WILL CITGO BE
LIABLE OR RESPONSIBLE FOR ANY INCIDENTAL OR CONSEQUENTIAL LOSSES OR DAMAGES
(INCLUDING WITHOUT LIMITATION ECONOMIC LOSS AND LOSS OF PROFITS) AND SPECIAL OR
PUNITIVE DAMAGES, WHETHER UNDER TORT, BREACH OF CONTRACT OR WARRANTY, STRICT
LIABILITY, STATUTE OR OTHERWISE.

 

12.           CREDIT CARDS.           Marketer
shall accept as payment from retail customers CITGO approved credit, debit and
payment cards (collectively, “Payment Cards”) in accordance with the provisions
of CITGO’s credit card guide and regulations, a copy of which has been provided
to Marketer. CITGO shall have the right in its sole discretion to amend or
terminate such guide and regulations and discontinue its program at any time.
CITGO may reject or charge back any Payment Card invoices not conforming to the
credit card guide and regulations. Marketer further agrees that upon such
rejection or charge back, the value of the Payment Card invoices which were
rejected or charged back shall become immediately due and owing from Marketer
to CITGO and may be deducted from subsequent settlements of Payment Card
transactions.  

 

6

 

Marketer expressly agrees that CITGO shall
have the right but not the obligation to apply the proceeds of Payment Card
invoices or any other credits which may be owing to Marketer toward the payment
of any indebtedness owed by Marketer to CITGO. Marketer grants to CITGO a
security interest in all Payment Card invoices and proceeds from such Payment
card invoices to secure the payment of product purchases from CITGO, and agrees
to execute documents reasonably necessary to perfect such security
interest.  Marketer further agrees to
maintain in good working order all of the electronic POS systems located at all
CITGO branded stations that are supplied by Marketer.  Good working order includes having the POS
systems properly configured and operating on the most current version of the
application software.  CITGO may
deactivate the POS system for any station not in compliance.

 

13.           FORCE MAJEURE.           In
the event that either party hereto is hindered, delayed or prevented by ‘force
majeure” in the performance of this Agreement, the obligation of the party so
affected shall be suspended and proportionally abated during the continuance of
the force majeure condition and the party so affected shall not be liable in
damages or otherwise for its failure to perform. The term “force majeure” as
used herein shall mean any cause whatsoever beyond the control of either party
hereto, including, but not limited to (a) act of God, flood, fire, explosion,
war, riot, strike and other labor disturbance; (b) failure in, or
inability to obtain on reasonable terms, raw materials, finished products,
transportation facilities, storage facilities and/or manufacturing facilities; (c) diminution,
nonexistence or redirection of supplies as a result of compliance by CITGO,
voluntary or otherwise, with any request, order, requisition or necessity of
the government or any governmental officer, agent or representative purporting
to act under authority, or with any governmental or industry rationing,
allocation or supply program; and (d) CITGO’s inability to meet the demand
for its products at CITGO’s normal and usual source points for supplying
Marketer, regardless of whether CITGO may have been forced to divert certain
supplies from such source points in order to alleviate shortages at other
distribution points.

 

If by reason of any force majeure condition
CITGO shall be unable to supply the requirements of all of its customers of any
product covered by this Agreement, CITGO’s obligation while such condition
exists shall, at its option, be reduced to the extent necessary in its sole
judgment and discretion to apportion fairly and reasonably among CITGO’s
customers the amount of product which it is able to supply. Marketer shall not
hold CITGO responsible in any manner for any losses or damages which Marketer
may claim as a result of any such apportionment. CITGO shall not be required to
make up any deficiency in any product not delivered as a result of any such
apportionment. In no event shall any force majeure condition affect Marketer’s
obligation to pay for product when due.

 

14.           TERMINATION AND NON-RENEWAL.           CITGO’s
rights to terminate or elect not to renew this franchise relationship are as
specified in Title I of the Petroleum Marketing Practices Act as same may be
amended from time to time.

 

15.           HANDLING OF PRODUCTS.

 

a.             Marketer acknowledges that
the petroleum products being sold under this franchise, by their nature,
require special precautions in handling and that Marketer, its employees and
agents are fully informed as to current and future governmental regulations and
approved procedures relating thereto. 
Marketer is solely responsible for compliance with all laws, rules,
regulations and orders relative to receiving, transporting, storing, pricing,
selling and distributing products covered hereunder.  Marketer will advise its employees, agents,
and dealers who are involved in the ordering, selling, dispatching and delivery
of motor fuels of the applicable federal and state regulations and provide
appropriate training of such personnel. 
Marketer is also solely responsible for the proper disposal of waste
materials generated at any of the Marketer’s facilities.  Marketer shall not adulterate, contaminate or
add any components to CITGO motor fuels, or allow others to do so, the effect
of which would result in motor fuels no longer complying with federal and state
regulations.

