Subject to CompletionPreliminary Offering Memorandum dated May 18, 2010

O F F E R I N G M E M O R A N D U M C O N F I D E N T I A L

$1,500,000,000

CITGO Petroleum Corporation$ % Senior Secured Notes due 2017$ % Senior Secured Notes due 2020

The CompanyWe are one of the largest independent crude oil refiners and marketers of refined products in the United States. Our distribution activities are focused

primarily within the continental United States, in markets east of the Rocky Mountains, with our refineries and supply distribution networks strategicallylocated for these markets.

The NotesWe are offering $ aggregate principal amount of our % Senior Secured Notes due 2017 (the “2017 notes”) and $ aggregate

principal amount of our % Senior Secured Notes due 2020 (the “2020 notes” and, together with the 2017 notes, the “notes”).The 2017 notes will mature on , 2017 and the 2020 notes will mature on , 2020. The notes will pay interest semi-annually in arrears on andof each year, commencing on , 2010.The notes will be guaranteed (the “guarantees”), jointly and severally, on a senior secured basis by each of our existing and future restricted

subsidiaries that guarantee our new senior secured revolving credit facility and term loan (collectively, the “New Senior Credit Facility”).The notes and the guarantees will be secured, subject to certain exceptions and permitted liens, by a first-priority lien on our refineries in Lake Charles,

Louisiana, Lemont, Illinois and, upon acquiring the subleased portion of the refinery pursuant to our purchase option in 2011, our refinery in Corpus Christi,Texas, our inventory, equity interests in the guarantors and, subject to the execution of an intercreditor agreement by the participants in our accounts receivablesecuritization facility, our accounts receivable subsidiary, and related assets, in each case to the extent that such assets secure the New Senior Credit Facility; andthe liens securing the notes and guarantees will rank equally with the liens securing the New Senior Credit Facility and our obligations under our fixed rateindustrial revenue bonds (“IRBs”), provided that in the event of a foreclosure on certain inventory comprising the collateral or of insolvency proceedings, debtunder our new senior secured revolving credit facility will be paid with proceeds of such inventory prior to the notes.

The notes and guarantees will be senior to any of our and the guarantors’ existing and future indebtedness that is expressly subordinated to the notesand the guarantees and effectively junior to any of our and the guarantors’ existing and future secured indebtedness which is secured by assets that arenot collateral for the notes and the guarantees, to the extent of the value of the assets securing such indebtedness. The notes and guarantees will be ourand the guarantors’ senior secured obligations and will rank equally in right of payment with our and the guarantors’ existing and future seniorindebtedness, including our New Senior Credit Facility and our obligations under our fixed rate IRBs, will be effectively senior in right of payment to allof our and the guarantors’ existing and future indebtedness that does not have a lien on the collateral securing the notes with respect to and to the extentof the value of the collateral securing the notes, and will be structurally junior to all obligations of our subsidiaries that in the future are not guarantors,to the extent of the value of such subsidiaries.

We may redeem some or all of the 2017 notes at any time prior to , 2014 and some or all of the 2020 notes at any time prior to , 2015, in eachcase, at a price equal to 100% of the principal amount thereof plus a “make-whole” premium as described herein. We may redeem some or all of the2017 notes at any time on or after , 2014 and some or all of the 2020 notes at any time on or after , 2015, in each case, at the redemption prices setforth herein. In addition, at any time and from time to time prior to , 2013, we may redeem up to 35% of the aggregate principal amount of either orboth series of notes using the proceeds of one or more equity offerings at the redemption prices described herein. We must offer to purchase the notes ifwe experience specific kinds of changes of control or sell assets under certain circumstances. See “Description of the Notes.”

Use of ProceedsConcurrently with the closing of this offering, we expect to enter into the New Senior Credit Facility. We will use the net proceeds from this offering,

together with proceeds from the New Senior Credit Facility, to repay all amounts outstanding under our existing senior secured revolving credit facility and termloans (collectively, the “Existing Senior Credit Facility”), to finance the purchase of our variable rate IRBs and for general corporate purposes. See “Use ofProceeds.” The consummation of this offering is conditioned upon the concurrent termination of the Existing Senior Credit Facility and entering into the NewSenior Credit Facility.

Investing in the notes involves risks that are described in the “Risk Factors” section beginning on page 16 of this offering memorandum.

Offering Price for the 2017 notes: % plus accrued interest, if any, from , 2010.Offering Price for the 2020 notes: % plus accrued interest, if any, from , 2010.

The notes have not been and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of anystate and are being offered and sold in the United States only to qualified institutional buyers in reliance on Rule 144A under the Securities Act andoutside the United States to certain non-U.S. persons in reliance on Regulation S under the Securities Act. Prospective purchasers that are “qualifiedinstitutional buyers” within the meaning of Rule 144A are hereby notified that the seller of the notes may be relying on the exemption from theprovisions of Section 5 of the Securities Act provided by Rule 144A. For further details about eligible offerees and resale restrictions, see “Notice toInvestors.”

The notes will be ready for delivery in book-entry form only through the facilities of The Depository Trust Company for the accounts of its participants,including Euroclear Bank S.A./N.V., as operator of the Euroclear System, and Clearstream Banking, société anonyme, on or about June , 2010.

We have applied to admit the notes to listing on the Official List of the Luxembourg Stock Exchange and to trading on the Euro MTF market.Joint Book-Running Managers

RBS UBS Investment Bank BNP PARIBAS Credit Agricole CIB

Co-Managers

DnB NOR Markets Natixis Bleichroeder LLC UniCredit Capital Markets

The date of this offering memorandum is , 2010.

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Lake Charles, LACrude Capacity: 425 MBPDNCI: 11.83

Lemont, ILCrude Capacity: 167 MBPDNCI: 11.55

Corpus Christi, TXCorpus ChCrude Capacity: 157 MBPDNCI: 14.75

21 million barrels of product terminal storage

NCI =Nelson RefineryComplexity Index

6,500 independently ownedand operated CITGO-brandedlocations

Explorer Pipeline

Colonial Pipeline

Storage Terminal

Refinery

States with aretail presence

CITGO Petroleum Corporation

TABLE OF CONTENTS

Page

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . 1

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . 16

USE OF PROCEEDS . . . . . . . . . . . . . . . . . 35

CAPITALIZATION . . . . . . . . . . . . . . . . . . . 36

SELECTED HISTORICAL FINANCIALDATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIALCONDITION AND RESULTS OFOPERATIONS . . . . . . . . . . . . . . . . . . . . . 41

DESCRIPTION OF OTHERINDEBTEDNESS . . . . . . . . . . . . . . . . . . . 65

BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . 70

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . 91

Page

RELATED PARTY TRANSACTIONS . . . . 93

DESCRIPTION OF THE NOTES . . . . . . . . 96

SUMMARY OF U.S. FEDERAL INCOMETAX CONSIDERATIONS . . . . . . . . . . . . 158

CERTAIN ERISA CONSIDERATIONS . . . 163

PLAN OF DISTRIBUTION . . . . . . . . . . . . 165

NOTICE TO INVESTORS . . . . . . . . . . . . . 168

LEGAL MATTERS . . . . . . . . . . . . . . . . . . . 173

INDEPENDENT AUDITORS . . . . . . . . . . . 173

LISTING AND GENERALINFORMATION . . . . . . . . . . . . . . . . . . . 173

INDEX TO FINANCIAL STATEMENTS . . F-1

We are furnishing this offering memorandum on a confidential basis to prospective investors inconnection with an offering exempt from registration under the Securities Act and applicable state securitieslaws solely for the purpose of enabling such prospective investors to consider the purchase of the notes. Thisoffering memorandum is personal to each offeree and does not constitute an offer to any person or to thepublic generally to subscribe for or otherwise acquire the notes. Delivery of this offering memorandum to anyperson other than the prospective investor and any person retained to advise such prospective investor withrespect thereto is unauthorized, and any reproduction of this offering memorandum, in whole or in part,without our or an initial purchaser’s consent, is prohibited. By accepting delivery of this offeringmemorandum, you agree to these restrictions. By accepting delivery you also acknowledge that this offeringmemorandum contains confidential information and you agree that the use of such information for anypurpose other than considering a purchase of the notes is prohibited. See “Notice to Investors.”Notwithstanding anything in this offering memorandum to the contrary, each prospective investor (and eachemployee, representative or other agent of the prospective investor) may disclose to any and all persons,without limitation of any kind, the U.S. tax treatment and U.S. tax structure of any offering and all materials ofany kind (including opinions or other tax analyses) that are provided to the prospective investor relating tosuch U.S. tax treatment and U.S. tax structure, other than any information for which nondisclosure isreasonably necessary in order to comply with applicable securities laws.

Except as otherwise indicated in this offering memorandum, we accept responsibility for theinformation contained in this offering memorandum. Except as otherwise indicated in this offeringmemorandum, to the best of our knowledge (after having made all reasonable inquiries), the informationcontained in this offering memorandum is in accordance with the facts and does not omit anything likely toaffect the import of such information.

You should rely only upon the information contained in this offering memorandum and the documentsto which we refer you. Neither we nor the initial purchasers have authorized any other person to provide youwith different information. If anyone provides you with different or inconsistent information, you should notrely on it. You should assume the information appearing in this offering memorandum is accurate only as ofthe date on the front cover of this offering memorandum. Our business, financial condition, results ofoperations and prospects may have changed since that date. The contents of our website do not form part ofthis offering memorandum. No representation or warranty, express or implied, is made by the initial purchasersas to the accuracy or completeness of the information contained in this offering memorandum, and nothingcontained in this offering memorandum is, or may be relied upon as, a promise or representation by the initialpurchasers.

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This offering memorandum contains summaries, believed to be accurate, of the terms we considermaterial of certain documents, but reference is made to the actual documents for complete information, and allsuch summaries are qualified in their entirety by such reference. Copies of certain documents referred toherein will be made available to prospective investors upon request to us or the initial purchasers. You shouldcontact us or the initial purchasers with any questions about the offering or for additional information to verifythe information contained in this offering memorandum. The notes offered in this offering memorandum aresubject to restrictions on transferability and resale and may not be transferred or resold except as permittedunder the Securities Act and applicable state securities laws pursuant to registration or exemption from theselaws. You should be aware that you may be required to bear the financial risks of this investment for anindefinite period of time. You must comply with all applicable laws and regulations in force in any jurisdictionin connection with the distribution of this offering memorandum and the offer or sale of the notes. See“Notice to Investors.”

In making an investment decision, you must rely on your own examination of us and the terms of thisoffering, including the merits and risks involved. You should not construe the contents of this offeringmemorandum as legal, business or tax advice. You should consult your own attorney, business advisor and taxadvisor as to legal, business, tax and related matters concerning this offer.

Neither the U.S. Securities and Exchange Commission (“SEC”) nor any state or foreign securitiesregulator has approved or disapproved of these securities nor have any of the foregoing authorities passed uponor evaluated the merits of this offering or the accuracy or adequacy of this offering memorandum. Anyrepresentation to the contrary is a criminal offense.

Laws in certain jurisdictions may restrict the distribution of this offering memorandum and the offerand sale of the notes. Persons into whose possession this offering memorandum or any of the notes aredelivered must inform themselves about, and observe, those restrictions. Each prospective investor in the notesmust comply with all applicable laws and regulations in force in any jurisdiction in which it purchases or sellsthe notes or possesses this offering memorandum and must obtain any consent, approval or permissionrequired under any regulations in force in any jurisdiction to which it is subject or in which it purchases orsells the notes, and neither we nor the initial purchasers shall have any responsibility therefor.

Neither we nor the initial purchasers are making an offer to sell these securities in anyjurisdiction where the offer or sale is not permitted.

NOTICE TO NEW HAMPSHIRE RESIDENTS

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FORA LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISEDSTATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY ISEFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEWHAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEWHAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE ANDNOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OREXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THESECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONSOF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, ORTRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANYPROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATIONINCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

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NOTICE TO INVESTORS IN THE UNITED KINGDOM

This offering circular is for distribution only to, and is only directed at, persons who (i) haveprofessional experience in matters relating to investments falling within Article 19(5) of the FinancialServices and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “FinancialPromotion Order”), (ii) are persons falling within Article 49(2)(a) to (d) (high net worth companies,unincorporated associations, etc.) of the Financial Promotion Order or (iii) are persons to whom aninvitation or inducement to engage in investment activity (within the meaning of section 21 of theFinancial Services and Markets Act 2000) in connection with the issue or sale of any notes mayotherwise lawfully be communicated (all such persons together being referred to as “relevant persons”).This offering circular is directed only at relevant persons and must not be acted on or relied on bypersons who are not relevant persons. Any investment or investment activity to which this documentrelates is available only to relevant persons and will be engaged in only with relevant persons.

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FORWARD-LOOKING STATEMENTS

Certain information included in this offering memorandum may be deemed to be “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statementsrelate to, among other things, expectations regarding refining margins, revenues, costs and expenses, margins,profitability, cash flows, capital expenditures, liquidity and capital resources, our working capital requirements,and other financial and operating items. These statements also relate to our industry, business strategy, goalsand expectations concerning our market position and future operations. We have used the words “anticipate,”“believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” andsimilar terms and phrases to identify forward-looking statements, which speak only as of the date of thisoffering memorandum.

Any forward-looking statements are not guarantees of our future performance and are subject to risksand uncertainties that could cause actual results, developments and business decisions to differ materially fromthose contemplated by these forward-looking statements. These statements are based on assumptions andassessments made by our management in light of their experience and their perception of historical trends,current conditions, expected future developments and other factors they believe to be appropriate. Although webelieve the assumptions upon which these forward-looking statements are based are reasonable, any of theseassumptions could prove to be inaccurate and the forward-looking statements based on these assumptionscould be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many ofwhich are beyond our control, which could result in our expectations not being realized or otherwisematerially affect our financial condition, results of operations, and cash flows. You are cautioned not to placeundue reliance on these forward-looking statements.

While it is not possible to identify all the factors that may cause our future performance to differfrom our expectations, these factors include, among others:

k changes in global economic conditions and the effects of the global economic downturn on ourbusiness and the business of our suppliers, customers, business partners and lenders;

k the timing and extent of changes in commodity prices and demand for our refined products;

k the availability and costs of crude oil, other refinery feedstocks and refined products;

k changes in the price differentials between light sweet and heavy sour crude oils;

k changes in the cost or availability of third-party vessels, pipelines and other means of transportingcrude oil, feedstocks and refined products;

k changes in fuel and utility costs for our facilities;

k operational hazards inherent in refining operations and in transporting and storing crude oil andrefined products;

k disruptions due to equipment interruption or failure at our facilities or third-party facilities;

k effects of and costs relating to compliance with state and federal environmental, economic, healthand safety, energy and other policies and regulations, and any changes thereto;

k regulatory and market-driven product changes and related capital expenditure requirements andcapital project risks;

k the price, availability and acceptance of alternative energy sources and alternative energy vehicles;

k adverse rulings, judgments, or settlements in litigation or other legal or tax matters, includingunexpected environmental remediation costs in excess of any accruals;

k actions of customers and competitors;

k weather conditions affecting our operations or the areas in which our refined products aremarketed;

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k hurricanes or other natural disasters affecting operations;

k changes in insurance markets impacting costs and the level and types of coverage available;

k direct or indirect effects on our business resulting from actual or threatened terrorist incidents oracts of war; and

k political developments.

Some of these factors, as well as others that may cause actual results, developments and businessdecisions to differ materially from those contemplated by these forward-looking statements, are discussed ingreater detail under the heading “Risk Factors” beginning on page 16.

The forward-looking statements contained in this offering memorandum are made only as of the dateof this offering memorandum. We disclaim any duty to update any forward-looking statements.

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INDUSTRY AND MARKET DATA

We obtained the market and competitive position data used throughout this offering memorandumfrom our own research, surveys or studies conducted by third parties, publicly available information andindustry publications. The publicly available information and the surveys, studies and publications provided bythird parties generally state that the information contained therein has been obtained from sources believed tobe reliable, but they do not guarantee the accuracy and completeness of that information. While we believethese sources are reliable, we have not independently verified the information, and cannot guarantee itsaccuracy or completeness. Similarly, we believe our internal research is reliable, but it has not been verified byany independent sources.

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SUMMARY

The following summary highlights selected information contained in this offering memorandum. Youshould carefully read the entire offering memorandum, including the “Risk Factors” and the consolidatedfinancial statements and related notes included elsewhere in this offering memorandum, before making aninvestment decision. Unless otherwise indicated or the context requires otherwise, all references in thisoffering memorandum to “CITGO,” “our company,” “we,” “us,” “our,” or similar references mean CITGOPetroleum Corporation and its consolidated subsidiaries.

Our Company

We are one of the largest independent crude oil refiners and marketers of refined products in theUnited States as measured by refinery capacity. We own and operate three petroleum refineries with a totalrated crude oil capacity of approximately 749,000 barrels per day, or bpd, located in Lake Charles, Louisiana,Corpus Christi, Texas and Lemont, Illinois. Our refining operations are supported by an extensive distributionnetwork, which provides reliable access to our refined product end-markets. We own 37 refined productterminals spread across 17 states with a total storage capacity of 18.4 million barrels, and have equityownership of an additional 2.1 million barrels of refined product storage capacity through our joint ownershipof an additional 11 terminals. We also have access to over 150 third-party terminals through exchange,terminaling and similar arrangements. We believe that we are the seventh largest branded gasoline supplierwithin the United States as measured by sales volume, with an approximate 5% market share of the brandedgasoline market. There are approximately 6,500 independently owned and operated CITGO-branded retailoutlets located in our markets, which are located east of the Rocky Mountains. We and our predecessors havehad a recognized brand presence in the United States for approximately 100 years.

Our Refineries

We believe that we are the third largest and the most complex independent refiner in the UnitedStates, with each of our refineries capable of processing large volumes of lower quality, heavy sour crude oilsinto a flexible range of refined products. Refinery complexity refers to a refinery’s ability to process andconvert crude oil and other feedstocks into higher-value products and is commonly measured by the NelsonRefinery Complexity Index. In general, a refinery with a higher complexity is more capable of processingheavy sour crude oils in an economically efficient manner. Over the 2007 to 2009 period, an average of 71%of the crude oils processed through our refineries were heavy sour crude oils. In 2009, our total yield of high-value products was 84%, including gasoline, jet fuel, diesel, no. 2 fuel oil and petrochemicals. Our refineriesalso produce industrial products, which are used in a wide variety of end-market applications. Each of ourrefineries is supported by an extensive logistics network for receiving foreign and domestic crude oils viamarine facilities and pipelines, and for distributing products via connections to major product pipelines andmarine terminals.

Lake Charles, Louisiana - Our Lake Charles refinery has a rated crude capacity of 425,000 bpd andis one of the largest refineries in the United States. The Lake Charles refinery, which has a Nelson RefineryComplexity Index of 11.83, processed an average of 61% heavy sour crude oils over the 2007 to 2009 period.Light fuel products represented approximately 83% of the Lake Charles refinery’s total product yield in 2009.The Lake Charles refinery also produces petrochemicals, including refinery-grade propylene, benzene andmixed xylenes, and industrial products including sulfur, residual oils and petroleum coke. The Lake Charlesrefinery has direct marine access to crude oil and other feedstock transportation facilities and is connected viacompany-owned or third-party pipelines to various crude oil terminals, as well as to the U.S. StrategicPetroleum Reserve. For delivery of refined products, the Lake Charles refinery has injecting capabilitiesdirectly into Colonial Pipeline and Explorer Pipeline, which are the major refined product pipelines supplyingthe Northeast and Midwest regions of the United States, respectively. The Lake Charles refinery also deliversrefined products via bulk marine shipments to domestic and international markets.