 

All retail locations that
are branded CITGO are included in CITGO’s Quality Assurance Program and are
subject to random and periodic sampling. 
Marketer shall allow CITGO, its agents and contractors access to the
retail facility for the purpose of said sampling for testing under CITGO’s
Quality Assurance Program to ensure that motor fuels marketed by Marketer are
in compliance 

 

7

 

with all federal and state
regulations.  Marketer shall allow the
RFG Survey Association, its agents and contractors, the same access.

 

Marketer shall provide to
CITGO a copy of the results of any testing that was performed on the motor
fuels by Marketer or that were received by the Marketer from the EPA or its
contractors or any other third party.  In
the event that a violation of the federal or state requirements for gasoline is
detected, whether by testing or otherwise, Marketer shall immediately cease
selling the non-complying product and take such further action as is necessary
to remedy the violation, including such action as CITGO or the EPA may request.  Furthermore, Marketer must immediately report
any violations to CITGO and advise CITGO of corrective actions, steps to
prevent further violations, steps to identify the causes of the violations and
the results of resampling and testing. 
This reporting must be in writing.

 

b.             FEDERAL VOLATILITY REGULATIONS
AND RFG/ANTI-DUMPING REGULATIONS:           The
U.S. Environmental Protection Agency (“EPA”) has promulgated regulations
restricting the maximum allowable reid vapor pressure (“RVP”) for gasoline (40
CRF Part 80, 80.27).  The maximum
RVP during the RVP season (generally June 1 through September 15) is
7.8psi in nonattainment areas and 9.0 psi in all other areas.  Additionally, various states have promulgated
regulations restricting the maximum allowable RVP of gasoline and, in some
cases, these regulations mandate the gasoline have an RVP lower than 7.8 psi
and for time period that exceed the federal requirement of June 1 through September 15.  These regulations provide for the imposition
of substantial penalties whenever violations occur.

 

The EPA requires that only
RFG may be delivered to retail locations that are located within various ozone
nonattainment areas (“RFG Areas”).

 

While CITGO will supply you
with fuels to meet all federal, state and local regulations, it is also your
responsibility to comply with the regulations. 
These regulations prescribe various rule concerning segregation of
RFG, product transfer documentation when transferring custody or title through
the distribution chain, quality assurance programs, fuel additive requirements,
retention of record for five years, varying specification by regions and
registration with the EPA.  These
regulations also provide for the imposition of substantial penalties whenever
violations occur.

 

Marketer further agrees to
comply with all applicable posting and labeling laws and regulations, including
but not limited to those pertaining to octane ratings, lead and oxygenates.

 

c.             OXYGENATE BLENDING:           Marketer
may not blend oxygenates into CITGO gasolines without prior written consent
from CITGO.  Marketer may request
permission for such blending by providing a written request that contains but
is not limited to the following information: 
blending location, blending rate, and description of Marketer’s quality
assurance program:  In the event that
Marketer elects to blend oxygenates into CITGO gasoline, Marketer shall defend
and indemnify CITGO against claims, damages, costs and expenses which arise
from or relate to such blending.  With
respect to RBOB, only CITGO or its designee may blend oxygenate.

 

d.             Marketer further agrees to
comply or to require compliance with all laws, rules and regulations,
whether federal, state or local, pertaining to underground storage tanks and
lines which hold petroleum products sold to Marketer pursuant to this Agreement
including but not limited to those of financial responsibility and/or pollution
insurance requirements.

 

16.           INDEMNITY.

 

a.             Marketer hereby releases and
agrees to defend, indemnify and hold CITGO, its agents, servants, employees,
successors and assigns, harmless from and against any and all claims, suits,
losses, obligations, liabilities, injuries, and damages, including attorneys’
fees and costs of litigation, for death, personal injury, property damage or
other claim arising out of any failure by Marketer to perform, fulfill or
observe any obligation or liability of Marketer set forth in this Agreement or
any negligent act or omission by Marketer or any cause or condition of any kind
directly or 

 

8

 

indirectly arising in
connection with the use, occupancy, maintenance, upkeep, repair, replacement or
operation of any place of business, service station or marketing premises
(including but not limited to adjacent sidewalks, drives, curbs. signs, poles
and all other fixtures and equipment located thereon) which place of business,
service station or marketing premise is or was either directly or indirectly
owned, leased, operated, supplied, franchised, or licensed by or through
Marketer.

 

b.             Marketer hereby releases and
agrees to defend and indemnify and hold CITGO, its agents, servants, employees,
successors and assigns, harmless from and against any and all claims, suits,
losses, obligations, injuries, liabilities and damages, including attorneys’
fees and costs of litigation, resulting from the shipment, delivery, use,
storage, handling, and sale of petroleum products, including, but not limited
to, the seepage or leakage of any petroleum products from storage tanks,
pumps, dispensers and piping and fire or explosion at any place of business,
service station or marketing premises, which place of business, service station
or marketing premises is or was either directly or indirectly owned, leased,
operated, supplied, franchised or licensed by or through Marketer.

 

c.             Marketer shall defend,
indemnify and hold CITGO, its agents, servants, employees, successors and
assigns, harmless from and against any fines, penalties, taxes, judgments,
charges, or expenses, (including attorneys’ fees and costs of litigation), for
violations of any law, ordinance or regulation caused by any act or omission,
whether negligent or otherwise, of Marketer or its agents, servants, employees,
contractors, dealers, Marketers or licensees.

 

d.             Notwithstanding the
foregoing provisions, Marketer will not be responsible for violations of any
law, ordinance or regulation by CITGO, nor for any acts or omissions arising
from the sole negligence of CITGO, its agents, or employees.

 

17.           INSURANCE.

 

a              Marketer shall obtain and maintain, at its own
expense, insurance through an insurer acceptable to CITGO. Such insurance shall
include:

 

i.              Worker’s Compensation
Insurance covering Marketer’s employees; and Employer’s Liability Insurance
with a minimum limit of FIVE HUNDRED THOUSAND DOLLARS ($500,000) per
occurrence.

 

ii.             Commercial General Liability
insurance, including contractual liability and products-completed operations
liability, explosion, collapse and underground liability, as well as coverage on
all contractor’s equipment (other than motor vehicles licensed for highway use)
owned, hired, or used in performance of this Agreement having a minimum
combined single limit of ONE MILLION DOLLARS ($1,000,000) each occurrence (or
the equivalent) for bodily injury and property damage including personal
injury.

 

iii.            Automobile Liability
Insurance, including contractual liability covering all motor vehicles owned,
hired, or used in the performance of this Agreement, with a minimum combined
single limit of ONE MILLION DOLLARS ($1,000,000) each occurrence (or the
equivalent) for bodily injury and property damage.

 

b              The foregoing are minimum insurance requirements
only and may not adequately meet the entire insurance needs of Marketer.  Marketer shall list CITGO as an additional
insured on all insurance policies described in subsection (ii) and (iii) above
and such insurance shall not be subject to other insurance clauses. Marketer
shall furnish to CITGO upon request with certificates of insurance acceptable to
CITGO, which provide that coverage will not be canceled or materially changed
prior to thirty (30) working days’ advance written notice to CITGO.

 

9

 

c              Marketer shall require its dealers, who are handling
CITGO product, to maintain the insurance described herein.

 

d              All insurance requirements are a separate obligation
and not subject to any other terms and conditions of the contract.

 

18.           ASSIGNMENT/TRANSFER.           This
Agreement may not be assigned by Marketer except with CITGO’s prior written
consent which will not be unreasonably withheld. In the event more than
thirty-five percent (35%) of the ownership interest of Marketer’s business is
sold, transferred, or otherwise disposed of, whether by stock or asset
transfer, then CITGO reserves the right to deem such a transfer an attempt to
assign this Agreement.  In any event,
Marketer must notify CITGO thirty (30) days prior to the transfer of any
ownership interest in Marketer’s business.

 

19.           RELATIONSHIP
OF THE PARTIES.           Marketer
is an independent contractor operating an independent business and is not
authorized to act as an agent or employee of CITGO or to make any commitments
or incur any expense or obligations of any kind on behalf of CITGO, unless
expressly authorized by CITGO in writing.

 

20.           GENERAL PROVISIONS.           This
Agreement shall bind the executors, administrators, personal representatives,
assigns and successors of the respective parties. The right of either party to
require strict performance by the other party hereunder shall not be affected
by any previous waiver, forbearance or course of dealing. No delay or omission
of CITGO in exercising or enforcing any right or power accruing upon any breach
of this Agreement by Marketer shall impair any such right or power, or shall be
construed to be a waiver of any breach of this Agreement, or any acquiescence
therein. All notices hereunder shall be deemed to have been sufficiently given
if and when presented or mailed by certified mail to the parties at the
addresses above or such other addresses as may be furnished to the other in
writing by certified mail. All understandings and agreements relating to the
subject matter hereof either verbal or written, except insofar as incorporated in
this Agreement, are hereby canceled and withdrawn. CITGO has made no promises,
claims or representations to Marketer which are not contained in this
Agreement. This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and may be altered only by writing signed
by the parties hereto. This Agreement shall not be binding upon CITGO until it
has been duly accepted by CITGO as evidenced by the signature of its authorized
designee. Commencement of dealing between the parties shall not be deemed a
waiver of this requirement. This Agreement shall be governed by the laws of the
State of Oklahoma.  Marketer consents to
jurisdiction and venue in the state and federal courts located within Texas.

 

IN WITNESS WHEREOF, the parties have caused
this instrument to be duly executed the day and year first above written.