Corpus Christi, Texas - Our Corpus Christi refinery has a rated crude capacity of 157,000 bpd. Webelieve that our Corpus Christi refinery is one of the most complex fuel and petrochemical refineries in the

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United States. The Corpus Christi refinery, which has a Nelson Refinery Complexity Index of 14.75,processed an average of 94% heavy sour crude oils over the 2007 to 2009 period. The high complexity of theCorpus Christi refinery enables it to produce a greater proportion of high-value petrochemicals, includingcumene, cyclohexane and aromatics such as benzene, toluene and mixed xylenes, than less complex refineries.In 2009, light fuel products represented approximately 69% of the total product yield for the Corpus Christirefinery, with petrochemicals representing approximately 10% and the balance comprised of industrialproducts. The Corpus Christi refinery receives crude oil and other feedstocks primarily by marine transport,and delivers refined products via marine and third-party pipeline facilities primarily to the Southeast region ofthe United States and Texas.

Lemont, Illinois - Our Lemont refinery has a rated crude capacity of 167,000 bpd and is a majorsupplier of transportation fuels primarily to the Upper Midwest region of the United States. We believe ourLemont refinery has a logistical advantage to refineries located outside the Midwest with respect to both crudeoil purchases and product sales. The Lemont refinery’s deep conversion capacity enables it to process largeamounts of heavy sour Canadian crude oils, giving it an advantage over other Midwest refineries withoutsimilar capabilities. The Lemont refinery also benefits from the lower transportation cost of Canadian heavycrude oils and its location in a historically net import market for petroleum products. The Lemont refinery,which has a Nelson Refinery Complexity Index of 11.55, processed an average of 66% heavy sour crude oilsover the 2007 to 2009 period. In 2009, light fuel products represented approximately 79% of the total productyield for the Lemont refinery, with the remaining output comprised of petrochemicals, including benzene,toluene and mixed xylenes, plus a range of aliphatic solvents, and industrial products. The majority of thecrude oil processed at our Lemont refinery is transported via third-party pipelines, but the refinery is alsocapable of receiving crude oil and other feedstocks by barge and rail. Refined products are delivered through avariety of third-party pipelines, rail and barges.

Our Marketing and Distribution Network

In 2009, our total product yield was comprised of 78% light fuels, 6% petrochemicals, and 16%industrial products. Our products are supported by an extensive distribution network and are sold through avariety of channels, including our branded independently owned and operated retail network, as well as in thebulk market and directly and indirectly to large manufacturers, retailers and marketers.

Light Fuels. We sell gasoline to approximately 450 marketers who in turn sell to approximately 6,500independently owned and operated CITGO-branded retail outlets located east of the Rocky Mountains. Inaddition, we market jet fuel directly to major airline customers as well as to resellers for use at seven airports,including major hub cities such as Boston and Miami. Our light fuel marketing activities are supported by anextensive terminal distribution network throughout our service regions. We own or have equity ownership in48 refined product terminals located across 22 states with a total storage capacity of approximately 21 millionbarrels. In addition, we have access to over 150 third-party terminals through exchange, terminaling andsimilar arrangements.

Petrochemicals, Industrial Products and Lubricants. We produce a diverse range of petrochemicalsand industrial products, including benzene, cumene, mixed xylenes, toluene, cyclohexane, refinery-gradepropylene, solvents, sulfur, and natural gas liquids. We sell our petrochemicals primarily to large chemical andpetrochemical manufacturers for use in the production of plastics, fibers and building materials, includingpaints, adhesives and coatings. Industrial products are byproducts that are produced or consumed during therefining process. We sell our industrial products to a wide variety of end-market users, including fuel blenders,refiners, electric utilities and fertilizer, cement and steel producers. We also blend and market lubricants suchas industrial lubricants and automotive oils on a branded basis, with particular penetration in the retail marketsfor 2-cycle and small engine oil, grease products, metal working fluids, and environmentally friendly and food-grade lubricants.

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Key Market Trends

We believe the following are key factors that will influence the long-term outlook for the overallrefining industry and the markets we serve.

Improving Economic Conditions. In 2008 and 2009, demand for refined petroleum products wasnegatively impacted by, among other factors, the economic recession. Starting in the last quarter of 2009,several key measures of economic conditions in the United States, including gross domestic product and non-farm payrolls, began to improve. We believe that increases in these measures signal an improvement in generaleconomic conditions, which we believe will result in an increase in the demand for gasoline, distillate andother refined products.

Capacity Rationalization. In response to excess refining capacity in the United States throughout2009, many refiners reduced utilization rates and announced unit or refinery-wide shutdowns. We believe thatcapacity rationalization will continue and could result in a reduction of overall refining capacity from currentlevels. In particular, our competitors could continue to shut down certain of their refineries that we believe areat a competitive disadvantage, including their less complex refineries, those requiring significant capitalexpenditures in order to remain compliant with current or pending environmental regulations and changingcustomer preferences, and those that are not well positioned geographically relative to their distributionmarkets. In addition, many refiners have deferred or are considering deferring their investment plans due torecent refining economics. We believe this capacity rationalization will contribute to keeping the supply ofpetroleum products in balance with the longer-term trend in demand.

Increasing Light/Heavy Differentials. In 2009, the continuing economic recession led theOrganization of Petroleum Exporting Countries (“OPEC”) to reduce its production of crude oils. We believethe reduction was disproportionately related to heavy sour crudes, and contributed to an increase in the priceof heavy sour crudes relative to light sweet crudes and a narrowing of the historical price differential betweenlight and heavy crudes. In 2009, the average price differential between light and heavy crudes, as illustrated bythe WTI-Maya differential, declined to one of its lowest levels in the past decade, averaging $5.20 per barrelor 8.4% of WTI.1 By comparison, between 2000 and 2008 the annual average ranged from a low of $5.19 perbarrel to a high of $15.59 per barrel, or between 19.9% and 27.6% of WTI. As economic conditions improveand demand for petroleum products increases, we believe that OPEC will relax production restrictions, whichshould increase the supply of heavy sour crudes and contribute to a widening of the light/heavy differential,resulting in improved margins for refiners that process significant amounts of heavy crudes.

Trend Towards Lower Quality Crudes. Historically, the crude slate available to U.S. refineries hasbecome heavier (lower API gravity) and more sour (higher sulfur content). Due to their higher density andmetals and sulfur content, heavy sour crudes require additional conversion units to enable processing into fuelproducts. As a result, heavy sour crudes have historically sold at a discount to lighter, sweeter crude oils,contributing to lower crude oil costs for refineries that can process these types of crudes. Currently, less thanhalf of U.S. refiners have coking units with the ability to convert heavy crudes into lighter transportation fuels.Given the world’s current heavy sour crude reserves, such as those in Brazil, Canada, Iraq and Venezuela, theproportion of lower quality crudes is expected to continue to trend upward over the long term. We believe thisupward trend should result in a widening of the light/heavy differential and improved margins for refineriesthat have the ability to process these types of crudes.

Competitive Strengths

Industry-Leading Refining Capability with Significant Asset Value. We own and operate three large-scale, high complexity refineries with a total rated crude capacity of approximately 749,000 bpd. We believethat we are the third largest independent refiner in the United States by refinery capacity, and the mostcomplex independent refiner in the country. Our refineries have large coking units that enable us to process

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1 The WTI-Maya differential is the spot price differential between the lighter, sweeter West Texas Intermediate (“WTI”) crude type andthe heavier, more sour Maya crude type. This differential is a recognized industry measure of the difference between light sweet crudesand heavy sour crudes. The location basis for the spot WTI price is Cushing, Oklahoma, and the spot Maya price is FOB (“free onboard”).

substantial amounts of heavy sour crude oils, which are typically priced at a discount to lighter, sweeter crudeoils, giving us a cost advantage over competitors with less complex refineries. Our large downstreamconversion units, such as catalytic cracking, hydrotreating and desulfurization units, enable us to produce aflexible range of refined products, and optimize margins in response to market changes. Over the 2007 to2009 period, an average of 71% of the crude oils processed through our refineries were heavy sour crude oils.In 2009, our total yield of high-value products was 84%, including gasoline, jet fuel, diesel, no. 2 fuel oil andpetrochemicals, with the remaining output comprised primarily of industrial products. According to aDecember 2009 appraisal conducted by Turner, Mason & Company (“Turner Mason”), an independentpetroleum and petrochemicals consulting firm, the total asset value of our three refineries is estimated to be$6 billion (excluding related working capital assets), based on typical industry valuation methodologies. TurnerMason’s report is subject to a number of estimates and assumptions as discussed in more detail in “RiskFactors — The appraisal of our three refineries may not reflect the value that would be realized if thecollateral agent were to foreclose on them.”

Strategic Access to Diversified Crude Supplies. The geographic location of our three refineries givesus access to a diversified supply of crude oil types. In 2009, our crude oil supply was comprised of over40 different types of crude from 16 different countries. Our Gulf Coast refineries (Lake Charles and CorpusChristi) have direct marine access and pipeline connections, giving us the ability to optimize our use of lowcost crude oil. Due to its geographic location, our Lemont refinery, which processes mainly heavy sourWestern Canadian crude oils, is able to capture significant discounts on its crude oil costs compared to otherMidwest refineries whose processing capabilities are limited to lighter, sweeter crudes. The diversity of ourthree locations also better positions us to withstand potential disruptions in supply and unexpected downtimeat one of the refineries. We are an indirect wholly owned subsidiary of Petróleos de Venezuela, S.A., or“PDVSA,” the national oil company of the Bolivarian Republic of Venezuela, and we serve as PDVSA’sprincipal outlet for heavy sour crude oil in the U.S. market. This relationship gives us access to one of thelargest proven oil reserves in the Western Hemisphere.

Integrated Product Marketing and Distribution System. We market and distribute refined productsthrough our 48 wholly or partly owned terminals, as well as over 150 additional third-party terminals whichwe utilize under exchange, terminaling and similar arrangements. This terminal network enables us to optimizeour refined product distribution across more than 27 states in support of our extensive network ofindependently owned and operated CITGO-branded retail locations. Sales through our retail marketing networkprovide us with a more secure and consistent distribution outlet while also allowing us to capture additionalmargin over the bulk spot market. Our broad refining footprint enables us to distribute our refined products todifferent regions of the United States, including the Northeast, Southeast, Southwest and Midwest regions,each of which has different pricing structures and growth dynamics; it also provides us with marine access tointernational markets.

Industry-Leading Safety Track Record. We believe that we have one of the leading safety trackrecords in the refining industry. According to the National Petrochemical and Refiners Association, in four ofthe five years between 2004 and 2008 we had the lowest total recordable incident rate among U.S. refinerswith more than 100 employees. Our safety record reflects our proactive focus on preventive safety measures.We believe our strong safety focus reduces business, environmental and legal risks and enhances our operatingresults.

Experienced, Proven Management Team. Our management team has an average of nearly 30 years ofexperience in the energy industry and approximately 13 years with us. This experience underscores ourmanagement’s ability to develop and implement strategies to align our operations with trends in the refiningindustry. Since the end of 2008, our management team successfully reduced operating costs, improved ourworking capital position and repaid outstanding revolver borrowings, leading to an improvement in ourliquidity position despite a challenging economic environment. We believe our management’s continued effortsto improve the capabilities and reliability of our refineries and optimize our marketing and distributionnetworks, while maintaining a strong focus on operational safety, position us to take advantage of improvingmarket conditions.

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Our Strategy

Our primary objective is to maximize the profitability and cash flow of our refining and marketingoperations while maintaining our strong environmental and safety track record. Our strategy is focused onefficiently processing a broad range of low cost, primarily heavy sour crude oils into high-value light fuels,petrochemicals, and industrial products. We intend to achieve this objective through the following strategies:

Continue to Invest in Safe, Environmentally Sound and Reliable Operations. We will continue to fundcapital investments to maintain and improve our safety performance and to comply with increasingly stringentenvironmental regulations. Our capital program also includes capital expenditures designed to upgrade ouroperating units and increase the reliability of our refining operations. In 2006, we converted a hydrotreatingunit at our Lake Charles refinery to enable us to produce up to 91,300 bpd of ultra low sulfur diesel(“ULSD”), and we are currently completing ULSD units at our Corpus Christi and Lemont refineries. By theend of 2010 we will have completed significant capital expenditures to increase our production of ULSD,which will help us meet demand for clean fuels products. In 2005, we also completed a project to increase thecrude oil distillation capacity of the Lake Charles refinery by 105,000 bpd.

Capitalize on Our Capability to Process Low Cost, Heavy Sour Crude Oil. We continually seek tomaximize our refining margin through our ability to process low cost, heavy sour crude and optimize ourcrude slates. In 2009, the amount of heavy crude oil processed at our refineries was 441,000 bpd (69% of thetotal crude oil processed), with an average API gravity of 21.3 degrees (well below the 25 degrees thresholdthat defines heavy crudes) and an average sulfur content of 2.2% (well above the 0.5% that defines sourcrudes). We continuously review the economics of multiple available crudes and feedstocks and determine theoptimal crude slate and product yields for our refineries in order to maximize our refining margins.

Optimize Our Refining Production and Marketing Network. We continually seek to optimize the valueof our refining production by distributing our products in markets which can be supplied in a cost-advantagedmanner and by balancing our branded marketing volumes with our production and long-term contract supplysources. In 2007, we implemented a plan to rationalize our branded marketing sales to focus on moreprofitable geographical areas and third-party customers and subsequently divested non-strategic terminal andpipeline assets. We also seek to maximize the value of our refining and distribution assets by marketing ourunderutilized storage capacity at our owned terminals, installing ethanol blending facilities at certain of ourequity-owned terminals, and focusing our sales efforts in regions where our marketing network provides uswith a competitive advantage.

Maintain Focus on Improving Refinery Cost Structure. We seek to continue to perform in the top halfof all U.S. refineries on key cost measures, as reported in industry publications and other publicly availableinformation. Our management team has successfully reduced our cost structure in response to the economicconditions resulting from the global recession. In 2009, we reduced refining and manufacturing costs byapproximately $386 million, with approximately $170 million attributable to lower energy costs and$216 million attributable to non-energy costs, such as labor, third-party services and materials.

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Organizational Structure

The following chart depicts our ownership and organizational structure as of March 31, 2010.

Other Subsidiariesand Joint Ventures

Petróleos de Venezuela, S.A.(Venezuela)

100% 99%

PDV Holding, Inc.(Delaware)

100%

PDV America, Inc.(Delaware)

100%

100%

100%

OtherSubsidiaries

and JointVentures

100% 100%

1%

100%

CITGOAR2008Funding

Company,LLC

PDV MidwestRefining, L.L.C.

CITGO Refining andChemicals Company

L.P.

CITGO PipelineCompany

Issuer

Guarantors

Pledgors

Equity pledged ascollateral

CITGO Petroleum Corporation(Delaware)

VPHIMidwest,

Inc.

CITGOInvestmentCompany

Concurrent Financing Transactions

Concurrently with the closing of this offering, we expect to enter into a New Senior Credit Facility,which is expected to include a $700 million senior secured revolving credit facility and a senior secured termloan in an amount to be determined. We expect to use the proceeds of the New Senior Credit Facility, togetherwith the proceeds of this offering, to repay amounts outstanding under our Existing Senior Credit Facility andto finance the purchase of our variable rate IRBs. The consummation of this offering is conditioned upon theconcurrent termination of the Existing Senior Credit Facility and entering into the New Senior Credit Facility.See “Use of Proceeds,” “Capitalization” and “Description of Other Indebtedness.”

Principal Offices

Our principal executive offices are located at 1293 Eldridge Parkway, Houston, TX 77077, and ourtelephone number is (832) 486 4000. Our website address is www.citgo.com. Information contained in orlinked from our website is not a part of this offering memorandum.

Risk Factors

Investing in the notes involves substantial risks. You should read carefully the section of this offeringmemorandum entitled “Risk Factors” for a discussion of certain factors that you should consider beforeinvesting in the notes.

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The Offering

The summary below describes the principal terms of the notes. Certain of the terms and conditions describedbelow are subject to important limitations and exceptions. The “Description of the Notes” section of thisoffering memorandum contains a more detailed description of the terms and conditions of the notes.

Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . CITGO Petroleum Corporation, a Delaware corporation.

Notes Offered . . . . . . . . . . . . . . . . . . . . $ aggregate principal amount of % Senior Secured Notesdue 2017.

$ aggregate principal amount of % Senior Secured Notesdue 2020.

Maturity . . . . . . . . . . . . . . . . . . . . . . . . The 2017 notes will mature on , 2017.

The 2020 notes will mature on , 2020.

Interest Rate . . . . . . . . . . . . . . . . . . . . . Interest on the 2017 notes will accrue from the date of theirissuance at a rate of % per annum.

Interest on the 2020 notes will accrue from the date of theirissuance at a rate of % per annum.

Interest Payment Dates . . . . . . . . . . . . . Interest on the notes will be payable semi-annually onand of each year, beginning on , 2010.

Guarantees . . . . . . . . . . . . . . . . . . . . . . Each of our existing and future restricted subsidiaries thatguarantees any of our New Senior Credit Facility willunconditionally guarantee the notes with guarantees that will rankequal in right of payment to all of the senior indebtedness of suchguarantor. See “Description of the Notes – Guarantees.” As ofMarch 31, 2010, the total book value of the issuer and theguarantors’ assets, net of intercompany items, representedsubstantially all of the total consolidated book value of our assets.

Security . . . . . . . . . . . . . . . . . . . . . . . . The notes and the guarantees will be secured, subject to certainexceptions and permitted liens, by a first-priority lien in thefollowing collateral, in each case to the extent such assets secureour New Senior Credit Facility:

k our refineries in Lake Charles, Louisiana, Lemont, Illinoisand, upon acquiring the subleased portion of the refinerypursuant to our purchase option in 2011, our refinery inCorpus Christi, Texas including, without limitation, all realproperty and personal property comprising a part thereof;

k all inventory owned by us and each guarantor; provided thatin the event of a foreclosure on inventory located outside thebattery limits of each of the refineries or of insolvencyproceedings, debt under our new revolving credit facility willbe paid with proceeds of such inventory prior to the notes;

k all present and future shares of capital stock (or otherownership or profit interests) of each of the guarantors(limited, in the case of each entity that is a “controlledforeign corporation” under the Internal Revenue Code, to apledge of 66% of the capital stock of each such first-tiermaterial foreign subsidiary to the extent the pledge of anygreater percentage would result in material adverse tax

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consequences to us) and, subject to the execution of anintercreditor agreement by the participants in our accountsreceivable securitization facility, our accounts receivablesubsidiary;

k all of our present and future accounts receivable (other thanthose accounts receivable pledged pursuant to any accountsreceivables securitization facility); and

k all proceeds and products of the property and assetsdescribed above.

The liens securing the notes and guarantees will rank equally withthe lien securing the New Senior Credit Facility. See “Descriptionof the Notes – Security.”

For a more detailed description of the collateral securing the notes,see “Description of the Notes – Security.”

Intercreditor Agreement . . . . . . . . . . . . . An intercreditor agreement which will, among other things, definethe rights, duties, authority and responsibilities of the collateralagent and the relationships among the creditors regarding theirinterests in the collateral securing the notes, borrowings under theNew Senior Credit Facility and our obligations under our fixed rateIRBs and certain other matters relating to the administration oftheir security interests. The terms of the intercreditor agreement aredescribed under “Description of the Notes – Security – IntercreditorAgreement.”

Ranking . . . . . . . . . . . . . . . . . . . . . . . . The notes and the guarantees will be our and the guarantors’ seniorsecured obligations, secured to the extent described above. Thenotes and the guarantees will rank:

k equally with any existing and future senior indebtedness ofus and the guarantors (other than with respect to proceedsfrom inventory located outside the battery limits of each ofthe refineries, as to which the new revolving credit facility issenior to the notes);

k senior to any of our and the guarantors’ existing and futureindebtedness that is expressly subordinated to the notes andthe guarantees;

k effectively senior to any of our and the guarantors’ existingand future indebtedness that does not have a lien on theassets securing the notes and the guarantees to the extent ofthe value of the assets securing the notes and the guarantees;

k effectively junior to any of our and the guarantors’ existingand future secured indebtedness which is secured by assetsthat are not collateral for the notes and the guarantees, to theextent of the value of the assets securing such indebtedness;and

k structurally junior to all existing and future obligations ofour subsidiaries that are not guarantors, to the extent of thevalue of such subsidiaries.