 

	
  CITGO PETROLEUM
  CORPORATION

  	
   

  	
  JEI DISTRIBUTING a

  
	
   

  	
   

  	
   

  	
  LIMITED LIABILITY COMPANY

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Alan Flagg

  	
   

  	
  By: x

  	
  /s/ Stan Guidroz

  
	
   

  	
   

  	
   

  	
   

  
	
  Print Name:

  	
  Alan Flagg

  	
   

  	
  Print Name: x

  	
  Stan Guidroz

  
	
   

  	
   

  	
   

  	
   

  
	
  Title: 

  	
  Region Manager-GM-LOM

  	
   

  	
  Title: x  

  	
  President 

  
	
   

  	
   

  	
   

  	
   

  
	
  Witness:

  	
  /s/ Stephanie Boothe

  	
   

  	
  Witness: x

  	
  /s/ Teresa Saucier

  
														

 

10

 

 

 

 

REVISED SUMMARY OF TITLE 1 OF

 

THE PETROLEUM MARKETING PRACTICES ACT

 

Office of the Secretary

 

REVISED SUMMARY OF TITLE I

OF THE PETROLEUM

MARKETING PRACTICES ACT

 

AGENCY: Department of Energy.

 

ACTION: Notice.

 

SUMMARY: This notice
contains a summary of Title I of the Petroleum Marketing Practices Act, as
amended (the Act). The Petroleum Marketing Practices Act was originally enacted
on June 19, 1978, and was amended by the Petroleum Marketing Practices Act
Amendments of 1994, enacted on October 19, 1994. On August 30, 1978,
the Department of Energy published in the Federal Register a summary of the
provisions of Title I of the 1978 law, as required by the Act. The Department
is publishing this revised summary to reflect key changes made by the 1994
amendments.

 

The
Act is intended to protect franchised distributors and retailers of gasoline
and diesel motor fuel against arbitrary or discriminatory termination or
non-renewal of franchises. This summary describes the reasons for which a
franchise may be terminated or not renewed under the law, the responsibilities
of franchisors, and the remedies and relief available to franchisees. The Act
requires franchisors to give franchisees copies of the summary contained in
this notice whenever notification of termination or non-renewal of a franchise
is given.

 

FOR
FURTHER INFORMATION CONTACT:

 

Carmen Difiglio, Office of Energy Efficiency,

Alternative Fuels, and Oil Analysis (PO-62),

U.S. Department of Energy, Washington, D.C.

20585,  Telephone (202) 586-4444

 

Lawrence Leiken, Office of General Counsel

(GC-73), U.S. Department of Energy,

Washington, D.C. 20585,

Telephone (202) 586-6978

 

SUPPLEMENTARY
INFORMATION:

 

Title
I of the Petroleum Marketing Practices Act, as amended, 15 U.S.C. §§2801-2806,
provides for the protection of franchised distributors and retailers of motor
fuel by establishing minimum Federal standards governing the termination of
franchises and the non-renewal of franchise relationships by the franchisor or
distributor of such fuel.

 

Section 104(d)(1) of
the Act required the Secretary of Energy to publish in the Federal Register a
simple and concise summary of the provisions of Title I, including a statement
of the respective responsibilities of, and the remedies and relief available
to, franchisors and franchisees under that title. The Department published this
summary in the Federal Register on August 30, 1978. 43 F.R. 38743 (1978).

 

In
1994 the Congress enacted the Petroleum Marketing Practices Act Amendments to
affirm and clarify certain key provisions of the 1978 statute. Among the key
issues addressed in the 1994 amendments are: (1) termination or
non-renewal of franchised dealers by their franchisors for purposes of
conversion to “company” operation; (2) application of state law; (3) the
rights and obligations of franchisors and franchisees in third-party lease
situations; and (4) waiver of rights limitations. See H.R. REP. NO. 737,
103rd Cong., 2nd Sess. 2 (1994), reprinted in 1994 U.S.C.C.A.N. 2780. Congress
intended to: (1) make explicit that upon renewal a franchisor may not
insist on changes to a franchise agreement where the purpose of such changes is
to prevent renewal in order to convert a franchisee-operated service station
into a company-operated service station; 
(2) make clear that where the franchisor has an option to continue
the lease or to purchase the premises but does not wish to do so, the
franchisor must offer to assign the option to the franchisee; (3) make
clear that no franchisor may require, as a condition of entering or renewing a
franchise agreement, that a franchisee waive any rights under the Petroleum
Marketing Practices Act, any other Federal law, or any state law; and (4) reconfirm
the limited scope of Federal preemption under the Act. Id.

 

The
summary which follows reflects key changes to the statute resulting from the
1994 amendments. The Act requires franchisors to give copies of this summary
statement to their franchisees when entering into an agreement to terminate the
franchise or not to renew the franchise relationship, and when giving
notification of termination or non-renewal. This summary does not purport to
interpret the Act, as amended, or to create new legal rights.

 

In
addition to the summary of the provisions of Title I, a more detailed
description of the definitions contained in the Act and of the legal remedies
available to franchisees is also included 
in this notice, following the summary statement.

 

SUMMARY OF LEGAL RIGHTS OF MOTOR FUEL FRANCHISEES

 

This
is a summary of the franchise protection provisions of the Federal Petroleum
Marketing Practices Act, as amended in 1994 (the Act), 15 U.S.C.  §§
2801-2806. This summary must be given to you, as a person holding a
franchise for the sale, consignment or distribution of gasoline or diesel motor
fuel, in connection with any termination or non-renewal of your franchise by
your franchising company (referred to in this summary as your supplier).

 

You
should read this summary carefully, and refer to the Act if necessary, to
determine whether a proposed termination or non-renewal of your franchise is
lawful, and what legal remedies are available to you if you think the proposed
termination or failure to renew is not lawful. In addition, if you think your
supplier has failed to comply with the Act, you may wish to consult an attorney
in order to enforce your legal rights.

 

The
franchise protection provisions of the Act apply to a variety of franchise
agreements. The term “franchise” is broadly defined as a license to use a motor
fuel trademark which is owned or controlled by a refiner, and it includes
secondary arrangements such as leases of real property and motor fuel supply
agreements which have existed continuously since May 15, 1973, regardless
of a subsequent withdrawal of a trademark. Thus, if you have lost the use of a
trademark previously granted by your supplier but have continued to receive
motor fuel supplies through a continuation of a supply agreement with your
supplier, you are protected under the Act.

 

Any
issue arising under your franchise which is not governed by this Act will be
governed by the law of the State in which the principal place of business of
your franchise is located.

 

Although
a State may specify the terms and conditions under which your franchise may be
transferred upon the death of the franchisee, it may not require a payment to
you (the franchisee) for the goodwill of a franchise upon termination or
non-renewal.

 

The
Act is intended to protect you, whether you are a distributor or a retailer,
from arbitrary or discriminatory termination or non-renewal of your franchise
agreement. To accomplish this, the Act first lists the reasons for which
termination or non-renewal is permitted. Any notice of
termination or non-renewal must state the precise reason, as listed in the Act,
for which the particular termination or non-renewal is being made. These
reasons are described below under the headings “Reasons for Termination” and “Reasons
for Non-renewal.”

 

The
Act also requires your supplier to give you a written notice of termination or
intention not to renew the franchise within certain time periods. These
requirements are summarized below under the heading “Notice Requirements for
Termination or Non-renewal.”

 

The
Act also provides certain special requirements with regard to trial and interim
franchise agreements, which are described below under the heading “Trial and
Interim Franchises.”

 

The
Act gives you certain legal rights if your supplier terminates or does not
renew your franchise in a way that is not permitted by the Act. These legal
rights are described below under the heading “Your Legal Rights.”

 

The
Act contains provisions pertaining to waiver of franchisee rights and
applicable State law. These provisions are described under the heading “Waiver
of Rights and Applicable State Law.”

 

This
summary is intended as a simple and concise description of the general nature
of your rights under the Act. For a more detailed description of these rights,
you should read the text of the Petroleum Marketing Practices Act, as amended
in 1994 (15 U.S.C. §§2801-2806). This summary does not purport to
interpret the Act, as amended, or to create new legal rights.

 

I. REASONS FOR TERMINATION

 

If
your franchise was entered into on or after June 19, 1978, the Act bars
termination of your franchise for any reasons other than those reasons
discussed below. If your franchise was entered into before June

 

11

 

19,
1978, there is no statutory restriction on the reasons for which it may be
terminated. If a franchise entered into before June 19, 1978, is
terminated, however, the Act requires the supplier to reinstate the franchise
relationship unless one of the reasons listed under this heading or one of the
additional reasons for non-renewal described below under the heading “Reasons
for Non-renewal” exists.

 

A.  Noncompliance with franchise agreement.

 

Your
supplier may terminate your franchise if you do not comply with a reasonable
and important requirement of the franchise relationship. However, termination
may not be based on a failure to comply with a provision of the franchise that
is illegal or unenforceable under applicable Federal, State or local law. In
order to terminate for non-compliance with the franchise agreement, your
supplier must have learned of this non-compliance recently. The Act limits the
time period within which your supplier must have learned of your non-compliance
to various periods, the longest of which is 120 days, before you receive
notification of the termination.

 

B.  Lack of good faith efforts.

 

Your
supplier may terminate your franchise if you have not made good faith efforts
to carry out the requirements of the franchise, provided you are first notified
in writing that you are not meeting a requirement of the franchise and you are
given an opportunity to make a good faith effort to carry out the requirement.
This reason can be used by your supplier only if you fail to make good faith
efforts to carry out the requirements of the franchise within the period which
began not more than 180 days before you receive the notice of termination.

 

C.  Mutual agreement to
terminate the franchise.  A
franchise can be terminated by an agreement in writing between you and your
supplier if the agreement is entered into not more than 180 days before the effective
date of the termination and you receive a copy of that agreement, together with
this summary statement of your rights under the Act. You may cancel the
agreement to terminate within 7 days after you receive a copy of the agreement,
by mailing (by certified mail) a written statement to this effect to your
supplier.

 

D.  Withdrawal from the market
area.

 

Under
certain conditions, the Act permits your supplier to terminate your franchise
if your supplier is withdrawing from marketing activities in the entire
geographic area in which you operate. You should read the Act for a more
detailed description of the conditions under which market withdrawal
terminations are permitted. See 15 U.S.C. §2802(b)(E).