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Optional Redemption . . . . . . . . . . . . . . . On or after , 2014, we may redeem some or all of the 2017notes at any time at the redemption prices specified under“Description of the Notes – Optional Redemption.”

Before , 2014, we may redeem some or all of the 2017 notes ata redemption price equal to 100% of the principal amount of each2017 note to be redeemed plus a make-whole premium describedin “Description of the Notes – Optional Redemption.”

In addition, at any time prior to , 2013, we may redeem up to35% of the 2017 notes with the net cash proceeds from specifiedequity offerings at a redemption price equal to % of theprincipal amount of each note to be redeemed, plus accrued andunpaid interest, if any, to the date of redemption.

On or after , 2015, we may redeem some or all of the 2020notes at any time at the redemption prices specified under“Description of the Notes – Optional Redemption.”

Before , 2015, we may redeem some or all of the 2020 notes ata redemption price equal to 100% of the principal amount of each2020 note to be redeemed plus a make-whole premium describedin “Description of the Notes – Optional Redemption.”

In addition, at any time prior to , 2013, we may redeem up to35% of the 2020 notes with the net cash proceeds from specifiedequity offerings at a redemption price equal to % of theprincipal amount of each note to be redeemed, plus accrued andunpaid interest, if any, to the date of redemption.

Mandatory Offer to Repurchase . . . . . . . If we undertake specific kinds of asset sales or experience specifickinds of changes of control, we must offer to repurchase the notesas more fully described in “Description of the Notes – Repurchaseat the Option of Holders.”

Certain Covenants . . . . . . . . . . . . . . . . . The indenture governing the notes will contain certain covenants,including limitations and restrictions on our and our restrictedsubsidiaries’ ability to:

k make dividend payments or other restricted payments inrespect of capital stock and subordinated debt;

k make investments;

k incur or guarantee additional indebtedness;

k create liens;

k sell assets, including securities of our subsidiaries;

k limit the ability of restricted subsidiaries to make paymentsto us;

k enter into certain types of transactions with shareholders andaffiliates;

k designate subsidiaries as unrestricted subsidiaries; and

k enter into mergers, consolidations, or sales of all orsubstantially all of our assets.

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These covenants are subject to important exceptions andqualifications, which are described in “Description of the Notes –Certain Covenants.” During any period in which the notes haveInvestment Grade Ratings from both Rating Agencies (each asdefined) and no default has occurred and is continuing under theindenture governing the notes, we will not be subject to many ofthe covenants. See “Description of the Notes – Certain Covenants –Suspended Covenants.”

Use of Proceeds . . . . . . . . . . . . . . . . . . We intend to use the net proceeds of this offering, together withproceeds from the New Senior Credit Facility, to repay alloutstanding amounts under our Existing Senior Credit Facility, tofinance the purchase of our variable rate IRBs, and for othergeneral corporate purposes. See “Use of Proceeds.”

Transfer Restrictions . . . . . . . . . . . . . . . The notes have not been registered under the Securities Act andmay not be offered or sold except pursuant to an exemption from,or in a transaction not subject to, the registration requirements ofthe Securities Act. See “Notice to Investors.”

No Registration Rights . . . . . . . . . . . . . We do not intend to file a registration statement for the publicresale of the notes or for a registered exchange offer with respectto the notes.

No Established Market . . . . . . . . . . . . . The notes are a new issue of securities, and currently there is nomarket for them and we do not expect a market to develop in theforeseeable future. The initial purchasers have advised us that theyintend to make a market for the notes only if such a marketdevelops, and they are not obligated to do so. The initialpurchasers may discontinue any market-making in the notes at anytime in their sole discretion. Accordingly, we cannot assure youthat a liquid market will develop for the notes.

Tax Consequences . . . . . . . . . . . . . . . . . For a discussion of material United States federal income taxconsequences of an investment in the notes, see “Summary of U.S.Federal Income Tax Considerations.” You should consult your owntax advisor to determine the United States federal, state, local andother tax consequences of an investment in the notes.

Original Issue Discount . . . . . . . . . . . . . The notes may be issued with original issue discount (“OID”) forUnited States federal income tax purposes. If the notes are issuedwith OID, in addition to the stated interest on the notes, a taxableU.S. Holder (as defined in “Summary of U.S. Federal Income TaxConsiderations”) will be required to include such OID in grossincome as it accrues, in advance of the receipt of cash attributableto such income and regardless of the U.S. Holder’s regular methodof accounting for United States federal income tax purposes. See“Summary of U.S. Federal Income Tax Considerations.”

Risk Factors . . . . . . . . . . . . . . . . . . . . . You should carefully consider all of the information included inthis offering memorandum before making an investment decision,including the discussion in the section entitled “Risk Factors” foran explanation of certain risks of investing in the notes.

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Summary Financial and Operating Data

The following tables present summary financial and operating information as of and for each of theperiods indicated. The summary financial data for the years ended December 31, 2007, 2008 and 2009 arederived from our audited consolidated financial statements and notes thereto included in this offeringmemorandum. The summary financial data as of March 31, 2010 and for the three months ended March 31,2009 and 2010 are derived from our unaudited condensed consolidated financial statements and the notesthereto included in this offering memorandum. The unaudited condensed consolidated financial statementshave been prepared on the same basis as the audited consolidated financial statements and include alladjustments, consisting of only normal, recurring adjustments necessary for the fair presentation of theinformation set forth therein. The historical results included below are not necessarily indicative of our futureperformance. You should read this table in conjunction with “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and our financial statements and the notes thereto included inthis offering memorandum.

2007(1) 2008(1) 2009 2009 2010

Three Months EndedMarch 31,Year Ended December 31,

Statement of Income Data: ($ in millions)

Revenues:Net sales and sales to affiliates . . . . . . . $38,015.0 $41,279.7 $24,931.7 $ 4,836.9 $ 7,291.1Equity in earnings of affiliates . . . . . . . 35.4 36.1 13.9 3.3 8.3Other income (expense), net . . . . . . . . . 54.0 53.4 20.6 16.4 33.2Insurance recoveries(2) . . . . . . . . . . . . . 29.1 33.9 - - -Gain on sale of assets . . . . . . . . . . . . . . 207.0 404.3 - - -Gain on sale of investments in

affiliates . . . . . . . . . . . . . . . . . . . . . . 640.7 - - - -

Total Revenues . . . . . . . . . . . . . . . . . 38,981.2 41,807.4 24,966.2 4,856.6 7,332.6Cost of sales and expenses:

Cost of sales and operating expenses . . . 35,950.4 40,135.1 24,938.4 4,743.9 7,366.0Selling, general and administrative

expenses . . . . . . . . . . . . . . . . . . . . . . 503.4 353.0 373.3 135.4 113.5Interest expense, excluding capital

lease . . . . . . . . . . . . . . . . . . . . . . . . . 77.5 108.7 49.3 12.6 22.2Capital lease interest charge . . . . . . . . . 3.3 2.7 2.2 0.6 1.2Insurance recoveries(2) . . . . . . . . . . . . . (17.3) (37.6) (47.9) (1.5) (3.8)

Total cost of sales and expenses . . . . 36,517.3 40,561.9 25,315.3 4,891.0 7,499.1Income (loss) before income taxes

(benefit) . . . . . . . . . . . . . . . . . . . . . . . . 2,463.9 1,245.5 (349.1) (34.4) (166.5)Income taxes (benefit) . . . . . . . . . . . . . . . 877.7 444.1 (147.7) (13.7) (38.8)

Net income (loss) . . . . . . . . . . . . . . . . . . . $ 1,586.2 $ 801.4 $ (201.4) $ (20.7) $ (127.7)

Cash Flow Data:Cash flows from operating activities . . . . . $ 685.5 $ 1,169.5 $ 860.6 $ 187.4 $ 93.8Cash flows from investing activities . . . . . (396.0) 330.3 (501.9) (225.9) (120.7)Cash flows from financing activities . . . . . (318.9) (1,484.9) (29.9) 22.3 (322.6)

Increase (decrease) during the period . . . . $ (29.4) $ 14.9 $ 328.8 $ (16.2) $ (349.5)

Balance Sheet Data:Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,956.9Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,946.3

Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.6Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,609.7Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,999.0Total debt(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,402.2Total shareholder’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,591.1

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2007(1) 2008(1) 2009 2009 2010

Three MonthsEnded

March 31,Year Ended December 31,

($ in millions)

Other Financial Data:Capital expenditures . . . . . . . . . . . . . . . . . . . . $ 370.1 $ 485.4 $ 524.2 $ 221.3 $ 120.7Depreciation and amortization . . . . . . . . . . . . . 453.8 459.0 446.0 107.7 112.7EBITDA(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,998.5 1,815.9 148.4 86.5 (30.4)Adjusted EBITDA(4) . . . . . . . . . . . . . . . . . . . . 2,051.3 1,319.1 (6.6) 153.4 27.8Throughput margin(5) . . . . . . . . . . . . . . . . . . . 4,275 3,481 1,751 699 392

Selected Operating Data (thousands of barrelsper day):Refining capacity . . . . . . . . . . . . . . . . . . . . . . 861 749 749 749 749Crude oil throughput . . . . . . . . . . . . . . . . . . . . 761 650 636 632 629Total throughput . . . . . . . . . . . . . . . . . . . . . . . 869 768 725 729 712Utilization (%) . . . . . . . . . . . . . . . . . . . . . . . . 88% 87% 85% 84% 84%

Selected Industry Markers ($ per barrel)(6):Average price of WTI . . . . . . . . . . . . . . . . . . . $ 72.32 $ 99.57 $ 61.69 $ 42.91 $ 78.65Gulf Coast 3/2/1 crack spread(7) . . . . . . . . . . . 13.19 9.37 7.18 9.09 6.68Chicago 3/2/1 crack spread(8) . . . . . . . . . . . . . 17.73 11.21 8.61 9.84 6.10Gulf Coast light/heavy crude oil spread(9) . . . . 12.42 15.69 5.20 4.47 8.93Chicago light/heavy crude oil spread(10) . . . . . 23.01 18.89 9.35 6.85 10.28

(1) Includes asphalt refinery operations at our refineries in Paulsboro, New Jersey and Savannah, Georgia (which had atotal refining capacity of 112,000 bpd) through March 20, 2008, the date we sold the fixed assets and inventories andcertain related rights and obligations associated with these operations. Sales attributable to these operations amountedto $200 million (or 0.5% of our total net sales and sales to affiliates) in 2008 and $1,882 million (or 5% of our totalnet sales and sales to affiliates) in 2007, and their crude oil throughput was 45,000 bpd (or 1.5% of our total crudeoil throughput) in 2008 and 72,000 bpd (or 9.5% of our total crude oil throughput) in 2007.

(2) We record business interruption insurance recoveries as revenues and property damage and general liability insurancerecoveries as offsets to cost of sales.

(3) Total debt consists of the current and long-term portions of long-term debt and capital lease obligations. Total debtincludes $277.6 million of obligations represented by the amount of our receivables in which third parties thatparticipate in our accounts receivable securitization facility hold an undivided interest. Effective January 1, 2010, weare required to treat these amounts as indebtedness pursuant to Accounting Standard Update (“ASU”) 2009-16,“Transfers and Servicing — Accounting for Transfer of Financial Assets,” issued by the Financial AccountingStandards Board (“FASB”). Total debt also includes $41.0 million of payables owed to a third party as of March 31,2010 under a product financing arrangement in which we sold to and committed to purchase crude oil from the thirdparty.

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(4) We define EBITDA as net income before interest expense, income taxes, depreciation and amortization. We defineAdjusted EBITDA as net income before interest expense, income taxes, depreciation and amortization, adjusted forcertain special items identified in the reconciliation table below. EBITDA and Adjusted EBITDA are used asmeasures of performance by our management and are not measures of performance under generally acceptedaccounting principles, or GAAP. EBITDA and Adjusted EBITDA should not be considered as substitutes for netincome (loss), cash flows from operating activities and other income or cash flow statement data prepared inaccordance with GAAP, or as measures of profitability or liquidity. Shown in the table below is a reconciliation ofEBITDA to net income (loss) and Adjusted EBITDA to EBITDA for each of the periods presented:

2007 2008 2009 2009 2010

Three MonthsEnded March 31,Year Ended December 31,

($ in millions)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $1,586.2 $ 801.4 $ (201.4) $ (20.7) $ (127.7)Excluding the impacts of:

Interest expense, excluding capital lease . . . . . . . . 77.5 108.7 49.3 12.6 22.2Capital lease interest charge . . . . . . . . . . . . . . . . 3.3 2.7 2.2 0.6 1.2Income taxes (benefit) . . . . . . . . . . . . . . . . . . . . 877.7 444.1 (147.7) (13.7) (38.8)Depreciation and amortization . . . . . . . . . . . . . . . 453.8 459.0 446.0 107.7 112.7

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,998.5 1,815.9 148.4 86.5 (30.4)Gain on sale of assets and investments in

affiliates(a) . . . . . . . . . . . . . . . . . . . . . . . . . . (847.7) (404.3) - - -LIFO liquidation adjustment(b) . . . . . . . . . . . . . . (240.3) (116.0) (287.4) - -Social development donations(c) . . . . . . . . . . . . . 140.8 23.5 80.1 66.9 58.2Asset impairment charges(d) . . . . . . . . . . . . . . . . - - 52.3 - -

Adjusted EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . $2,051.3 $1,319.1 $ (6.6) $ 153.4 $ 27.8

(a) Gain on sale of assets and investments in affiliates in 2008 includes the gain on sale of assets resulting from the saleof the fixed assets and inventory of our asphalt refinery operations in Paulsboro, New Jersey and Savannah, Georgia,and the sale of an unrelated terminal. The gain on sale of assets and investments in affiliates in 2007 includes thegain on sale of investments in affiliates resulting from the sale of our interests in Explorer Pipeline Company andColonial Pipeline Company and the sale of a wholly owned pipeline and four related terminals. See “Management’sDiscussion and Analysis of Financial Condition and Results of Operations.”

(b) Our hydrocarbon inventories are stated at the lower of cost or market, with cost determined using the last-in,first-out, or LIFO, inventory valuation method. LIFO liquidation is the permanent elimination of all or part ofthe LIFO base or old inventory layers when inventory quantities decrease.

(c) Social development donations include the donation of heating oil and cash donations to charitable organizations. Weadjust for this item in calculating Adjusted EBITDA because we believe excluding this item will enable investorsand analysts to compare our performance to our competitors in a more consistent manner. The 2007 donations weresignificantly more than other years presented due to the terms of the 2008 heating oil program contract whichcaused the 2008 program to be expensed in 2007. See “Management’s Discussion and Analysis of FinancialCondition and Results of Operations – Overview” and “Business – Social Development Programs.”

(d) We periodically evaluate the carrying value of long-lived assets or asset groups to be held and used when eventsor changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carryingvalue of a long-lived asset or asset group is considered impaired when the separately identifiable anticipatedundiscounted net cash flow from such asset is less than its carrying value. The charge in 2009 primarily includesthe impairment of our lubes and wax plant in Lake Charles, Louisiana that was taken out of service in 2008.

We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performanceacross reporting periods on a consistent basis by excluding items that we do not believe are indicative of our coreoperating performance.

Adjusted EBITDA has limitations as an analytical tool, however. Some of these limitations are:

k Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures orcontractual commitments;

k Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

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k Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary toservice interest or principal payments, on our indebtedness;

k although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often haveto be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

k Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not tobe indicative of our ongoing operations; and

k other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulnessas a comparative measure.

(5) Throughput margin is calculated as net sales and sales to affiliates less hydrocarbon costs, which includes crude oiland intermediate feedstock costs and refined product purchases (adjusted for purchases in accordance with EITF04-13, an accounting rule which requires the netting of all buy/sell transactions with the same counterparty made incontemplation of each other). Throughput margin is not a measure of performance under GAAP, and should not beconsidered as substitutes for net income (loss), cash flows from operating activities and other income or cash flowstatement data prepared in accordance with GAAP, or as measures of profitability or liquidity. Shown in the tablebelow is a reconciliation of throughput margin for each of the periods presented. This measure may not becalculated in the same way as similarly titled measures used by other companies.

2007 2008 2009 2009 2010

Three MonthsEnded March 31,Year Ended December 31,

($ in millions)

Net sales and sales to affiliates . . . . . . . . . . . . . . . . . . $38,015 $41,280 $24,932 $ 4,837 $ 7,291Less cost of sales and operating expenses . . . . . . . . . . 35,950 40,135 24,938 4,744 7,366

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,065 1,145 (6) 93 (75)Plus:

Refining and manufacturing costs . . . . . . . . . . . . . . 1,885 1,913 1,527 415 418Other operating expenses . . . . . . . . . . . . . . . . . . . . 637 648 380 218 90EITF 99-19(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (312) (225) (150) (27) (41)

Throughput margin . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,275 $ 3,481 $ 1,751 $ 699 $ 392

(a) Reflects sales classified in accordance with EITF 99-19, an accounting rule which requires reporting ofrevenues as net, not gross, where an entity acts as an agent for another, and which only impacts other operatingexpenses in the costs of sales and operating expenses section of our income statement.

We present throughput margin because we believe it assists investors and analysts by providing a more transparentpicture of our gross refining margin. Our calculation of throughput margin has certain limitations as an analyticaltool, however. Some of these limitations are:

k our total throughput margin includes contributions from sales of refined products that we purchase (includinglubricants which we blend but do not produce in our refinery operations) in addition to products that weproduce in our refinery operations;

k our net sales and sales to affiliates include contributions from marketing and other programs such as credit cardprograms for which we receive certain commissions for transactions unrelated to our sale of refined products; and

k other companies in our industry may calculate throughput margin and other similar measures differently thanwe do, limiting its usefulness as a comparative measure.

(6) The per barrel values are calculated using the average of daily prices for the applicable type of crude, gasoline ordistillate during the applicable period, as published by Platts (light and Gulf Coast heavy crudes, gasoline anddistillate) and Argus (Chicago heavy crude).

(7) The Gulf Coast 3/2/1 crack (or WTI) spread is used as a benchmark for gauging changes in refining industrymargins based upon a hypothetical yield from a barrel of crude oil. The Gulf Coast 3/2/1 crack spread is calculatedas the value of two-thirds of a barrel of Gulf Coast regular unleaded gasoline plus the value of one-third of a barrelof Gulf Coast no. 2 fuel oil minus the value of one barrel of WTI Cushing crude oil. Heavy crude refiners alsoevaluate the Gulf Coast light/heavy crude spread.

(8) The Chicago 3/2/1 crack (or WTI) spread is used as a benchmark for gauging changes in refining industry marginsbased upon a hypothetical yield from a barrel of crude oil. The Chicago 3/2/1 crack spread is calculated as the value

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of two-thirds of a barrel of Chicago regular unleaded gasoline plus the value of one-third of a barrel of ChicagoULSD minus the value of one barrel of WTI Cushing crude oil. Heavy crude refiners also evaluate the Chicagolight/heavy crude spread.

(9) The Gulf Coast light/heavy crude spread uses FOB Maya crude prices as its proxy for heavy crude, and WTICushing crude prices as its proxy for light crude.

(10) The Chicago light/heavy crude spread uses FOB Western Canadian Select (“WCS”) crude prices as its proxy forheavy crude, and WTI Cushing crude prices as its proxy for light crude.

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RISK FACTORS

An investment in the notes is subject to various risks, including the risks discussed below. These risksshould be considered carefully together with the information provided elsewhere in this offering memorandumin evaluating an investment in the notes. The risks and uncertainties described in this offering memorandumare not the only ones we face. Additional risks and uncertainties that we do not presently know about or thatwe currently believe are immaterial could have a material adverse effect on our business, financial condition,results of operations and prospects.