 

E.  Other events permitting a termination.

 

If
your supplier learns within the time period specified in the Act (which in no
case is more than 120 days prior to the termination notice) that one of the
following events has occurred, your supplier may terminate your franchise
agreement:

 

(1) Fraud
or criminal misconduct by you that relates to the operation of your marketing
premises.

 

(2) You
declare bankruptcy or a court determines that you are insolvent.

 

(3) You
have a severe physical or mental disability lasting at least 3 months which
makes you unable to provide for the continued proper operation of the marketing
premises.

 

(4) Expiration
of your supplier’s underlying lease to the leased marketing premises, if: (a) your
supplier gave you written notice before the beginning of the term of the
franchise of the duration of the underlying lease and that the underlying lease
might expire and not be renewed during the term of the franchise; (b) your
franchisor offered to assign to you, during the 90-day period after
notification of termination or non-renewal was given, any option which the
franchisor held to extend the underlying lease or to purchase the marketing
premises (such an assignment may be conditioned on the franchisor receiving
from both the landowner and the franchisee an unconditional release from liability
for specified events occurring after the assignment); and (c) in a
situation in which the franchisee acquires possession of the leased marketing
premises effective immediately after the loss of the right of the franchisor to
grant possession, the franchisor, upon the written request of the franchisee,
made a bona fide offer to sell or assign to the franchisee the franchisor’s
interest in any improvements or equipment located on the premises, or offered
the franchisee a right of first refusal of any offer from another person to
purchase the franchisor’s interest in the improvements and equipment.

 

(5) Condemnation
or other taking by the government, in whole or in part, of the marketing
premises pursuant to the power of eminent domain. If the termination is based
on a condemnation or other taking, your supplier must give you a fair share of
any compensation which he receives for any loss of business opportunity or good
will.

 

(6) Loss
of your supplier’s right to grant the use of the trademark that is the subject
of the franchise, unless the loss was because of bad faith actions by your
supplier relating to trademark abuse, violation of Federal or State law, or
other fault or negligence.

 

(7) Destruction
(other than by your supplier) of all or a substantial part of your marketing
premises. If the termination is based on the destruction of the marketing
premises and if the premises are rebuilt or replaced by your supplier and
operated under a franchise, your supplier must give you a right of first
refusal to this new franchise.

 

(8) Your
failure to make payments to your supplier of any sums to which your supplier is
legally entitled.

 

(9) Your
failure to operate the marketing premises for 7 consecutive days, or any
shorter period of time which, taking into account facts and circumstances,
amounts to an unreasonable period of time not to operate.

 

(10) Your
intentional adulteration, mislabeling or misbranding of motor fuels or other
trademark violations.

 

(11)
Your failure to comply with Federal, State, or local laws or regulations of
which you have knowledge and that relate to the operation of the marketing
premises.

 

(12)
Your conviction of any felony involving moral turpitude.

 

(13)
Any event that affects the franchise relationship and as a result of which termination
is reasonable.

 

II. REASONS FOR NON-RENEWAL

 

If
your supplier gives notice that he does not intend to renew any franchise
agreement, the Act requires that the reason for non-renewal must be either one
of the reasons for termination listed immediately above, or one of the reasons
for non-renewal listed below.

 

A.  Failure to agree on changes or additions to
franchise.

 

If
you and your supplier fail to agree to changes in the franchise that your
supplier in good faith has determined are required, and your supplier’s
insistence on the changes is not for the purpose of converting the leased
premises to a company operation or otherwise preventing the renewal of the
franchise relationship, your supplier may decline to renew the franchise.

 

B.  Customer complaints.

 

If
your supplier has received numerous customer complaints relating to the
condition of your marketing premises or to the conduct of any of your
employees, and you have failed to take prompt corrective action after having
been notified of these complaints, your supplier may decline to renew the
franchise.

 

C.  Unsafe or unhealthful operations.

 

If
you have failed repeatedly to operate your marketing premises in a clean, safe
and healthful manner after repeated notices from your supplier, your supplier
may decline to renew the franchise.

 

D.  Operation of franchise is uneconomical.

 

Under
certain conditions specified in the Act, your supplier may decline to renew
your franchise if he has determined that renewal of the franchise is likely to
be uneconomical. Your supplier may also decline to renew your franchise if he
has decided to convert your marketing premises to a use other than for the sale
of motor fuel, to sell the premises, or to materially alter, add to, or replace
the premises.

 

III. NOTICE REQUIREMENTS FOR
TERMINATION OR NON-RENEWAL

 

The
following is a description of the requirements for the notice which your
supplier must give you before he may terminate your franchise or decline to
renew your franchise relationship. These notice requirements apply to all
franchise terminations, including franchises entered into before June 19,
1978 and trial and interim franchises, as well as to all non-renewals of
franchise relationships.

 

A.  How much notice is required.

 

In
most cases, your supplier must give you notice of termination or non-renewal at
least 90 days before the termination or non-renewal takes effect.