Risks Related to the Notes and Our Other Indebtedness

Our substantial indebtedness could impair our financial condition and our ability to fulfill our debtobligations, including our obligations under the notes.

We have substantial indebtedness. As of March 31, 2010, after giving effect to this offering, the NewSenior Credit Facility and the repayment of the Existing Senior Credit Facility and purchase of our variablerate IRBs as shown in “Capitalization,” we would have had total indebtedness of approximately $2.5 billion,consisting of the notes, $300 million outstanding under the New Senior Credit Facility, $108 million in fixedrate IRBs, $307 million in capital lease obligations and $319 million attributable to our accounts receivablesecuritization facility and a product financing arrangement.

Our indebtedness could have important consequences to you. For example, it could:

k make it more difficult for us to satisfy our obligations with respect to the notes and our otherindebtedness, which could in turn result in an event of default on the notes or such otherindebtedness;

k require us to dedicate a substantial portion of our cash flow from operations to debt servicepayments, thereby reducing the availability of cash for working capital, capital expenditures,acquisitions, general corporate purposes or other purposes;

k impair our ability to obtain additional financing in the future for working capital, capitalexpenditures, acquisitions, general corporate purposes or other purposes;

k diminish our ability to withstand a downturn in our business, the industry in which we operate or theeconomy generally;

k limit our flexibility in planning for, or reacting to, changes in our business and the industry in whichwe operate; and

k place us at a competitive disadvantage compared to certain competitors that may have proportionatelyless debt.

If we are unable to meet our debt service obligations, we could be forced to restructure or refinanceour indebtedness, seek additional equity capital or sell assets. We may be unable to obtain financing or sellassets on satisfactory terms, or at all.

In addition, at March 31, 2010, after giving effect to this offering, the New Senior Credit Facility andthe repayment of the Existing Senior Credit Facility and purchase of our variable rate IRBs as shown in“Capitalization,” $300 million of our debt (comprised of the anticipated principal amount of our new termloan) would be variable rate debt, and we would have the capacity to incur up to $700 million of additionalvariable rate debt under our new revolving credit facility. If market interest rates increase, such variable ratedebt will have higher debt service requirements, which would adversely affect our cash flow. While we mayenter into agreements limiting our exposure to higher interest rates, we do not currently have plans to do soand any such agreements may not offer complete protection from this risk.

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In addition to our current indebtedness, we may be able to incur substantially more indebtedness.If we do, this could exacerbate the risks associated with our substantial indebtedness.

We and our subsidiaries may be able to incur substantially more debt in the future. Although theindenture governing the notes and the New Senior Credit Facility contain restrictions on our incurrence ofadditional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, undercertain circumstances, additional indebtedness incurred in compliance with these restrictions, includingadditional secured indebtedness could be substantial. If we incur any additional indebtedness secured by lienson the collateral that rank equally with those securing the notes, the holders of that indebtedness will beentitled to share ratably with you in any proceeds distributed in connection with any insolvency, liquidation,reorganization, dissolution of us or if we are wound up.

Also, these restrictions do not prevent us from incurring obligations that do not constituteindebtedness. To the extent new indebtedness or such new obligations are added to our current levels, the risksdescribed above could intensify.

To service our indebtedness, we will require a significant amount of cash, which may not beavailable to us.

Our ability to make payments on, or repay or refinance, our indebtedness, including the notes, and tofund planned capital expenditures, will depend largely upon our future operating performance. Our futureperformance, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatoryand other factors that are beyond our control. In addition, our ability to borrow funds in the future to makepayments on our indebtedness will depend on the satisfaction of the covenants in the indenture and the NewSenior Credit Facility, and other agreements we may enter into in the future. We cannot assure you that ourbusiness will generate sufficient cash flow from operations or that future borrowings will be available to usunder the New Senior Credit Facility or from other sources in an amount sufficient to enable us to pay ourindebtedness, including the notes, or to fund our other liquidity needs.

We cannot assure you that we will be able to refinance any of our indebtedness, including the NewSenior Credit Facility, on commercially reasonable terms or at all. In particular, the New Senior Credit Facilitymatures prior to the maturity of the notes. If we were unable to make payments or refinance our indebtednessor obtain new financing under these circumstances, we would have to consider other options, such as the saleof assets, the sales of equity and/or negotiations with our lenders to restructure the applicable indebtedness.The indenture governing the notes and our other debt agreements may restrict, or market or businessconditions may limit, our ability to take some or all of these actions.

If we default on our obligations to pay our other indebtedness, we may not be able to makepayments on the notes.

If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessaryto meet required payments of principal and premium, if any, and interest on our indebtedness other than thenotes, initially the New Senior Credit Facility, or if we otherwise fail to comply with the various covenants,including financial and operating covenants, in the instruments governing our indebtedness, we could be indefault under the terms of the agreements governing such indebtedness. In the event of such default, theholders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable,together with accrued and unpaid interest, the lenders under the New Senior Credit Facility could elect toterminate their commitments, cease making further loans and institute foreclosure proceedings against ourassets, and we could be forced into bankruptcy or liquidation. Any default under our other indebtedness that isnot waived by the required lenders and the remedies sought by the holders of such indebtedness could make usunable to pay principal and premium, if any, and interest on the notes and substantially decrease the marketvalue of the notes.

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The agreements governing the notes and the New Senior Credit Facility contain various covenantsthat impose restrictions on us that may affect our ability to operate our business and to makepayments on the notes.

The indenture governing the notes and the New Senior Credit Facility impose and future financingagreements are likely to impose operating and financial restrictions on our activities. These restrictions requireus to comply with or maintain certain financial tests and limit or prohibit our ability to, among other things:

k incur, assume or permit to exist additional indebtedness, guaranty obligations or hedgingarrangements;

k incur liens or agree to negative pledges in other agreements;

k make loans and investments;

k declare dividends, make payments or redeem or repurchase capital stock;

k limit the ability of our subsidiaries to enter into agreements restricting dividends and distributions;

k engage in mergers, acquisitions and other business combinations;

k prepay, redeem or purchase certain indebtedness including the notes;

k amend or otherwise alter the terms of our organizational documents, our indebtedness, including thenotes, and other material agreements;

k sell assets (including in connection with sale leaseback transactions); and

k enter into transactions with affiliates.

These restrictions on our ability to operate our business could seriously harm our business by, amongother things, limiting our ability to take advantage of financing, merger and acquisition and other corporateopportunities. See “Description of Other Indebtedness” and “Description of the Notes.”

Various risks, uncertainties and events beyond our control could affect our ability to comply withthese covenants and maintain these financial tests. Failure to comply with any of the covenants in our existingor future financing agreements could result in a default under those agreements and under other agreementscontaining cross-default provisions. A default would permit lenders to accelerate the maturity of theindebtedness under these agreements and to foreclose upon any collateral securing such indebtedness. Underthese circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations,including our obligations under the notes. In addition, the limitations imposed by financing agreements on ourability to incur additional indebtedness and to take other actions might significantly impair our ability toobtain other financing. We cannot assure you that we will be granted waivers or amendments to theseagreements if for any reason we are unable to comply with these agreements, or that we will be able torefinance our indebtedness on terms acceptable to us, or at all.

We may not have the ability to raise the funds necessary to finance the change of control offerrequired by the indenture governing the notes.

Upon the occurrence of certain kinds of change of control events, we will be required to offer torepurchase all outstanding notes at 101% of the principal amount thereof plus accrued and unpaid interest, ifany, to the date of repurchase, unless all the notes have been previously called for redemption. Any holders ofother debt securities that we may issue in the future may also have this right. Our failure to purchase tenderednotes would constitute an event of default under the indenture governing the notes, which in turn wouldconstitute a default under the New Senior Credit Facility. In addition, the occurrence of a change of controlwould also constitute an event of default under the New Senior Credit Facility. Any default under the NewSenior Credit Facility would result in a default under the indenture if the lenders accelerate the indebtednessunder the New Senior Credit Facility.

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It is possible that we would not have sufficient funds at the time of the change of control to make therequired purchase of the notes.

In addition, certain important corporate events, such as leveraged recapitalizations that would increasethe level of other indebtedness, would not constitute a change of control under the indenture. See “Descriptionof the Notes – Repurchase at the Option of Holders – Change of Control.”

Holders of the notes and guarantees will share all collateral equally and ratably with the lendersunder our New Senior Credit Facility and holders of our fixed rate IRBs, and we will be permittedto incur certain additional secured indebtedness under the indenture in the future. If there is adefault, the value of that collateral may not be sufficient to repay the holders of the notes andguarantees, the lenders under our New Senior Credit Facility, holders of our fixed rate IRBs andsuch additional secured indebtedness.

The notes and guarantees will be secured equally and ratably with our obligations under our NewSenior Credit Facility, our fixed rate IRBs and certain additional secured indebtedness we will be permitted bythe indenture to incur in the future. The indenture will permit the incurrence of additional securedindebtedness which would share the collateral equally and ratably with the notes. See “Description of theNotes – Certain Covenants – Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock andPreferred Stock” and “Description of the Notes – Certain Covenants – Liens.” As a result, if there is a default,the value of the remaining collateral may not be sufficient to repay the holders of the notes and guarantees,the lenders and other secured parties under our New Senior Credit Facility, and holders of our fixed rate IRBsand any such additional secured indebtedness.

Even though the holders of the notes will benefit from a first-priority lien on the collateral thatsecures our New Senior Credit Facility, the representative of the lenders under the New SeniorCredit Facility will initially control actions with respect to that collateral.

The rights of the holders of the notes with respect to the collateral that will secure the notes on afirst-priority basis will be subject to an intercreditor agreement among all holders of obligations secured bythat collateral on a first-priority basis, including the obligations under our New Senior Credit Facility and ourfixed rate IRBs.

Under the intercreditor agreement, any actions that may be taken with respect to the collateral,including the ability to cause the commencement of enforcement proceedings against such collateral, tocontrol such proceedings and to approve amendments to documents relating to such collateral, will be at thedirection of the authorized representative for the lenders under the New Senior Credit Facility until (1) ourobligations under the New Senior Credit Facility are discharged (which discharge does not include certainrefinancings of the New Senior Credit Facility) or (2) if the authorized representative of the lenders under ourNew Senior Credit Facility or the collateral agent has not commenced and is not diligently pursuing anenforcement action, 120 days after the occurrence of an event of default under the indenture governing thenotes offered hereby and acceleration of the obligations under the notes, if the authorized representative of theholders of the notes represents the largest outstanding principal amount of indebtedness secured by a first-priority lien on the collateral (other than New Senior Credit Facility) and has complied with the applicablenotice provisions. BNP Paribas, the administrative agent under our New Senior Credit Facility, is also thecollateral agent for such facilities and will initially be the collateral agent for the noteholders as well.

However, even if the trustee as authorized representative of the holders of the notes offered herebygains the right to direct the collateral agent in the circumstances described in clause (2) above, such authorizedrepresentative must stop doing so (and those powers with respect to the collateral would revert to theauthorized representative of the lenders under the New Senior Credit Facility) if the authorized representativeof the lenders under the New Senior Credit Facility notifies the authorized representative of the holders of thenotes that it has commenced and is diligently pursuing enforcement action with respect to the collateral.

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In addition, the New Senior Credit Facility and the indenture will permit us to issue additional seriesof notes or other debt that also have a first-priority lien on the same collateral. At any time that the authorizedrepresentative of the lenders under the New Senior Credit Facility does not have the right to take actions withrespect to the collateral pursuant to the intercreditor agreement, that right passes to the authorizedrepresentative of the holders of the next largest outstanding principal amount of indebtedness secured by afirst-priority lien on the collateral. If we issue additional first lien notes or other debt in the future in a greaterprincipal amount than the notes offered hereby, then the authorized representative for those additional notes orother debt would be next in line to exercise rights under the first lien intercreditor agreement, rather than theauthorized representative for the holders of the notes offered hereby.

It is also possible that disputes may occur between the holders of the notes and lenders under ourNew Senior Credit Facility or other secured parties as to the appropriate manner of pursuing enforcementremedies with respect to the collateral which may delay enforcement of the collateral, result in litigationand/or result in enforcement actions against the collateral that are not approved by the holders of the notes.

The collateral that will secure the notes on a first-priority basis will also be subject to any and allexceptions, defects, encumbrances, liens and other imperfections as may be accepted by the authorizedrepresentative of the lenders under our New Senior Credit Facility during any period that such authorizedrepresentative controls actions with respect to the collateral pursuant to the first lien intercreditor agreement.The existence of any such exceptions, defects, encumbrances, liens and other imperfections could adverselyaffect the value of the collateral securing the notes as well as the ability of the collateral agent to realize orforeclose on such collateral for the benefit of the holders of the notes.

Even though holders of the notes and guarantees will share all collateral equally and ratably withthe lenders under our New Senior Credit Facility, the lenders under the new revolving creditfacility will have priority to proceeds of certain inventory that constitutes collateral.

Under the terms of the intercreditor agreement by and among the collateral agent and the otherparties, from time to time thereto, the liens on the collateral securing the obligations under the New SeniorCredit Facility, our fixed rate IRBs and certain other obligations permitted under the indenture will generallyrank equally with the liens on such assets securing our and the guarantors’ obligations under the notes and theguarantees. However, the intercreditor agreement provides that upon enforcement against certain inventorylocated outside the battery limits of each of the refineries (including refined product inventory located in ourpipelines) the proceeds of such enforcement will first be used to pay obligations outstanding under our newrevolving credit facility prior to paying our new term loans and the notes offered hereby. See “Description ofthe Notes – Security.”

We will in most cases have control over the collateral, and the sale of particular assets by us couldreduce the pool of assets securing the notes and the guarantees.

The security documents allow us to remain in possession of, retain exclusive control over, freelyoperate, and collect, invest and dispose of any income from, the collateral securing the notes and theguarantees. For example, so long as no default or event of default under the indenture would result therefrom,we may, among other things, without any release or consent by the trustee (whether or not acting at thedirection of the holders), conduct ordinary course activities with respect to collateral, such as selling,factoring, abandoning or otherwise disposing of collateral and making ordinary course cash payments(including repayments of indebtedness) with the proceeds thereof. See “Description of the Notes – Security.”

Under various circumstances, including the following, collateral securing the notes will be releasedwithout your consent or the consent of the trustee (whether or not acting at the direction of the holders).

k a sale, transfer or other disposition of such collateral in a transaction not prohibited under theindenture; and

k in respect of the property and assets of a guarantor, upon the release or discharge of the pledgegranted by such guarantor which resulted in the obligation to become a guarantor with respect to

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the notes other than in connection with a release or discharge by or as a result of payment in fullin respect of the New Senior Credit Facility.

In addition, the guarantee of a subsidiary guarantor will be released to the extent it is released underour New Senior Credit Facility or in connection with a sale of such subsidiary guarantor in a transaction notprohibited by the indenture.

The indenture will also permit us to designate one or more of our restricted subsidiaries that is aguarantor of the notes as an unrestricted subsidiary. If we designate a guarantor as an unrestricted subsidiaryfor purposes of the indenture governing the notes, all of the liens on any collateral owned by such subsidiaryor any of its subsidiaries and any guarantees of the notes by such subsidiary or any of its subsidiaries will bereleased under the indenture but not necessarily under our New Senior Credit Facility. Designation of anunrestricted subsidiary will reduce the aggregate value of the collateral securing the notes to the extent thatliens on the assets of the unrestricted subsidiary and its subsidiaries are released. In addition, the creditors ofthe unrestricted subsidiary and its subsidiaries will have a senior claim on the assets of such unrestrictedsubsidiary and its subsidiaries. See “Description of the Notes.”

The imposition of certain permitted liens will cause the assets on which such liens are imposed tobe excluded from the collateral securing the notes and the guarantees. There are also certain othercategories of property that are excluded from the collateral.

The indenture will permit liens in favor of third parties to secure additional debt, including purchasemoney indebtedness and capital lease obligations, and any assets subject to such liens will be automaticallyexcluded from the collateral securing the notes and the guarantees. Our ability to incur purchase moneyindebtedness and capital lease obligations is subject to the limitations as described in “Description of theNotes.” In addition, not all of our assets will be pledged to secure the notes and the guarantees, and certaincategories of assets will be excluded from the collateral. Excluded assets include among others, accountsreceivables and inventory outside the battery limits of the refineries (including refined product inventorylocated in our pipelines) that we transfer to accounts receivables or inventory securitization vehicles andproperty on which we are prohibited from granting a lien pursuant to law or existing agreements. See“Description of the Notes – Security” and “– Certain Definitions – Excluded Property.” If an event of defaultoccurs and the notes are accelerated, the notes and the guarantees will rank equally with the holders of otherunsubordinated and unsecured indebtedness of the relevant entity with respect to such excluded assets andproperty.

The collateral is subject to property damage and condemnation risks, and insurance proceeds andcondemnation awards are not shared equally and ratably.

We are required to maintain insurance or otherwise insure against property loss or damage in amanner appropriate and customary for our business. There are, however, certain losses that may be eitheruninsurable or not economically insurable, in whole or in part. Insurance proceeds may not compensate usfully for our losses. If there is a complete or partial loss of any collateral, we are permitted by the terms of theindenture governing the notes and by our New Senior Credit Facility to apply the insurance proceeds to repairor replace the collateral. If we determine not to do so, or in the event of a condemnation, the insuranceproceeds or condemnation award may not be sufficient to satisfy all or a proportionate part of the securedobligations, including the notes and the guarantees. In the event of a total or partial loss to any of ourproperties, certain items of equipment, fixtures and other improvements, and inventory may not be easilyreplaced. Accordingly, even though there may be insurance coverage, the extended period needed tomanufacture or construct replacement for such items could cause significant delays.

Your rights in the collateral may be adversely affected by the failure to perfect security interests incertain collateral in the future.

Applicable law requires that a security interest in certain tangible and intangible assets can only beproperly perfected and its priority retained through certain actions undertaken by the secured party. The

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collateral securing the notes includes cash and monies, for which a lien is perfected only if in the possessionof the secured creditor (or its agent). The liens in the collateral securing the notes may not be perfected withrespect to the claims of the notes if the collateral agent is not able to take the actions necessary to perfect anyof these liens on or prior to the date of the indenture governing the notes. There can be no assurance that thecollateral agent on behalf of the lenders under our New Senior Credit Facility has taken all actions necessaryto create properly perfected security interests in the collateral securing the notes, which, as a result of theintercreditor agreement, may result in the loss of the priority of the security interest in favor of the noteholdersto which they would have been entitled as a result of such non-perfection. In addition, applicable law providesthat certain property and rights acquired after the grant of a general security interest, such as real property,equipment subject to a certificate and certain proceeds, can only be perfected at the time such property andrights are acquired and identified. We and our guarantors have limited obligations to perfect the noteholders’security interests in specified after-acquired collateral. There can be no assurance that the collateral agent forthe notes will monitor, or that we will inform the collateral agent of, the future acquisition of property andrights that constitute collateral, and that the necessary action will be taken to properly perfect the securityinterest in such after-acquired collateral. The collateral agent for the notes has no obligation to monitor theacquisition of additional property or rights that constitute collateral or the perfection of any security interest.Such failure may result in the loss of the security interest in the collateral or the priority of the securityinterest in favor of the notes against third parties.

The security interest in the collateral will be subject to practical challenges.

The security interest of the collateral agent will be subject to perfection, the consent of third parties,priority issues, state law requirements and practical problems generally associated with the realization ofsecurity interests in collateral. For example, the collateral agent may need to obtain the consent of a thirdparty to obtain or enforce a security interest in a contract. We cannot assure you that the collateral agent willbe able to obtain any such consent. We also cannot assure you that the consents of any third parties orapproval of governmental entities will be given or obtained when required to facilitate a foreclosure on suchassets. Accordingly, the collateral agent may not have the ability to foreclose upon those assets and the valueof the collateral may significantly decrease. We cannot assure you that foreclosure on the collateral will besufficient to acquire all assets necessary for operations or to make all payments on the notes.