 

In
circumstances where it would not be reasonable for your supplier to give you 90
days notice, he must give you notice as soon as he can do so. In addition, if
the franchise involves leased marketing premises, your supplier may not
establish a new franchise relationship involving the same premises until 30
days after notice was given to you or the date the termination or non-renewal
takes effect, whichever is later. If the franchise agreement permits, your
supplier

 

12

 

may
repossess the premises and, in reasonable circumstances, operate them through
his employees or agents.

 

If
the termination or non-renewal is based upon a determination to withdraw from
the marketing of motor fuel in the area, your supplier must give you notice at
least 180 days before the termination or non-renewal takes effect.

 

B.  Manner and contents of notice.

 

To
be valid, the notice must be in writing and must be sent by certified mail or
personally delivered to you. It must contain:

(1) A
statement of your supplier’s intention to terminate the franchise or not to
renew the franchise relationship, together with his reasons for this action;

 

(2) The
date the termination or non-renewal takes effect; and

 

(3) A
copy of this summary.

 

IV. TRIAL FRANCHISES AND INTERIM FRANCHISES

 

The
following is a description of the special requirements that apply to trial and
interim franchises.

 

A.  Trial franchises.

 

A
trial franchise is a franchise, entered into on or after June 19, 1978, in
which the franchisee has not previously been a party to a franchise with the
franchisor and which has an initial term of 1 year or less. A trial franchise
must be in writing and must make certain disclosures, including that it is a
trial franchise, and that the franchisor has the right not to renew the
franchise relationship at the end of the initial term by giving the franchisee
proper notice.

 

The
unexpired portion of a transferred franchise (other than as a trial franchise,
as described above) does not qualify as a trial franchise.

 

In
exercising his right not to renew a trial franchise at the end of its initial
term, your supplier must comply with the notice requirements described above
under the heading “Notice Requirements for Termination or Non-renewal.”

 

B.  Interim franchises.

 

An
interim franchise is a franchise, entered into on or after June 19, 1978,
the duration of which, when combined with the terms of all prior interim
franchises between the franchisor and the franchisee, does not exceed three
years, and which begins immediately after the expiration of a prior franchise
involving the same marketing premises which was not renewed, based on a lawful
determination by the franchisor to withdraw from marketing activities in the
geographic area in which the franchisee operates.

 

An
interim franchise must be in writing and must make certain disclosures,
including that it is an interim franchise and that the franchisor has the right
not to renew the franchise at the end of the term based upon a lawful
determination to withdraw from marketing activities in the geographic area in
which the franchisee operates.

 

In
exercising his right not to renew a franchise relationship under an interim
franchise at the end of its term, your supplier must comply with the notice
requirements described above under the heading “Notice Requirements for
Termination or Non-renewal.”

 

V. YOUR LEGAL RIGHTS

 

Under
the enforcement provisions of the Act, you have the right to sue your supplier
if he fails to comply with the requirements of the Act. The courts are
authorized to grant whatever equitable relief is necessary to remedy the
effects of your supplier’s failure to comply with the requirements of the Act,
including declaratory judgment, mandatory or prohibitive injunctive relief, and
interim equitable relief. Actual damages, exemplary (punitive) damages under
certain circumstances, and reasonable attorney and expert witness fees are also
authorized. For a more detailed description of these legal remedies you should
read the text of the Act. 15 U.S.C. §§2801-2806.

 

VI. WAIVER OF RIGHTS AND APPLICABLE STATE LAW

 

Your
supplier may not require, as a condition of entering into or renewing the
franchise relationship, that you relinquish or waive any right that you have
under this or any other Federal law or applicable State law. In addition, no
provision in a franchise agreement would be valid or enforceable if the
provision specifies that the franchise would be governed by the law of any
State other than the one in which the principal place of business for the
franchise is located.

 

FURTHER DISCUSSION OF TITLE I—DEFINITIONS AND LEGAL REMEDIES

 

I. DEFINITIONS

 

Section 101
of the Petroleum Marketing Practices Act sets forth definitions of the key
terms used throughout the franchise protection provisions of the Act. The
definitions from the Act which are listed below are of those terms which are
most essential for purposes of the foregoing summary statement. (You should
consult section 101 of the Act for additional definitions not included here.)

 

A.  Franchise.

 

A
“franchise” is any contract between a refiner and a distributor, between a
refiner and a retailer, between a distributor and another distributor, or
between a distributor and a retailer, under 
which a refiner or distributor (as the case may be) authorizes or
permits a retailer or distributor to use, in connection with the sale, consignment,
or distribution of motor fuel, a trademark which is owned or controlled by such
refiner or by a refiner which supplies motor fuel to the distributor  which authorizes or permits such use.

 

The
term “franchise” includes any contract under which a retailer or distributor
(as the case may be) is authorized or permitted to occupy leased marketing
premises, which premises are to be employed in connection with the sale,
consignment, or distribution of motor fuel under a trademark which is owned or
controlled by such refiner or by a refiner which supplies motor fuel to the
distributor which authorizes or permits such occupancy. The term also includes
any contract pertaining to the supply of motor fuel which is to be sold,
consigned or distributed under a trademark owned or controlled by a refiner, or
under a contract which has existed continuously since May 15, 1973, and
pursuant to which, on May 15, 1973, motor fuel was sold, consigned or
distributed under a trademark owned or controlled on such date by a
refiner.  The unexpired portion of a
transferred franchise is also included in the definition of the term.