Mortgages and lender’s title insurance policies covering the Corpus Christi refinery and a portion ofthe Lemont refinery securing the notes will not be in place at the time of the issuance of the notes.

Our Corpus Christi refinery complex, which the Turner Mason appraisal has estimated is valued atapproximately $2.0 billion as of December 2009, consists of an East Plant, which we own, and a West Plant,which we operate under a sublease expiring on January 31, 2011. We have an option to purchase the WestPlant for a nominal amount upon expiration of the sublease, and in 2009 we gave notice of our intent toexercise this option. Within 120 days after we acquire title to the West Plant, we are required to put amortgage in place on the Corpus Christi refinery securing the notes and the New Senior Credit Facility and toobtain lender’s title insurance on the Corpus Christi refinery in favor of the collateral agent.

We do not have a survey of the Corpus Christi refinery but we are required to deliver a new survey ofthe Corpus Christi refinery prior to the end of 2010. Accordingly, although at the time of issuance of thenotes, owner’s and leasehold title policies will be issued insuring that we own the East Plant and sublease theWest Plant, because we will not have the new survey in place prior to the issuance of the notes, these policieswill not insure that there are no adverse circumstances affecting title to the property that would have beendisclosed by a survey.

Our Lemont refinery, which the Turner Mason appraisal has estimated is valued at approximately$1.5 billion as of December 2009, includes various parcels of land which we own, as well as certain parcelswhich we lease. Due to restrictions on our ability to grant liens on our leasehold interests in the leased land,there can be no assurance that such interests will be included under the mortgage of the Lemont refinerysecuring the notes. In addition, there is a title defect affecting one parcel of land included in the Lemont

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refinery; however, this defect will either be cured or the lender’s title insurance policy on the Lemont refinerywill cover this defect at the time of issuance of the notes.

Delivery of a mortgage of the Corpus Christi refinery after the issuance of the notes increases therisk that the liens on that property for the benefit of the holders of the notes could be avoidable in bankruptcy,as a preference on grounds that it constitutes a new transfer of property on account of antecedent debt or as afraudulent transfer on grounds that the debtor is not receiving fair consideration at the time of transfer.

The appraisal of our three refineries may not reflect the value that would be realized if thecollateral agent were to foreclose on them.

If we do not make payments of principal and interest on our secured indebtedness, including thenotes, when due, in order to obtain such payments the holders of our secured indebtedness may have to rely onthe proceeds from the sale of, or other exercise of remedies against, the collateral securing the indebtedness.Those proceeds may be insufficient to cover payments due under our secured indebtedness, includingpayments due under the notes.

Turner, Mason & Company (“Turner Mason”), an independent petroleum and petrochemicalsconsulting firm, was engaged to complete an appraisal estimating the value of our three refineries, which willcomprise a substantial portion of the collateral securing the notes. Turner Mason estimated the total assetvalue of our three refineries to be $6 billion (excluding related working capital assets) as of December 2009,based on typical industry valuation methodologies. Although the appraisal is based upon a number ofestimates and assumptions that are considered reasonable by the appraiser issuing the appraisal, theseestimates and assumptions are subject to significant business and economic uncertainties and contingencies,many of which are beyond our control or the ability of the appraiser to accurately assess and estimate. Anappraisal that is subject to different assumptions and limitations or based on different methodologies mayresult in valuations that are materially different from those contained in Turner Mason’s appraisal.

An appraisal is only an estimate of value as of its date and should not be relied upon as a measure ofrealizable value. The proceeds realized upon a sale of any of our refineries may be less than the appraisedvalue of the refineries at the time of any foreclosure by the collateral agent for many reasons, including thepotential for technological obsolescence, the condition of the refineries, general market and economicconditions, the availability of buyers, petroleum prices, refining margins, and other key price relationships andfactors. Accordingly, we can provide no assurance that the proceeds realized upon any such exercise ofremedies would be sufficient to satisfy in full the payments due under our secured indebtedness, includingpayments due under the notes.

There may not be sufficient collateral value to cover payment of all or any of the notes, especiallyif we incur additional senior secured indebtedness, which will dilute the value of the collateralsecuring the notes and guarantees.

The fair market value of the collateral is subject to fluctuations based on factors that include, amongothers, the condition of the markets and sectors in which we operate, the ability to sell the collateral in anorderly sale, the condition of the national and local economies, the availability of buyers and other similarfactors. The value of the assets pledged as collateral for the notes also could be impaired in the future as aresult of our failure to implement our business strategy, competition, or other future trends.

In the event of foreclosure on the collateral, the proceeds from the sale of the collateral may not besufficient to satisfy in full our obligations under the notes, the New Senior Credit Facility, our fixed rate IRBsand any additional indebtedness secured equally and ratably with the notes. The amount to be received uponsuch a sale would be dependent on numerous factors, including but not limited to the timing and the mannerof the sale.

By its nature, portions of the collateral may be illiquid and may have no readily ascertainable marketvalue. Accordingly, there can be no assurance that the collateral can be sold in a short period of time in anorderly manner. A significant portion of the collateral includes assets that may only be usable, and thus retain

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value, as part of our existing operating business. Accordingly, any such sale of the collateral separate from thesale of our business as an operating unit may not be feasible or of significant value.

To the extent that pre-existing liens, liens permitted under the indenture and other rights, encumberany of the collateral securing the notes and the guarantees, those parties have or may exercise rights andremedies with respect to the collateral that could adversely affect the value of the collateral and the ability ofthe collateral agent to realize or foreclose on the collateral. Consequently, liquidating the collateral securingthe notes may not result in proceeds in an amount sufficient to pay any amounts due under the notes after alsosatisfying the obligations to pay any creditors with superior liens. If the proceeds of any sale of collateral arenot sufficient to repay all amounts due on the notes, the holders of the notes (to the extent not repaid from theproceeds of the sale of the collateral) would have only an unsecured, unsubordinated claim against our and theguarantors’ remaining assets.

The security interest of the collateral agent is subject to practical problems generally associated withthe realization of security interests in collateral. For example, the collateral agent may need to obtain theconsent of a third party to enforce a security interest in certain of the assets consisting of the collateral, andwe cannot assure you that the collateral agent will be able to obtain any such consent. Accordingly, thecollateral agent may not have the ability to foreclose upon such assets, and the value of the collateral maysignificantly decrease.

We or any guarantor may incur additional secured indebtedness under the indenture governing thenotes, including the issuance of additional notes or the incurrence of other forms of indebtedness securedequally and ratably with the notes and/or borrowings under the New Senior Credit Facility and our fixed rateIRBs, subject to certain specified conditions. See “Description of the Notes – Certain Covenants – Limitationon Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock.” Any such incurrencecould dilute the value of the collateral securing the notes and guarantees.

The subsidiary guarantees could be avoided under fraudulent transfer laws, which could preventthe holders of the notes from relying on that subsidiary to satisfy claims.

Under U.S. bankruptcy law and/or comparable provisions of state fraudulent transfer laws, a guaranteecan be voided, or claims under the guarantee may be subordinated to all other debts of that guarantor, if,among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee or, insome states, when payments become due under the guarantee, received less than reasonably equivalent valueor fair consideration for the incurrence of the guarantee and:

k was insolvent or rendered insolvent by reason of such incurrence;

k was engaged in a business or transaction for which the guarantor’s remaining assets constitutedunreasonably small capital; or

k intended to incur, or believed that it would incur, debts beyond its ability to pay those debts as theymature.

A guarantee may also be avoided, without regard to the above factors, if a court were to find that theguarantor entered into the guarantee with the actual intent to hinder, delay or defraud its creditors.

A court would likely find that a guarantor did not receive reasonably equivalent value or fairconsideration for its guarantee if the guarantor did not substantially benefit directly or indirectly from theissuance of the notes. If a court were to void a guarantee, then you may no longer have a claim against theguarantor. In addition, the loss of a guarantee (other than in accordance with the terms of the indenture) couldconstitute a default under the indenture, which default could cause all notes to become immediately due andpayable. Sufficient funds to repay the notes may not be available from other sources, including the remainingguarantors, if any. In addition, the court might direct you to repay any amounts that you already received fromthe subsidiary guarantor.

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The measures of insolvency for purposes of fraudulent transfer laws vary depending upon thegoverning law. Generally, a guarantor would be considered insolvent if:

k the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all itsassets;

k the present fair saleable value of its assets was less than the amount that would be required to pay itsprobable liability on its existing debts, including contingent liabilities, as they became absolute andmature; or

k it could not pay its debts as they became due.

Each subsidiary guarantee will contain a provision intended to limit the guarantor’s liability to themaximum amount that it could incur without causing the incurrence of obligations under its subsidiaryguarantee to be a fraudulent transfer. This provision may not be effective to protect the subsidiary guaranteesfrom being avoided under fraudulent transfer law.

To the extent that any of the subsidiary guarantees is avoided, then, as to that subsidiary, the guarantywill not be enforceable.

In the event of our bankruptcy, the ability of the holders of the notes to realize upon the collateralwill be subject to certain bankruptcy law limitations.

The ability of holders of the notes to realize upon the collateral will be subject to certain bankruptcylaw limitations in the event of our bankruptcy. Under applicable U.S. bankruptcy laws, secured creditors areprohibited from repossessing their security from a debtor in a bankruptcy case without bankruptcy courtapproval and may be prohibited from disposing of security repossessed from such debtor without bankruptcycourt approval. Moreover, applicable federal bankruptcy laws generally permit the debtor to continue to retaincollateral, including cash collateral, even though the debtor is in default under the applicable debt instruments,provided that the secured creditor is given “adequate protection.” The meaning of the term “adequateprotection” may vary according to the circumstances, but is intended generally to protect the value of thesecured creditor’s interest in its collateral as of the commencement of the bankruptcy case and may includecash payments or the granting of additional security if and at such times as the court, in its discretion,determines that a diminution in the value of the collateral occurs as a result of the stay of repossession or thedisposition of the collateral during the pendency of the bankruptcy case. In view of the lack of a precisedefinition of the term “adequate protection” and the broad discretionary powers of a U.S. bankruptcy court, wecannot predict whether or when the collateral agent would be able to foreclose upon or sell the collateral orwhether or to what extent holders of notes would be compensated for any delay in payment or loss of value ofthe collateral through the requirement of “adequate protection.”

Moreover, the collateral agent may need to evaluate the impact of the potential liabilities beforedetermining to foreclose on collateral consisting of real property, if any, because secured creditors that hold asecurity interest in real property may be held liable under environmental laws for the costs of remediating orpreventing the release or threatened releases of hazardous substances at such real property. Consequently, thecollateral agent may decline to foreclose on such collateral or exercise remedies available in respect thereof ifit does not receive indemnification to its satisfaction from the holders of the notes.

In the event of a bankruptcy of us or any of the guarantors, then as to the obligor in bankruptcy,holders of the notes may be deemed to have an unsecured claim to the extent that the obligor’sobligations in respect of the notes exceed the fair market value of its property which secures thenotes.

In any bankruptcy proceeding with respect to us or any of the guarantors, it is possible that thebankruptcy trustee, the debtor-in-possession or competing creditors will assert that the fair market value of thecollateral with respect to the notes on the date of the bankruptcy filing is less than the then-current principalamount of the notes. Upon a finding by the bankruptcy court that the notes were under-collateralized, the

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claims in the bankruptcy proceeding with respect to the notes could be bifurcated between a secured claim inan amount equal to the value of the collateral and an unsecured claim with respect to the remainder of itsclaim which would not be entitled to the benefits of security in the collateral. Other consequences of a findingof undercollateralization would be, among other things, a lack of entitlement on the part of the holders of thenotes to receive post-petition interest and costs, including attorneys’ fees, and a lack of entitlement on the partof the unsecured portion of the notes to receive “adequate protection” under federal bankruptcy laws. Inaddition, if any payments of post-petition interest had been made at any time prior to such a finding of under-collateralization, those payments would be recharacterized by the bankruptcy court as a reduction of theprincipal amount of the secured claim with respect to the notes.

The value of the collateral securing the notes may not be sufficient to secure post-petition interest.

In the event we are subject of a bankruptcy, liquidation, dissolution, reorganization or similarproceeding, holders of the notes will only be entitled to post-petition interest under the U.S. bankruptcy law tothe extent that the value of their security interest in the collateral is greater than their pre-bankruptcy claim.Holders of the notes that have a security interest in collateral with a value equal to or less than their pre-bankruptcy claim will not be entitled to post-petition interest under U.S. bankruptcy law. The value of thenoteholders’ interest in the collateral may not equal or exceed the principal amount of the notes.

The notes may be issued with original issue discount for U.S. federal income tax purposes.

If the issue price of the notes is less than their stated principal amount by more than a statutory deminimis amount, the notes will be treated as being issued with OID for U.S. federal income tax purposes. Ifnotes are issued with OID, U.S. Holders (as defined in “Summary of U.S. Federal Income TaxConsiderations”) will have to annually report accrued OID, regardless of such holder’s regular method ofaccounting for U.S. federal income tax purposes. Thus, any OID income on a note will be taxable before it isreceived in cash. For more information, see “Summary of U.S. Federal Income Tax Considerations –U.S. Holders – OID on the Notes.”

If the notes are issued with OID and a bankruptcy petition were filed by or against us, holders ofthe notes may receive a lesser amount for their claim than they would have been entitled to receiveunder the indenture governing the notes.

If a bankruptcy petition were filed by or against us under U.S. bankruptcy law after the issuance ofthe notes, there is a risk that a bankruptcy court could determine that the claim by any holder of the notes forthe principal amount of the notes should be limited to an amount equal to the sum of:

k the original issue price for the notes; and

k that portion of the OID that does not constitute “unmatured interest” for purposes of theBankruptcy Code.

Generally, any OID that was not amortized as of the date of the bankruptcy filing may constituteunmatured interest, which is not allowable as a claim in bankruptcy. Under U.S. bankruptcy law, the holders ofthe notes would only have the right to receive interest accruing after the commencement of a bankruptcyproceeding to the extent that the value of the collateral (after taking into account all prior liens on suchcollateral) exceeds the claim of the holders of the notes for principal and pre-petition interest on the notes.Accordingly, holders of the notes under these circumstances may receive a lesser amount than they would beentitled to under the terms of the notes indenture, even if sufficient funds are available.

No public market exists for the notes and an active trading market may not develop for the notes,which may hinder your ability to liquidate your investment.

The notes will constitute a new issue of securities for which there is no established trading market.We have been informed by the initial purchasers that they intend to make a market in the notes after the

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offering is completed. However, the initial purchasers are not obligated to do so and may cease their market-making activities at any time. In addition, the liquidity of the trading market in the notes, and the market pricequoted for the notes, may be adversely affected by changes in the overall market for non-investment gradesecurities, prevailing interest rates and by changes in our financial performance or prospects or in the financialperformance or prospects of companies in our industry generally. As a result, we cannot assure you that anactive trading market will develop or be maintained for the notes. If an active market does not develop or isnot maintained, the market price and liquidity of the notes may be adversely affected.

Even if a trading market for the notes does develop, you may not be able to sell your notes at aparticular time, if at all, or you may not be able to obtain the price you desire for your notes. If the notes aretraded after their initial issuance, they may trade at a discount from their initial offering price depending onmany factors, including prevailing interest rates, the market for similar securities, our credit rating, the interestof securities dealers in making a market for the notes, the price of any other securities we issue, ourperformance, prospects, operating results and financial condition, as well as of those of other companies in ourindustry.

Historically, the market for non-investment grade debt has been subject to disruptions that havecaused substantial fluctuations in the price of securities. Therefore, even if a trading market for the notesdevelops, it may be subject to disruptions and price volatility.

The notes are subject to transfer restrictions.

The notes have not been registered under the Securities Act or any state securities laws. Absentregistration, the notes may be offered or sold only in transactions that are not subject to or that are exemptfrom the registration requirements of the Securities Act and applicable state securities laws. See “Notice toInvestors” for a description of restrictions on transfer of the notes.

Risks Related to Our Business and the Petroleum Industry

Volatile commodity prices in the refining industry may negatively affect our future operating resultsand decrease our cash flow.

Our financial results are primarily affected by the relationship, or margin, between refined productprices and the prices for crude oil and other feedstocks. The cost to acquire our feedstocks and the price atwhich we can ultimately sell refined products depend on a variety of factors beyond our control. These factorsinclude the global supply of and demand for crude oil, gasoline and other refined products, which in turn aresubject to, among other things, changes in domestic and foreign economies, weather conditions, hurricanes andother natural disasters, domestic and foreign political affairs, refinery capacities and utilization rates, theavailability and quantity of imports, the price and availability of alternative fuels and the extent of governmentregulation. Historically, refining margins have been volatile, and we believe they are likely to continue to bevolatile in the future. Although an increase or decrease in prices for crude oil, other feedstocks and blendingcomponents generally will result in a corresponding increase or decrease in prices for refined products, thereis generally a lag in the realization of the corresponding increase or decrease in prices for refined products. Inaddition, even if we are able to pass on increases in crude oil and feedstock prices to our customers, demandfor our products may decrease as a result of price increases. Future volatility in the prices for crude oil couldhave a material adverse effect on our financial condition and results of operations, since the margin betweenrefined products prices and feedstock prices as well as our sales volumes could decrease below the amountneeded for us to generate net cash flow sufficient to meet our needs.

In recent years, the prices of crude oil, other feedstocks, and refined products have fluctuatedsubstantially. This volatility has had, and may continue to further have, a negative effect on our results ofoperations to the extent that the margin between refined product prices and feedstock prices narrows further,as was the case throughout much of 2009.

Refining margins have also been extremely volatile in recent years. Our refining margins in particularwere significantly lower in 2009 compared to the 2000 to 2008 period due in part to narrower light/heavy

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differentials which we believe resulted from reduced production of heavy sour crude oils and related priceincreases. In 2009, the average price differential between light and heavy crudes, as illustrated by the WTI-Maya differential, averaged $5.20 per barrel or 8.4% of WTI, as compared to the 2000 to 2008 period, whenthe annual average ranged from a low of $5.19 per barrel to a high of $15.59 per barrel, or between 19.9%and 27.6% of WTI. This increase in the price of heavy crudes and the narrowing of the light/heavydifferentials contributed to lower margins for us and other refiners that process significant amounts of heavycrudes.

The nature of our business requires us to maintain substantial quantities of crude oil and petroleumproduct inventories. Crude oil and petroleum products are commodities. As a result, we have no control overthe changing market value of these inventories. Because our crude oil and petroleum product inventories arestated at the lower of cost or market, with cost determined using the last-in, first-out, or LIFO, inventoryvaluation method, if the market value of our inventory were to decline to an amount less than our LIFO cost,we would record a write-down of inventory and a non-cash charge to cost of products sold.

In addition, the volatility in costs of fuel, principally natural gas, and other utility services, principallyelectricity, used by our refineries affects operating costs. Fuel and utility prices have been, and will continueto be, affected by factors outside our control, such as supply and demand for fuel and utility services in bothlocal and regional markets. Natural gas prices have historically been volatile. Typically, electricity pricesfluctuate with natural gas prices. Future increases in fuel and utility prices may have a negative effect on ourresults of operations.

We rely on a single source of supply for a significant portion of our crude oil requirements.

We have historically purchased a significant portion of our crude oil requirements from PDVSA, ourparent, and its affiliates. In 2009, we purchased approximately 40% of our crude oil requirements under along-term contract with PDVSA which expires on March 31, 2012, with automatic renewals for successive12-month terms unless terminated by either party. The supply agreement has market-based price terms and a30-day payment term. We also purchased approximately 5% of our crude oil requirements in 2009 fromPDVSA and other affiliated Venezuelan suppliers on the spot market. Although we expect that, as long asPDVSA remains our shareholder, the supply agreement will be renewed or replaced, and we will be able tocontinue sourcing significant portions of our crude oil requirements from PDVSA and its affiliates, we cannotassure you that this would be the case, or that any such renewal or replacement would be on commerciallycompetitive terms for us. In addition, as is customary for commodities supply agreements, our supplyagreement with PDVSA contains force majeure provisions which permit PDVSA to decrease or stop oursupply upon certain force majeure events and provisions that permit PDVSA to terminate the supplyagreement based upon certain defaults and other actions by and events affecting us. PDVSA has invoked theforce majeure provisions in the past and could do so in the future. If our supply of crude oil from PDVSA andits affiliates were disrupted, we would be required to replace this supply with supply from third parties,including spot market purchases. Depending on market conditions at the time of the disruption, thesepurchases from third parties may be at higher prices than our purchases under our supply agreement withPDVSA. In addition, purchases on the spot market may require payment on less than a 30-day term. Thus, ifwe experience disruption to our purchases of crude under our PDVSA supply agreement, we could experienceadditional volatility in our earnings, cash flow and liquidity.

Our crude oil supply could be disrupted as a result of factors related to the Bolivarian Republic ofVenezuela.

Global crude oil supplies and prices fluctuate due to many factors, including political and economicevents in major oil producing countries such as the Bolivarian Republic of Venezuela, and actions taken by theOrganization of Petroleum Exporting Countries, or OPEC, of which Venezuela is a member. Historically,OPEC members have entered into agreements to reduce their production of crude oil. Such agreements havesometimes increased global crude oil prices by decreasing global supply of crude oil. PDVSA has beenrequired in the past and could be required in the future to curtail its production of crude oil in response to a

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curtailment decision by OPEC. Such a curtailment of PDVSA’s production could be an event of force majeureunder our crude oil supply agreement, giving PDVSA the right to reduce crude oil deliveries under thatagreement for so long as such curtailment is in effect. At the same time, if the production cutbacks by OPECmembers cause a tightening of global crude oil supply and an increase in prices, we could experiencedifficulty replacing our supply from PDVSA with third party purchases, and these purchases could beprimarily on the spot market at higher prices and on less favorable payment terms than our purchases underour supply agreement with PDVSA. As a result, our earnings, cash flow and liquidity could be adverselyaffected.

Similarly, the political and economic environment in Venezuela, including periods of significantsocial turmoil and instability, has disrupted PDVSA’s operations in the past and could do so again in thefuture, which could disrupt our crude oil supplies.

A significant interruption or casualty loss at one of our refineries could reduce our production.

Our business includes owning and operating refineries. As a result, our operations could be subject tosignificant interruption if one of our refineries were to experience a major accident, be damaged by severeweather or other natural disaster, or otherwise be forced to shut down. Any such shutdown would reduce theproduction from the refinery. We have experienced accidents at our facilities that have required us to shutdown operations for significant periods of time. We also face risks of mechanical failure and equipmentshutdowns. In any of these situations, undamaged refinery processing units may be dependent on or interactwith damaged sections of our refineries and, accordingly, are also subject to being shut down. A shutdown ofany of our refining facilities for a significant period of time would be expected to have a material adverseeffect on our financial condition and results of operations.

Our insurance coverage may be inadequate to cover all losses.

Our assets and operations are subject to various hazards common to the industry, includingexplosions, fires, spills, toxic emissions, mechanical failures, security breaches, labor disputes, maritimehazards and natural disasters, any of which could result in loss of life or equipment, business interruptions,environmental pollution, personal injury and damage to our property and that of others. As protection againstthese hazards, we maintain property, casualty, and business interruption insurance in accordance with industrystandards. However, not all operating risks are insurable, and there can be no assurance that the insurance willbe available in the future or that insurance will cover all unanticipated losses in the event of a loss. Theoccurrence of an event that is not fully covered by insurance could have a material adverse effect on ourbusiness, financial condition and results of operations.

In the future, we may not be able to maintain or obtain insurance of the type and amount we desire atreasonable rates. As a result of factors affecting the insurance market, insurance premiums with respect torenewed insurance policies may increase significantly compared to what we are currently paying. In addition,the level of coverage provided by renewed policies may decrease, while deductibles and/or waiting periodsmay increase, compared to our existing insurance policies. If there is a total or partial loss of any of the assetsthat secure the notes, we cannot assure holders of the notes that the proceeds received in respect thereof willbe sufficient to satisfy all the secured obligations, including the notes.

Our insurance program includes a number of insurance carriers. Disruptions in the global financialmarkets have resulted in the deterioration in the financial condition of many financial institutions, includinginsurance companies. We are not currently aware of any information that would indicate that any of ourinsurers is unlikely to perform in the event of a covered incident. However, in light of this uncertainty and thevolatile current market environment, we can make no assurances that we will be able to obtain the full amountof our insurance coverage for insured events.

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Environmental statutes and regulations impose significant costs and liabilities.

Our operations are subject to extensive federal, state and local environmental, health and safety lawsand regulations, including those governing discharges to the air and water, the handling and disposal of solidand hazardous wastes and the remediation of contamination. Consistent with the experience of allU.S. refineries, environmental laws and regulations have raised operating costs and necessitated significantcapital investments at our refineries. For example, in recent years we have made significant capitalexpenditures to comply with low sulfur gasoline and diesel standards, to upgrade and close surfaceimpoundments and other solid waste management units, to respond to bans on the use of methyl tertiary butylether, or MTBE, and other ether-based gasoline additives and to comply with a consent decree with theU.S. Environmental Protection Agency, or the EPA, under its New Source Review program that is similar toother consent decrees entered into with the EPA by other major refiners. We estimate that our capitalexpenditures required to comply with the Clean Air Act and other environmental laws and regulations between2010 and 2014 will be $665 million, including $282 million in 2010 in connection with completion of ourULSD upgrades. We believe that existing physical facilities at our refineries are substantially adequate tomaintain compliance with existing applicable laws and regulatory requirements. Additional materialexpenditures could be required in the future, however, as a result of new, or more stringent enforcement ofexisting, environmental, health and safety, and energy laws, regulations or requirements. We also could berequired to address information or conditions that may be discovered in the future and require a response. See“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity andCapital Resources” and “Business – Governmental Regulation.”

Various federal and state legislative and regulatory measures to address greenhouse gas emissions(including carbon dioxide, methane and nitrous oxides) are in varying phases of discussion or implementationat the federal, state and regional levels. These measures include EPA-enacted regulations to require reportingof greenhouse gas emissions as well as proposed federal legislation (including cap-and-trade programs) andstate actions to develop programs which, among other things, would regulate or require reductions ingreenhouse gas emissions. The proposed actions could result in increased costs to (i) operate and maintain ourfacilities, (ii) install new emission controls on our facilities and (iii) administer and manage any greenhousegas emissions program. The proposed actions could also impact demand for refined products, thereby affectingour financial condition and results of operations. In addition, certain states have adopted or are consideringadopting Low Carbon Fuel Standards which would in effect place a penalty on fuels made from carbonintensive sources to curb greenhouse gas emissions. These types of regulations could adversely impact demandfor or the cost of our products derived from heavy crude oil from Venezuela used at our Lake Charles andCorpus Christi refineries and from heavy crude oil from Canada used at our Lemont refinery.

In December 2007, the U.S. Congress passed the Energy Independence and Security Act, which,among other things, modified the industry requirements for the Renewable Fuel Standard (“RFS”). In February2010, the EPA issued final regulations implementing the standard. This standard requires the total volume ofrenewable transportation fuels (including ethanol and biodiesel) sold or introduced in the United States to be12.95 billion gallons in 2010 rising to 36 billion gallons by 2022. Both requirements could reduce demandgrowth for petroleum products in the future. In the near term, the RFS presents ethanol production andlogistics challenges for both the ethanol and refining and marketing industries and may require additionalexpenditures by us to accommodate increased ethanol use.

We expect that the refining business will continue to be subject to increasingly stringentenvironmental and other laws and regulations that may increase the costs of operating our refineries abovecurrently projected levels and require future capital expenditures, including increased costs associated withmore stringent standards for air emissions, wastewater discharges and the remediation of contamination. It isdifficult to predict the effect of future laws and regulations on our financial condition or results of operations.We cannot assure you that environmental or health and safety liabilities and expenses will not have a materialadverse effect on our financial condition or results of operations.

Failure to comply with applicable environmental, health and safety laws and regulations can lead,among other things, to civil and criminal penalties and, in some circumstances, the temporary or permanent

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curtailment or shutdown of all or part of our operations in one or more of our refineries or terminals. Failureto modify our facilities and operations in order to comply with applicable environmental laws and regulationsrequiring product changes could also adversely impact our sales volumes and our financial condition andresults of operations. We are a defendant in a variety of lawsuits under environmental laws, including onebrought by the EPA in Texas involving our Corpus Christi refinery seeking criminal penalties, a claim for civilpenalties by the EPA involving an alleged violation of the Clean Water Act involving our Lake Charlesrefinery, and claims by private parties seeking damages for alleged personal injuries, property damage and/orbusiness interruption related to both our Corpus Christi and Lake Charles refineries. We believe we have validdefenses to these claims and are vigorously defending them. However, there can be no assurance that theultimate resolution of these matters would not result in a material adverse effect on our financial condition orresults of operation. See “Business – Government Regulation” and “– Legal Proceedings.”

Permitting and regulatory matters may impact the operation of our refineries.

We are required to obtain certain permits and to comply with changing provisions of numerousstatutes and regulations relating to, among other things, business operations, the safety and health ofemployees and the public, the environment, employment and hiring and anti-discrimination.

New statutes and regulations or new permit provisions may become applicable to our refineries,resulting in the imposition of significant additional costs. Failure to comply with these permits, statutes andregulatory requirements could result in significant civil or criminal liability and, in certain circumstances, thetemporary or permanent curtailment or shutdown of all or part of our operations or the inability to producemarketable products. We cannot assure you that we will at all times be in compliance with all applicablestatutes and regulations or have all necessary permits. Such failure could adversely affect our financialcondition and results of operations.

Our operations are inherently subject to discharges or other releases of petroleum or hazardoussubstances for which we may face significant liabilities.

Our operations, as with others in the industry in which we operate, are inherently subject to spills,discharges or other releases of petroleum or hazardous substances that may give rise to liability togovernmental entities and private parties under federal, state or local environmental laws, as well as undercommon law. Under certain laws such liability is strict and under certain circumstances joint and several. Wecould incur substantial costs in connection with these liabilities, including cleanup costs, fines and civil orcriminal sanctions, and personal injury or property or natural resource damage claims. Spills, discharges orother releases of contaminants have occurred from time to time in the course of our operations. We cannotassure you that additional spills, discharges and other releases will not occur in the future, that governmentalagencies will not assess clean up costs or obligations or penalties against us in connection with any past orfuture discharges or incidents, or that third parties will not assert claims against us for damages allegedlyarising out of any such past or future discharges or incidents.

Competitors who produce their own supply of crude oil and other feedstocks, make alternative fuelsor have greater financial resources may have a competitive advantage over us.

The refining industry is highly competitive with respect to both crude oil and other feedstock supplyand refined product markets. We compete with numerous other companies for available supplies of crude oiland other feedstocks and for outlets for our refined products. We are not engaged in the petroleum explorationand production business and therefore do not produce any of our crude oil feedstocks. Competitors that havetheir own production are at times able to offset losses from refining operations with profits from productionoperations, and may be better positioned to withstand periods of depressed refining margins or feedstockshortages. A number of our competitors have greater financial and other resources than we do. Thesecompetitors have a greater ability to enhance their facilities and operations and bear the economic risksinherent in all phases of the refining industry. Some of our competitors have more efficient refineries and mayhave lower per barrel crude oil refinery processing costs. In addition, we compete with other industries that

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provide alternative means to satisfy the energy and fuel requirements of our industrial, commercial andindividual consumers. If we are unable to compete effectively with these competitors, our financial condition,results of operations and business prospects could be materially adversely affected.

Our derivative activities could result in financial losses or could reduce our earnings.

To reduce our exposure to adverse fluctuations in the price of crude oil and refined products, wecurrently, and expect to in the future, enter into derivative contracts for petroleum commodities, includingfutures, forwards, options and swap contracts. Our open positions in commodity derivatives as of March 31,2010 are summarized below in “Management’s Discussion and Analysis of Financial Condition and Results ofOperations – Quantitative and Qualitative Disclosures About Market Risk – Non-Trading CommodityDerivatives.” We do not designate any of our derivative instruments as hedges for accounting purposes, asthese instruments are designed to hedge risk associated with market price fluctuations or for trading purposes.As of March 31, 2010, we have recorded all derivative contracts on our balance sheet at fair value. Changes inthe fair value of our derivative contracts are recorded under cost of sales and operating expense on ourstatement of income. Accordingly, to the extent our positions in commodity derivatives may be material in thefuture, our earnings could fluctuate significantly as a result of changes in fair value of our derivative contracts.

Our failure to maintain an adequate system of internal control over financial reporting couldadversely affect our ability to accurately report our results.

Internal control over financial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with GAAP. Effective internal controls are necessary for us to provide reliable financial reportsand effectively prevent material fraud. If we cannot provide reliable financial reports or prevent fraud, ourreputation and operating results could be harmed. Although we maintain internal control over financialreporting, we are not currently subject to SEC internal control requirements. Our efforts to maintain ourinternal controls may not be successful, and we may be unable to maintain adequate controls over ourfinancial processes and reporting in the future.

Risks Related to Our Relationship with PDVSA

We are indirectly owned by PDVSA, which is wholly owned by the Bolivarian Republic ofVenezuela.

PDVSA, a Venezuelan corporation 100% owned and controlled by the Bolivarian Republic ofVenezuela, owns, indirectly, 100% of our capital stock. The members of the board of directors of PDVSA areappointed by the President of the Bolivarian Republic of Venezuela, and the Minister of the Popular Power forEnergy and Petroleum of the Bolivarian Republic of Venezuela is the president of PDVSA. Major corporateactions of PDVSA may be subject to the approval of the Venezuelan government, as its sole shareholder.However, the Bolivarian Republic of Venezuela is not legally liable for the obligations of PDVSA or theobligations of its subsidiaries. We cannot assure you that PDVSA or the Bolivarian Republic of Venezuela willnot exercise their indirect control of us in a manner that might adversely affect your interests.

As our indirect shareholder, PDVSA has the ability to control the election and change the members ofour board of directors, indirectly control the selection of our senior management and exercise significantinfluence over our management and policies. No assurance can be given that the Venezuelan government’spolicy as PDVSA’s sole shareholder and, ultimately, our shareholder, will not change in the future, or thatPDVSA or the Venezuelan government will not make sovereign decisions that could impact our commercialaffairs or management in a manner adverse to the interests of the holders of the notes. Similarly, incircumstances involving a conflict of interest between PDVSA, as our sole owner, and the holders of the notes,PDVSA may exercise the rights arising from its ownership interest in a manner that would benefit PDVSA tothe detriment of the holders of the notes.

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The operations of PDVSA and its subsidiaries are subject to regulation and supervision by variouslevels and agencies of the Venezuelan government, and there can be no assurance that the applicable legal orregulatory framework will not change in a manner that could indirectly adversely affect us.

PDVSA’s sale or reduction to less than 50% of its ownership of our voting shares would be a changeof control under the agreement governing our New Senior Credit Facility, which would constitute an event ofdefault under such agreement and consequently, a cross-default under the indenture. Separately, if a change ofcontrol (as defined under the indenture) occurs, we would be required to make an offer to purchase the notes.In the event that we are required to make such an offer, there can be no assurance that we would havesufficient funds available to purchase any of the notes and we may be required to refinance the notes. Therecan be no assurance that we would be able to accomplish a refinancing. If we were unable to refinance thenotes, our failure to purchase the notes would constitute an event of default under the indenture governing thenotes.

Certain Other Risks

Volatility in the capital markets could affect the value of certain assets as well as our ability toobtain capital.

Despite recent improvements in market conditions, global financial markets and economic conditionshave been, and continue to be, disrupted and volatile due to a variety of factors, including significant write-offs in the financial services sector and, high levels of unemployment. In some cases, the markets haveproduced downward pressure on credit capacity for certain issuers without regard to those issuers’ underlyingfinancial and/or operating strength. As a result, the cost of raising money in the capital markets has increasedsubstantially while the availability of funds from those markets has diminished significantly. In particular, as aresult of concerns about the stability of financial markets generally and the solvency of lending counterpartiesspecifically, the cost of obtaining money from the credit markets generally has increased as many lenders andinstitutional investors have increased interest rates, enacted tighter lending standards, refused to refinanceexisting debt on similar terms or at all, and reduced, or in some cases ceased, to provide funding to borrowers.

Recently, a number of financial institutions have experienced serious financial difficulties and, insome cases, have entered bankruptcy proceedings or are in regulatory enforcement actions. If the current creditconditions of United States and international capital markets persist or deteriorate, the lending counterpartiesunder our New Senior Credit Facility and our Existing Senior Credit Facility and other debt instruments maybecome unable or unwilling to fund borrowings under their credit commitments to us, which could have amaterial adverse effect on our financial condition and our ability to borrow additional funds, if needed, forworking capital, capital expenditures and other corporate purposes. In addition, if current economic conditionspersist or deteriorate, we may be required to impair the carrying value of assets associated with derivativecontracts to account for non-performance by counterparties to those contracts.

The United States federal government, state governments and foreign governments have implementedand are considering a broad range of measures to address the current negative economic conditions.Nevertheless, government responses to the disruptions in the financial markets may not restore consumerconfidence, stabilize the markets or increase liquidity and the availability of credit.

Terrorist attacks and threats or actual war may negatively impact our business.

Our business is affected by general economic conditions and fluctuations in consumer confidence andspending, which can decline as a result of numerous factors outside of our control. Terrorist attacks in theUnited States, as well as sanctions and other events occurring in response to or in connection with them,rumors or threats of war, actual conflicts involving the United States or its allies, or military or tradedisruptions impacting our suppliers or our customers may adversely impact our operations. As a result, therecould be delays or losses in the delivery of supplies and raw materials to us, decreased sales of our productsand delays in our customers’ payment of our accounts receivable. Strategic targets such as energy-relatedassets (which could include refineries such as ours) may be at greater risk of future terrorist attacks than other

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targets in the United States. These occurrences could have an adverse impact on energy prices, includingprices for our products, which could drive down demand for our products. In addition, disruption or significantincreases in energy prices could result in government-imposed price controls. Any or a combination of theseoccurrences could have a material adverse effect on our business, financial condition and results of operations.

Recourse against our directors for securities laws claims may be limited.

Certain members of our board of directors and certain of our executive officers are residents orcitizens of Venezuela, and all or a substantial portion of the assets of those directors and officers may belocated outside the United States. As a result, it may be difficult for investors to effect service of processwithin the United States upon those directors and officers or to enforce, in U.S. courts, judgments obtained insuch courts and predicated upon the civil liability provisions of the U.S. federal securities laws. In addition,PDVSA may replace members of our board of directors, which could in turn replace our executive officers, atany time. This could make it even more difficult to effect service of process on our directors and executiveofficers. We have been advised that liabilities predicated solely upon the civil liability provisions of theU.S. federal securities laws in actions brought in Venezuela, in original actions or in actions for enforcementof judgments of U.S. courts, may not be enforceable in Venezuela.

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USE OF PROCEEDS

We expect the net proceeds from the offering of the notes to be approximately $1.45 billion, afterdeducting the initial purchasers’ discounts and estimated offering expenses payable by us. We intend to use thenet proceeds of this offering, together with the proceeds of borrowings under our New Senior Credit Facility,to repay all outstanding amounts under our Existing Senior Credit Facility, to finance the purchase of ourvariable rate IRBs and for general corporate purposes.

The following table illustrates the anticipated sources and uses of funds for our pending financings,including the offering of the notes.

Source of Funds Amount Use of Funds Amount($ in millions) ($ in millions)

New Revolving Credit Facility(1) . . . . . . $ - Repay Existing Senior Credit Facility . . . $ 1,124

New Term Loan . . . . . . . . . . . . . . . . . . 300 Purchase of variable rate IRBs . . . . . . . . 545

Senior Secured Notes offered hereby(2) . . 1,500 Cash on balance sheet . . . . . . . . . . . . . . 81

Transaction fees and expenses . . . . . . . . 50

Total Sources . . . . . . . . . . . . . . . . . . . . $ 1,800 Total Uses . . . . . . . . . . . . . . . . . . . . . . $ 1,800

(1) The new revolving credit facility is expected to have total availability of $700 million. Approximately $24 million isexpected to be utilized under letters of credit upon closing as adjusted for the purchase of variable rate IRBs.