 

B.  Franchise relationship.

 

The
term “franchise relationship” refers to the respective motor fuel marketing or
distribution obligations and responsibilities of a franchisor and a franchisee
which result from the marketing of motor fuel under a franchise.

 

C.  Franchisee.

 

A
“franchisee” is a retailer or distributor who is authorized or permitted, under
a franchise, to use a trademark in connection with the sale, consignment, or
distribution of motor fuel.

 

D.  Franchisor.

 

A
“franchisor” is a refiner or distributor who authorizes or permits, under a
franchise, a retailer or distributor to use a trademark in connection with the
sale, consignment or distribution of motor fuel.

 

E.  Marketing premises.

 

“Marketing
premises” are the premises which, under a franchise, are to be employed by the
franchisee in connection with the sale, consignment, or distribution of motor
fuel.

 

F.  Leased marketing premises.

 

“Leased
marketing premises” are marketing premises owned, leased, or in any way
controlled by a franchisor and which the franchisee is authorized or permitted,
under the franchise, to employ in connection with the sale, consignment, or
distribution of motor fuel.

 

G.  Fail to renew and non-renewal.

 

The
terms “fail to renew” and “non-renewal’ refer to a failure to reinstate,
continue, or extend a franchise relationship (1) at the conclusion of the
term, or on the expiration date, stated in the relevant franchise, (2) at
any time, in the case of the relevant franchise which does not state a term of
duration or an expiration date, or (3) following a termination (on or
after June 19, 1978) of the relevant franchise which was entered into
prior to June 19, 1978 and has not been renewed after such date.

 

II. LEGAL REMEDIES AVAILABLE TO FRANCHISEE

 

The
following is a more detailed description of the remedies available to the
franchisee if a franchise is terminated or not renewed in a way that fails to
comply with the Act.

 

A.  Franchisee’s right to sue.

 

A
franchisee may bring a civil action in United States District Court against a
franchisor who does not comply with the requirements of the Act. The action

 

13

 

must
be brought within one year after the date of termination or non-renewal or the
date the franchisor fails to comply with the requirements of the law, whichever
is later.

 

B.  Equitable relief.

 

Courts
are authorized to grant whatever equitable relief is necessary to remedy the
effects of a violation of the law’s requirements. Courts are directed to grant
a preliminary injunction if the franchisee shows that there are sufficiently
serious questions, going to the merits of the case, to make them a fair ground
for litigation, and if, on balance, the hardship which the franchise would
suffer if the preliminary injunction is not granted will be greater than the
hardship which the franchisor would suffer if such relief is granted.

 

Courts
are not required to order continuation or renewal of the franchise relationship
if the action was brought after the expiration of the period during which the
franchisee was on notice concerning the franchisor’s intention to terminate or
not renew the franchise agreement.

 

C.  Burden of proof.

 

In
an action under the Act, the franchisee has the burden of proving that the
franchise was terminated or not renewed. The franchisor has the burden of
proving, as an affirmative defense, that the termination or non-renewal was
permitted under the Act, and, if applicable, that the franchisor complied with
certain other requirements relating to terminations and non-renewals based on
condemnation or destruction of the marketing premises.

 

D.  Damages.

 

A
franchisee who prevails in an action under the Act is entitled to actual
damages and reasonable attorney and expert witness fees.  If the action was based upon conduct of the
franchisor which was in willful disregard of the Act’s requirements or the
franchisee’s rights under the law, exemplary (punitive) damages may be awarded
where appropriate. The court, and not the jury, will decide whether to award
exemplary damages and, if so, in what amount.

 

On
the other hand, if the court finds that the franchisee’s action is frivolous,
it may order the franchisee to pay reasonable attorney and expert witness fees.

 

E.  Franchisor’s defense to
permanent injunctive relief.

 

Courts
may not order a continuation or renewal of a franchise relationship if the
franchisor shows that the basis of the non-renewal of the franchise
relationship was a determination made in good faith and in the normal course of
business:

 

(1) To
convert the leased marketing premises to a use other than the sale or
distribution of motor fuel;

 

(2) To
materially alter, add to, or replace such premises;

 

(3) To
sell such premises;

 

(4) To
withdraw from marketing activities in the geographic area in which such
premises are located; or

 

(5) That
renewal of the franchise relationship is likely to be uneconomical to the
franchisor despite any reasonable changes or additions to the franchise
provisions which may be acceptable to the franchisee.

 

In
making this defense, the franchisor also must show that he has complied with
the notice requirements of the Act.

 

This
defense to permanent injunctive relief, however, does not affect the franchisee’s
right to recover actual damages and reasonable attorney and expert witness fees
if the non-renewal is otherwise prohibited under the Act.

 

Issued in Washington, D.C. on June 12, 1996.

 

MARK W. CHUPKA,

Acting Assistant  Secretary for
Policy.

 

14

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