(2) This excludes the effect of any OID.

As noted above, the proceeds of this offering will be used to repay our Existing Senior Credit Facility,which consists of our existing revolving credit facility and two term loan facilities, Term Loan A and TermLoan B. As of March 31, 2010, we had no borrowings outstanding under our existing revolving credit facility;however, letters of credit for an aggregate of $537 million, of which $513 million support our obligationsunder our variable rate IRBs, were issued and outstanding. The existing revolving credit facility has a finalmaturity and termination date of November 15, 2010. As of March 31, 2010, the outstanding principal amountof the Term Loan A was $515 million and the interest rate was 5.25% and the outstanding principal amount ofthe Term Loan B was $609 million and the interest rate was 5.25%.

As of March 31, 2010, our outstanding IRB obligations totaled $653 million, of which $545 millionrelated to variable rate IRBs and $108 million related to fixed rate IRBs. The IRBs bear interest at variousfixed and variable rates, which ranged from 1.1% to 8.0% as of March 31, 2010. On July 1, 2010, we intendto use a portion of the proceeds of this offering and the New Senior Credit Facility to finance the purchase ofthe $545 million of variable rate IRBs. Of this amount, $292 million will be purchased and held by us intreasury until such time as we either repay or remarket these bonds as fixed rate IRBs. See “Description ofOther Indebtedness.”

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2010on an actual basis and on an as adjusted basis to reflect this offering, our New Senior Credit Facility and theapplication of the net proceeds therefrom as described above under “Use of Proceeds” as if these events hadoccurred on March 31, 2010. This table should be read in conjunction with the information contained in“Description of Other Indebtedness,” “Management’s Discussion and Analysis of Financial Condition andResults of Operations – Liquidity and Capital Resources,” and our financial statements and the notes theretoincluded in this offering memorandum.

Actual As Adjusted

As of March 31, 2010

(Unaudited)($ in millions)

Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.2 $ 84.2

Debt, including current portion:

Existing Senior Credit Facility:

Existing revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -

Term Loan A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515.0 -

Term Loan B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 608.7 -

New Senior Credit Facility:

New revolving credit facility(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -

New Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 300.0

Senior secured notes offered hereby(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1,500.0

Fixed rate IRBs due 2023 to 2032 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.9 107.9

Variable rate IRBs due 2024 to 2043(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 544.8 -

Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307.2 307.2

Accounts receivable facility(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277.6 277.6

Other debt(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.0 41.0

Total debt, including current portion(1): . . . . . . . . . . . . . . . . . . . . . . . . 2,402.2 2,533.7

Shareholder’s equity(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,591.1 1,576.1

Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,993.3 $ 4,109.8

(1) The new revolving credit facility is expected to have total availability of $700 million, of which approximately$24 million is expected to be utilized under letters of credit upon closing as adjusted for the purchase of variablerate IRBs.

(2) This excludes the effect of any OID.

(3) Proceeds of this offering and the New Senior Credit Facility will be used to finance the purchase of $544.8 millionof the variable rate IRBs, $292 million of which we will hold in treasury until we subsequently repay or remarketthese bonds as fixed rate IRBs.

(4) Represents the amount of our receivables in which third parties that participate in our accounts receivablesecuritization facility hold an undivided interest. Effective January 1, 2010, we are required to treat these amountsas indebtedness pursuant to ASU 2009-16 issued by the FASB.

(5) Represents payables owed to a third party as of March 31, 2010 under a product financing arrangement in whichwe sold to and committed to purchase crude oil from the third party. The arrangement was settled in April 2010.

(6) March 31, 2010, as adjusted reflects the acceleration of deferred financing costs.

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SELECTED HISTORICAL FINANCIAL DATA

The following tables present selected financial data as of and for each of the periods indicated. Theselected financial data as of December 31, 2005, 2006 and 2007 and for the years ended December 31, 2005 and2006 are derived from our audited consolidated financial statements for those periods, which are not includedherein. The selected financial data as of December 31, 2006 and 2007 and for the years ended December 31, 2007,2008 and 2009 are derived from our audited consolidated financial statements and notes thereto included in thisoffering memorandum. The selected financial data as of March 31, 2010 and for the three months ended March 31,2009 and 2010 are derived from our unaudited condensed consolidated financial statements and the notes theretoincluded in this offering memorandum. The unaudited condensed consolidated financial statements have beenprepared on the same basis as the audited consolidated financial statements and include all adjustments, consistingof only normal, recurring adjustments necessary for the fair presentation of the information set forth therein. Thehistorical results included below are not necessarily indicative of our future performance. You should read this tablein conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” andour financial statements and the notes thereto included in this offering memorandum.

2005(1) 2006(1) 2007(1) 2008(1) 2009 2009 2010

Three Months EndedMarch 31,Year Ended December 31,

($ in millions, except ratio data)Statement of Income Data:Revenues:

Net sales and sales toaffiliates . . . . . . . . . . . . . . . . $41,421.8 $47,564.4 $38,015.0 $41,279.7 $24,931.7 $ 4,836.9 $ 7,291.1

Equity in earnings ofaffiliates . . . . . . . . . . . . . . . . 129.6 203.1 35.4 36.1 13.9 3.3 8.3

Other income (expense), net . . . 36.1 47.7 54.0 53.4 20.6 16.4 33.2Insurance recoveries(2) . . . . . . . - - 29.1 33.9 - - -Gain on sale of assets . . . . . . . . - - 207.0 404.3 - - -Gain on sale of investments in

affiliates . . . . . . . . . . . . . . . . - 1,432.0 640.7 - - - -

Total Revenues . . . . . . . . . 41,587.5 49,247.2 38,981.2 41,807.4 24,966.2 4,856.6 7,332.6Cost of sales and expenses:

Cost of sales and operatingexpenses . . . . . . . . . . . . . . . . 40,143.4 45,950.5 35,950.4 40,135.1 24,938.4 4,743.9 7,366.0

Selling, general andadministrative expenses . . . . . 327.9 450.8 503.4 353.0 373.3 135.4 113.5

Interest expense, excludingcapital lease . . . . . . . . . . . . . 108.6 75.7 77.5 108.7 49.3 12.6 22.2

Capital lease interest charge . . . 4.1 4.3 3.3 2.7 2.2 0.6 1.2Insurance recoveries(2) . . . . . . . (15.8) (62.1) (17.3) (37.6) (47.9) (1.5) (3.8)

Total cost of sales andexpenses . . . . . . . . . . . . 40,568.2 46,419.2 36,517.3 40,561.9 25,315.3 4,891.0 7,499.1

Income (loss) before incometaxes (benefit) andcumulative effect of changein accounting principle . . . . . 1,019.3 2,828.0 2,463.9 1,245.5 (349.1) (34.4) (166.5)

Income taxes (benefit) . . . . . . . 280.1 1,051.8 877.7 444.1 (147.7) (13.7) (38.8)Cumulative effect of change in

accounting principle, netof tax . . . . . . . . . . . . . . . . . . (9.2) - - - - - -

Net income (loss) . . . . . . . . . . . $ 730.0 $ 1,776.2 $ 1,586.2 $ 801.4 $ (201.4) $ (20.7) $ (127.7)

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2005(1) 2006(1) 2007(1) 2008(1) 2009 2009 2010

Three Months EndedMarch 31,Year Ended December 31,

($ in millions, except ratio data)Cash Flow Data:

Cash flows from operatingactivities . . . . . . . . . . . . . . . . $ 1,339.9 $ 421.6 $ 685.5 $ 1,169.5 $ 860.6 $ 187.4 $ 93.8

Cash flows from investingactivities . . . . . . . . . . . . . . . . (463.7) 1,284.9 (396.0) 330.3 (501.9) (225.9) (120.7)

Cash flows from financingactivities . . . . . . . . . . . . . . . . (716.7) (1,850.6) (318.9) (1,484.9) (29.9) 22.3 (322.6)

Increase (decrease) during theperiod . . . . . . . . . . . . . . . . . . $ 159.5 $ (144.1) $ (29.4) $ 14.9 $ 328.8 $ (16.2) $ (349.5)

Balance Sheet Data:Current assets . . . . . . . . . . . . . . $ 3,445.9 $ 3,328.6 $ 4,767.0 $ 3,222.6 $ 2,770.9 $ 2,952.5 $ 2,956.9Current liabilities . . . . . . . . . . . 2,815.0 2,896.2 3,593.5 1,948.0 2,459.2 1,782.2 2,946.3

Working capital . . . . . . . . . . . . $ 630.9 $ 432.4 $ 1,173.5 $ 1,274.6 $ 311.7 $ 1,170.3 $ 10.6Cash and cash equivalents . . . . . 182.5 38.4 9.1 23.9 352.7 7.7 3.2Net property, plant and

equipment . . . . . . . . . . . . . . . 4,099.8 4,231.0 4,130.7 4,241.4 4,313.5 4,297.4 4,609.7Total assets . . . . . . . . . . . . . . . . 8,403.6 8,173.0 9,360.9 7,917.5 7,529.3 7,708.0 7,999.0Total debt(3). . . . . . . . . . . . . . . 1,298.7 1,298.2 2,375.4 2,227.8 2,202.3 2,250.1 2,402.2Total shareholder’s equity . . . . . 2,653.9 2,375.2 2,794.5 1,956.0 1,718.8 1,906.1 1,591.1

Other Financial Data:Capital expenditures . . . . . . . . . $ 369.0 $ 432.1 $ 370.1 $ 485.4 $ 524.2 $ 221.3 $ 120.7Depreciation and amortization . . 398.2 413.7 453.8 459.0 446.0 107.7 112.7EBITDA(4) . . . . . . . . . . . . . . . 1,521.0 3,321.7 2,998.5 1,815.9 148.4 86.5 (30.4)Adjusted EBITDA(4) . . . . . . . . 1,451.0 1,948.1 2,051.3 1,319.1 (6.6) 153.4 27.8Ratio of earnings to fixed

charges(5) . . . . . . . . . . . . . . . 8.00x 18.95x 14.53x 6.92x - - -

(1) Includes asphalt refinery operations at our refineries in Paulsboro, New Jersey and Savannah, Georgia (which had a totalrefining capacity of 112,000 bpd) through March 20, 2008, the date we sold the fixed assets and inventories and certainrelated rights and obligations associated with these operations. Sales attributable to these operations amounted to$200 million (or 0.5% of our total net sales and sales to affiliates) in 2008, $1,882 million (or 5% of our total net sales andsales to affiliates) in 2007, $2,087 million (or 4.4% of our total net sales and sales to affiliates) in 2006, and $1,610 million(or 3.9% of our total net sales and sales to affiliates) in 2005. Crude oil throughput attributable to these operations was45,000 bpd (or 1.5% of our total crude oil throughput) in 2008, 72,000 bpd (or 9.5% of our total crude oil throughput) in2007, 80,000 bpd (or 10.7% of our total crude oil throughput) in 2006, and 79,000 bpd (or 9.5% of our total crude oilthroughput) in 2005.

(2) We record business interruption insurance recoveries as revenues and property damage and general liability insurancerecoveries as offsets to cost of sales.

(3) Total debt consists of the current and long-term portions of long-term debt and capital lease obligations. Total debt includes$277.6 million of obligations represented by the amount of our receivables in which third parties that participate in ouraccounts receivable securitization facility hold an undivided interest. Effective January 1, 2010, we are required to treatthese amounts as indebtedness pursuant to ASU 2009-16, “Transfers and Servicing — Accounting for Transfer of FinancialAssets,” issued by the FASB. Total debt also includes $41.0 million of payables owed to a third party as of March 31, 2010under a product financing arrangement in which we sold to and committed to purchase crude oil from the third party.

(4) We define EBITDA as net income before interest expense, income taxes, depreciation and amortization. We define AdjustedEBITDA as net income before interest expense, income taxes, depreciation and amortization, adjusted for certain specialitems identified in the reconciliation table below. EBITDA and Adjusted EBITDA are used as measures of performance byour management and are not measures of performance under generally accepted accounting principles, or GAAP. EBITDAand Adjusted EBITDA should not be considered as substitutes for net income (loss), cash flows from operating activitiesand other income or cash flow statement data prepared in accordance with GAAP, or as measures of profitability or

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liquidity. Shown in the table below is a reconciliation of EBITDA to net income (loss) and Adjusted EBITDA to EBITDAfor each of the periods presented:

2005 2006 2007 2008 2009 2009 2010

Three MonthsEnded

March 31,Year Ended December 31,

($ in millions)

Net income (loss) . . . . . . . . . . . . . . . . $ 730.0 $1,776.2 $1,586.2 $ 801.4 $ (201.4) $ (20.7) $ (127.7)Excluding the impacts of:

Interest expense, excluding capitallease . . . . . . . . . . . . . . . . . . . . . 108.6 75.7 77.5 108.7 49.3 12.6 22.2

Capital lease interest charge . . . . . . . 4.1 4.3 3.3 2.7 2.2 0.6 1.2Income taxes (benefit) . . . . . . . . . . . 280.1 1,051.8 877.7 444.1 (147.7) (13.7) (38.8)Depreciation and amortization . . . . . 398.2 413.7 453.8 459.0 446.0 107.7 112.7

EBITDA . . . . . . . . . . . . . . . . . . . . . . 1,521.0 3,321.7 2,998.5 1,815.9 148.4 86.5 (30.4)Gain on sale of assets and

investments in affiliates(a) . . . . . . - (1,432.0) (847.7) (404.3) - - -LIFO liquidation adjustment(b). . . . . (77.4) (15.9) (240.3) (116.0) (287.4) - -Social development donations(c) . . . . 7.4 62.6 140.8 23.5 80.1 66.9 58.2Asset impairment charges(d) . . . . . . - 11.7 - - 52.3 - -

Adjusted EBITDA . . . . . . . . . . . . . . . $1,451.0 $1,948.1 $2,051.3 $1,319.1 $ (6.6) $ 153.4 $ 27.8

(a) Gain on sale of assets and investments in affiliates in 2008 includes the gain on sale of assets resulting from the sale ofthe fixed assets and inventory of our asphalt refinery operations in Paulsboro, New Jersey and Savannah, Georgia, andthe sale of an unrelated terminal. The gain on sale of assets and investments in affiliates in 2007 includes the gain onsale of assets resulting from the sale of our interests in Explorer Pipeline Company and Colonial Pipeline Companyand the sale of a wholly owned pipeline and four related terminals. See “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.”

(b) Our hydrocarbon inventories are stated at the lower of cost or market, with cost determined using the last-in, first-out,or LIFO, inventory valuation method. LIFO liquidation is the permanent elimination of all or part of the LIFO base orold inventory layers when inventory quantities decrease.

(c) Social development donations include the donation of heating oil and cash donations to charitable organizations. Weadjust for this item in calculating Adjusted EBITDA because we believe excluding this item will enable investors andanalysts to compare our performance to our competitors in a more consistent manner. The 2007 donations weresignificantly more than other years presented due to the terms of the 2008 heating oil program contract which causedthe 2008 program to be expensed in 2007. See “Management’s Discussion and Analysis of Financial Condition andResults of Operations – Overview” and “Business – Social Development Programs.”

(d) We periodically evaluate the carrying value of long-lived assets or asset groups to be held and used when events orchanges in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying value of along-lived asset or asset group is considered impaired when the separately identifiable anticipated undiscounted netcash flow from such asset is less than its carrying value. The charge in 2009 primarily includes the impairment of ourlubes and wax plant in Lake Charles, Louisiana that was taken out of service in 2008.

We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance acrossreporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operatingperformance.

Adjusted EBITDA has limitations as an analytical tool, however. Some of these limitations are:

k Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures orcontractual commitments;

k Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

k Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to serviceinterest or principal payments, on our indebtedness;

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k although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will oftenhave to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for suchreplacements;

k Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to beindicative of our ongoing operations; and

k other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness asa comparative measure.

(5) For the purposes of calculating the ratio of earnings to fixed charges, “earnings” consist of income before income taxes andcumulative effect of accounting changes plus fixed charges (excluding capitalized interest), amortization of previouslycapitalized interest and certain adjustments to equity in income of affiliates. “Fixed charges” include interest expense,capitalized interest, amortization of debt issuance costs and a portion of operating lease rent expense deemed to berepresentative of interest. Earnings were inadequate to cover fixed charges for 2009 and each of the three month periodsended March 31, 2009 and March 31, 2010. The fixed charge coverage deficiency for these periods amounted to$347 million, $35 million and $176 million, respectively.

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MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read inconjunction with our financial statements and the notes thereto included in this offering memorandum. Thefollowing discussion includes certain forward-looking statements. See “Forward-Looking Statements” and“Risk Factors.”

Overview

We are one of the largest independent crude oil refiners and marketers of refined products in the UnitedStates as measured by refinery capacity. We own and operate three petroleum refineries with a total rated crude oilcapacity of approximately 749,000 bpd, located in Lake Charles, Louisiana, Corpus Christi, Texas and Lemont,Illinois. Our refining operations are supported by an extensive distribution network, which provides reliable accessto our refined product end-markets. We own 37 refined product terminals spread across 17 states with a totalstorage capacity of 18.4 million barrels, and have equity ownership of an additional 2.1 million barrels of refinedproduct storage capacity through our joint ownership of an additional 11 terminals. We also have access to over150 third-party terminals through exchange, terminaling and similar arrangements. We believe that we are theseventh largest branded gasoline supplier within the United States as measured by sales volume, with anapproximate 5% market share of the branded gasoline market. There are approximately 6,500 independently ownedand operated CITGO-branded retail outlets located in our markets, which are located east of the Rocky Mountains.We and our predecessors have had a recognized brand presence in the United States for approximately 100 years.

As with other refining companies, our earnings and cash flows are primarily affected by refinedproduct prices, which impacts our net sales, and crude oil and other feedstock prices, which impacts our costof sales. Crude oil, feedstocks, including primarily naphtha and catalytic feed, and refined products are allcommodities, the price of which depends on numerous factors. These factors include the supply and demandfor each of these commodities, which in turn depend on changes in domestic and foreign economies, weatherconditions, domestic and foreign political affairs, energy commodity investment activity, refinery capacitiesand utilization rates, imports, alternative fuels and government regulation. Although the net sales and cost ofsales of refining companies may fluctuate significantly with movements in crude oil and refined productsprices, it is primarily the spread between crude oil and refined product prices that affects profitability in therefining industry. The following table presents certain recognized industry markers that demonstrate themargin relationship between specified crude oil inputs and refined products.

2007 2008 2009 2009 2010

Year Ended December 31,Three Months Ended

March 31,

Selected Industry Markers(1): ($ per barrel)

Average price of WTI . . . . . . . . . . . . . . . . . . . . . . . $72.32 $99.57 $61.69 $42.91 $78.65

Gulf Coast 3/2/1 crack spread(2) . . . . . . . . . . . . . . . 13.19 9.37 7.18 9.09 6.68

Gulf Coast gasoline crack spread(3) . . . . . . . . . . . . 13.82 4.89 7.66 8.22 7.16

Gulf Coast heat crack spread(4). . . . . . . . . . . . . . . . 11.94 18.34 6.22 10.83 5.73

Chicago 3/2/1 crack spread(5) . . . . . . . . . . . . . . . . . 17.73 11.21 8.61 9.84 6.10

Chicago gasoline crack spread(6). . . . . . . . . . . . . . . 16.50 4.89 8.90 8.83 5.76

Chicago distillate crack spread(7) . . . . . . . . . . . . . . 20.19 23.84 8.01 11.85 6.77

(1) The per barrel values are calculated using the average of daily prices for the applicable type of crude, gasoline ordistillate during the applicable period, as published by Platts (light and Gulf Coast heavy crudes, gasoline anddistillate) and Argus (Chicago heavy crude).

(2) The Gulf Coast 3/2/1 crack (or WTI) spread is used as a benchmark for gauging changes in refining industry marginsbased upon a hypothetical yield from a barrel of crude oil. The Gulf Coast 3/2/1 crack spread is calculated as thevalue of two-thirds of a barrel of Gulf Coast regular unleaded gasoline plus the value of one-third of a barrel of Gulf

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Coast no. 2 fuel oil minus the value of one barrel of WTI Cushing crude oil. Heavy crude refiners also evaluate theGulf Coast light/heavy crude spread.

(3) The Gulf Coast gasoline crack spread is calculated as the value of one barrel of Gulf Coast regular unleaded gasolineless the value of one barrel of WTI Cushing crude oil.

(4) The Gulf Coast heat crack spread is calculated as the value of one barrel of Gulf Coast no. 2 fuel oil less the value ofone barrel of WTI Cushing crude oil.

(5) The Chicago 3/2/1 crack (or WTI) spread is used as a benchmark for gauging changes in refining industry marginsbased upon a hypothetical yield from a barrel of crude oil. The Chicago 3/2/1 crack spread is calculated as the valueof two-thirds of a barrel of Chicago regular unleaded gasoline plus the value of one-third of a barrel of ChicagoULSD minus the value of one barrel of WTI Cushing crude oil. Heavy crude refiners also evaluate the Chicago light/heavy crude spread.

(6) The Chicago gasoline crack spread is calculated as the value of one barrel of Chicago regular unleaded gasoline lessthe value of one barrel of WTI Cushing crude oil.

(7) The Chicago distillate crack spread is calculated as the value of one barrel of Chicago ULSD less the value of onebarrel of WTI Cushing crude oil.

Factors Impacting Our Profitability

Crude Oil and Feedstock Costs. Our crude oil and feedstock costs may vary from published industrycrude markers such as WTI crude prices due to the quality of crude oils that we purchase, location basisdifferentials, the timing of our purchases and the mix of crude oils and feedstocks we purchase. Since ourcrude oil purchases are heavily weighted toward heavy crude oils that historically have been purchased atlower prices than light crude oils, our profitability is also significantly affected by the spread between lightcrude oil and heavy crude oil prices, referred to as the “light/heavy crude oil spread” or the “light/heavydifferential.” Typically, wider spreads contribute to higher margins and profitability for us. Between 2000 and2008, the light/heavy differential, as illustrated by the WTI-Maya differential (the price differential betweenthe lighter, sweeter WTI crude type and the heavier, more sour Maya crude type), ranged from a low of $5.19per barrel to a high of $15.59 per barrel, or between 19.9% and 27.6% of WTI. In 2009, the differential fell to$5.20 per barrel or 8.4% of WTI, one of the lowest differentials in nearly a decade.

The following table presents certain recognized industry markers that demonstrate the average pricedifferentials between certain lighter, sweeter crude oils and their heavier, more sour counterparts during theindicated periods.

2007 2008 2009 2009 2010

Year EndedDecember 31,

Three Months EndedMarch 31,

Selected Industry Markers(1): ($ per barrel)

Average price of WTI . . . . . . . . . . . . . . . . . . . . . . . . . . $72.32 $99.57 $61.69 $42.91 $78.65

Gulf Coast light/heavy crude oil spread(2). . . . . . . . . . . 12.42 15.69 5.20 4.47 8.93

Chicago light/heavy crude oil spread(3) . . . . . . . . . . . . 23.01 18.89 9.35 6.85 10.28

(1) The per barrel values are calculated using the average of daily prices for the applicable type of crude during theapplicable period, as published by Platts (light and Gulf Coast heavy crudes) and Argus (Chicago heavy crude).

(2) The Gulf Coast light/heavy crude spread uses FOB Maya crude prices as its proxy for heavy crude, and WTI Cushingcrude prices as its proxy for light crude.

(3) The Chicago light/heavy crude spread uses FOB Western Canadian Select (“WCS”) crude prices as its proxy forheavy crude, and WTI Cushing crude prices as its proxy for light crude.

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Product Prices. The prices we realize from the sale of refined products may vary from publishedindustry prices due to differences in the grades of products we sell, the geographic regions and locations wherewe sell our products and the mix of the products we sell. As suggested by the historical Gulf Coast gasolineand heat crack spreads presented above, refined product prices may behave differently over different periods oftime. This is the case for petrochemicals and industrial products, as well as gasoline and other light fuelproducts.

Refining Margins. The refining margins we realize from our operations may vary from publishedindustry markers such as the “Gulf Coast gasoline crack spread” and the “Gulf Coast heat crack spread” dueto variances between our actual crude oil costs, feedstock costs and product sales values and the prices used tocalculate these industry markers. Likewise, our actual refining margins may vary from the “Gulf Coast 3/2/1crack spread” for similar reasons, as well as because of differences between the proportions of products ourrefineries produce versus the proportions of products assumed in the calculation of the industry crack spreads.Although our actual refining margins may differ from these industry markers, we believe that over time ouractual margins tend to track these markers, and in that respect they serve as a general indicator of ourperformance.

Refining margins are also affected by the cyclical nature of demand for refined products. Demand forgasoline is generally higher during the summer months than during the winter months. This decrease indemand during the winter months can lower gasoline prices during that time. As a result, our operating resultsfor the first and fourth calendar quarters are generally lower than those for the second and third calendarquarters of each year. The effects of seasonal demand for gasoline are partially offset by increased demand forheating oil during the winter months.

Other Factors Impacting Our Profitability. Other factors which may impact our normal operatingprofitability include refinery utilization rates, refinery energy costs such as natural gas and electricity,petrochemical margins, maintenance costs and wholesale branded marketing margins.

Non-operating factors, including LIFO inventory adjustments due to fluctuations in our inventorylevels, impairments of assets, other non-cash charges and receipts of insurance proceeds, may also impact ourprofitability. Expenses associated with our social development programs can also impact our results fromperiod to period.

2008-2009 Market Environment

The deterioration in global economic conditions, which began in 2008 and persisted through 2009,weakened demand for refined products, resulting in high inventory levels of crude and refined products. Webelieve that OPEC producers responded by reducing crude production, and that this reduction wasdisproportionately related to lower-priced heavy sour crudes. Together, these market factors acted to compressour refined product margins and erode our historic crude differential advantage. These impacts were mostsignificant in the distillate market, which is closely tied to economic growth.

Outlook

Consistent with prevailing market sentiment, we anticipate that economic conditions will demonstratemodest improvement in 2010. We believe that this improvement will result in increased product demand,which will serve to improve product margins. In the near term, the resulting improvement in gasoline marginsin the United States is expected to be largely offset by the effects of mandated increases in the ethanol andother renewable fuel content of gasoline.

As economic conditions improve and demand for petroleum products increases, we believe OPECwill relax restrictions on production, which should increase the supply of heavy sour crudes and contribute toa widening of the light/heavy differential, improving margins for complex refineries such as ours. Independentof the economic climate, over the long term the proportion of lower quality crudes is expected to continue totrend upward, which we expect will continue to benefit complex refineries beyond the initial economicrecovery.

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Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are discussed in Note 1 to our audited consolidatedfinancial statements included in this offering memorandum. The preparation of financial statements inconformity with accounting principles generally accepted in the United States requires that management applyaccounting policies and make estimates and assumptions that affect results of operations and the reportedamounts of assets and liabilities. The following areas are those that management believes are most critical tothe preparation of our financial statements and which require significant judgment and estimation because ofinherent uncertainty.

Environmental Expenditures. The costs to comply with environmental regulations are significant.Environmental expenditures incurred currently that relate to present or future revenues are expensed orcapitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and thatdo not contribute to current or future revenue generation are expensed. We continually monitor our compliancewith environmental regulations and respond promptly to issues raised by regulatory agencies. Liabilities arerecorded when environmental assessments and/or cleanups are probable and the costs can be reasonablyestimated. Environmental liabilities are not discounted to their present value and are recorded withoutconsideration of potential recoveries from third parties, which are separately recorded in other noncurrentassets. Subsequent adjustments to estimates, to the extent required, may be made as more refined informationbecomes available.

Litigation and Injury Claims. Various lawsuits and claims arising in the ordinary course of businessare pending against us. The status of these lawsuits and claims are continually reviewed by external andinternal legal counsel. These reviews provide the basis on which we determine whether or not to recordaccruals for potential losses. Accruals for losses are recorded when, in management’s opinion, such losses areprobable and reasonably estimable. If known lawsuits and claims were to be determined in a manner adverseto us and in amounts greater than our accruals, such determinations could have a material adverse effect onour results of operations in a given reporting period.

Inventories. Our crude oil and petroleum product inventories are carried at the lower of cost ormarket. Cost is determined principally under the last-in, first-out or LIFO valuation method. Ending inventorycosts in excess of market value are written down to market values and charged to cost of products sold in theperiod recorded. We determine market value inventory adjustments by evaluating crude oil and petroleumproduct inventories on an aggregate basis by geographic region. The market value of our inventories exceededthe LIFO cost by $1.8 billion at March 31, 2010.

Health Care Costs. The cost of providing health care to current employees and retired employeescontinues to increase at a significant rate. Historically, we have absorbed the majority of these cost increaseswhich increase our liability and reduce our profitability. There is no indication that the trend of increasinghealth care costs will be reversed in future periods. Our recorded liability for such health care costs is basedon actuarial calculations that could be subject to significant revision as the underlying assumptions regardingfuture health care costs and interest rates change.

Pensions. Our recorded pension costs and liability are based on actuarial calculations, which aredependent on assumptions concerning discount rates, expected rates of return on plan assets, employeeturnover, estimated retirement dates, salary levels at retirement and mortality rates. In addition, differencesbetween actual experience and the assumption also affect the actuarial calculations. While managementbelieves that the assumptions used are appropriate, differences in actual experience or changes in assumptionsmay significantly affect our future pension cost and liability.

Impairment of Long-Lived Assets. We periodically evaluate the carrying value of long-lived assets tobe held and used when events and circumstances warrant such a review. The carrying value of a long-livedasset is considered impaired when the separately identifiable anticipated undiscounted net cash flow from suchasset is less than its carrying value. In that event, a loss is recognized based on the amount by which thecarrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using theanticipated net cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived

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assets to be disposed of are determined in a similar manner, except that fair values are reduced for disposalcosts.

Commodity Derivatives. We balance our crude oil and petroleum product supply/demand and managea portion of our price risk by entering into petroleum commodity derivatives. We use futures, forwards, swapsand options primarily to reduce our exposure to market risk. To manage these exposures, management hasdefined certain benchmarks consistent with our preferred risk profile for the environment in which we operateand finance our assets. We do not attempt to manage the price risk related to all of our inventories of crude oiland refined products. We elect hedge accounting only under limited circumstances involving derivatives withinitial terms of 90 days or greater and notional amounts of $50 million or greater. We do not designate any ofour derivative instruments as hedges for accounting purposes. Fair value of derivatives are recorded in othercurrent assets or other current liabilities, as applicable, and changes in the fair value of derivatives notdesignated in hedging relationships are recorded in cost of sales.

New Accounting Standards

Certain new financial accounting pronouncements have been issued that either have already beenreflected in the accompanying financial statements, or will become effective for our financial statements atvarious dates in the future. These pronouncements are described in Notes 1 and 2 to our audited consolidatedfinancial statements and Note 2 to our unaudited condensed consolidated financial statements included in thisoffering memorandum. Except as disclosed in these Notes, the adoption of new financial accountingpronouncements has not had, and is not expected to have, a material effect on our financial condition orresults of operations, or on the presentation in our financial statements.

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Results of Operations

Summary Consolidated Financial and Operating Data

The following tables summarize our consolidated financial data and certain key operating informationas of and for the years ended December 31, 2007, 2008 and 2009 and as of March 31, 2010 and for the threemonths ended March 31, 2009 and 2010. The information for the years ended December 31, 2008 and 2007includes the asphalt refinery operations of our refineries in Paulsboro, New Jersey and Savannah, Georgiathrough March 20, 2008, the date we sold the fixed assets and inventories and certain related rights andobligations associated with these operations. The financial results reflect adjustments to reclassify sales andpurchases of crude oil and other feedstocks and refined products in accordance with (i) EITF 04-13, anaccounting rule promulgated by the Emerging Issues Task Force of the Financial Accounting Standards Board,which requires the netting of all buy/sell transactions with the same counterparty made in contemplation ofeach other, and (ii) EITF 99-19, an accounting rule which requires the reporting of revenues as net, not gross,where an entity acts as an agent for another. The following data should be read in conjunction with ourconsolidated financial statements and the notes thereto included in this offering memorandum.

Statement of Income and Selected Operating Data

2007(1) 2008(1) 2009 2009 2010

Three Months EndedMarch 31,Year Ended December 31,

Revenues: ($ in millions, except operating data)

Net sales and sales to affiliates . . . . . . . . . . . . . $38,015.0 $41,279.7 $24,931.7 $ 4,836.9 $ 7,291.1

Equity in earnings of affiliates . . . . . . . . . . . . . . 35.4 36.1 13.9 3.3 8.3

Other income (expense), net . . . . . . . . . . . . . . . 54.0 53.4 20.6 16.4 33.2

Insurance recoveries(2) . . . . . . . . . . . . . . . . . . . 29.1 33.9 - - -

Gain on sale of assets . . . . . . . . . . . . . . . . . . . . 207.0 404.3 - - -

Gain on sale of investments in affiliates . . . . . . . 640.7 - - - -

Total Revenues . . . . . . . . . . . . . . . . . . . . . . . 38,981.2 41,807.4 24,966.2 4,856.6 7,332.6

Cost of sales and expenses:

Cost of sales and operating expenses . . . . . . . . . 35,950.4 40,135.1 24,938.4 4,743.9 7,366.0

Selling, general and administrative expenses. . . . 503.4 353.0 373.3 135.4 113.5

Interest expense, excluding capital lease . . . . . . . 77.5 108.7 49.3 12.6 22.2

Capital lease interest charge. . . . . . . . . . . . . . . . 3.3 2.7 2.2 0.6 1.2

Insurance recoveries(2) . . . . . . . . . . . . . . . . . . . (17.3) (37.6) (47.9) (1.5) (3.8)

Total cost of sales and expenses . . . . . . . . . . . 36,517.3 40,561.9 25,315.3 4,891.0 7,499.1

Income (loss) before income taxes (benefit) . . . . . . 2,463.9 1,245.5 (349.1) (34.4) (166.5)

Income taxes (benefit) . . . . . . . . . . . . . . . . . . . . . . 877.7 444.1 (147.7) (13.7) (38.8)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,586.2 $ 801.4 $ (201.4) $ (20.7) $ (127.7)

Refining capacity (thousands of barrels per day) . . . . 861 749 749 749 749

Crude oil throughput (thousands of barrels per day). . 761 650 636 632 629

Total throughput (thousands of barrels per day) . . . 869 768 725 729 712

Utilization (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . 88% 87% 85% 84% 84%

Average price per gallon of gasoline(3) . . . . . . . . . $ 2.14 $ 2.54 $ 1.73 $ 1.29 $ 2.09

Average cost per barrel of crude oil(4) . . . . . . . . . . $ 64.34 $ 90.33 $ 58.52 $ 39.95 $ 76.25

(1) Includes asphalt refinery operations at our refineries in Paulsboro, New Jersey and Savannah, Georgia (which had atotal refining capacity of 112,000 bpd) through March 20, 2008, the date we sold the fixed assets and inventories and

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certain related rights and obligations associated with these operations. Sales attributable to these operations amountedto $200 million (or 0.5% of our total net sales and sales to affiliates) in 2008 and $1,882 million (or 5% of our totalnet sales and sales to affiliates) in 2007, and crude oil throughput was 45,000 bpd (or 1.5% of our total crude oilthroughput) in 2008 and 72,000 bpd (or 9.5% of our total crude oil throughput) in 2007.

(2) We record business interruption insurance recoveries as revenues and property damage and general liability insurancerecoveries as offsets to cost of sales.

(3) Average price per gallon of gasoline is calculated by dividing our total gasoline sales revenues for the applicableperiod by our total gasoline sales volume for the same period and may not be calculated in the same way as similarlytitled measures used by other companies. Sales revenues and volumes used for these calculations do not reflect salesreclassified in accordance with EITF 04-13 and EITF 99-19 and, as a result, average price per gallon of gasoline is anon-GAAP performance measure which may not be calculated in the same way as similarly titled measures by othercompanies. We present this measure here because securities analysts, investors and other interested parties use it inevaluating companies in our industry. This measure should not be considered an alternative to operating income,revenues or any other measure of financial performance presented in accordance with GAAP.

(4) Average cost per barrel of crude oil is calculated by dividing our total crude oil cost for the applicable period by ourtotal volume of refinery crude inputs for the same period and may not be calculated in the same way as similarlytitled measures used by other companies. Costs and volumes used for these calculations do not reflect purchasesreclassified in accordance with EITF 04-13 and EITF 99-19 and, as a result, average cost per barrel of crude oil is anon-GAAP performance measure which may not be calculated in the same way as similarly titled measures by othercompanies. We present this measure here because securities analysts, investors and other interested parties use it inevaluating companies in our industry. This measure should not be considered an alternative to costs of sales,operating expenses or any other measure of financial performance presented in accordance with GAAP.

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Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009

2009 2010 2009 2010

Three Months EndedMarch 31,

Three Months EndedMarch 31,

Refined Product Sales Revenues andVolumes:

($ in millions, exceptper barrel data)

(Gallons in millions)

Light FuelsGasoline . . . . . . . . . . . . . . . . . . . $ 2,404 $ 3,653 1,860 1,748Diesel/#2 fuel . . . . . . . . . . . . . . . 1,392 1,666 984 804Jet fuel . . . . . . . . . . . . . . . . . . . . 459 784 331 377

Petrochemicals . . . . . . . . . . . . . . . . 272 544 192 192Industrial products. . . . . . . . . . . . . . 374 889 419 497Lubricants and waxes . . . . . . . . . . . 95 82 14 13

Total refined product sales . . . . . . 4,996 7,618 3,800 3,631EITF 04-13 reclassification(1) . . . . . (138) (309) - -EITF 99-19 reclassification(2) . . . . . (27) (41) - -Other sales . . . . . . . . . . . . . . . . . . . 6 23 - -

Net sales and sales to affiliates . . 4,837 7,291 3,800 3,631Cost of Sales and Operating

Expenses:Crude oil . . . . . . . . . . . . . . . . . . . . $ 2,274 $ 4,314Refined products . . . . . . . . . . . . . . . 1,465 1,827Intermediate feedstocks . . . . . . . . . . 537 1,067Refining and manufacturing costs . . 415 418Other operating expenses . . . . . . . . . 218 90EITF 04-13 reclassification(1) . . . . . (138) (309)EITF 99-19 reclassification(2) . . . . . (27) (41)

Total cost of sales and operatingexpenses . . . . . . . . . . . . . . . . . 4,744 7,366

Selected Operating Data:Throughput margin(3) . . . . . . . . . . . $ 699 $ 392Throughput margin per barrel(3) . . . $ 10.65 $ 6.12

(1) Reflects sales reclassified in accordance with EITF 04-13. In cost of sales and operating expenses, EITF 04-13impacts only refined product costs.

(2) Reflects sales reclassified in accordance with EITF 99-19. In costs of sales and operating expenses, EITF 99-19impacts only other operating expenses.

(3) Throughput margin is calculated as net sales and sales to affiliates less hydrocarbon costs, which includes crude oiland intermediate feedstock costs and refined product purchases (adjusted for EITF 04-13 purchases). Throughputmargin per barrel is calculated by dividing total throughput margin by total throughput barrels. Total throughputbarrels were 65.6 million and 64.0 million for the three months ended March 31, 2009 and 2010, respectively.Throughput margin and throughput margin per barrel are not measures of performance under GAAP, and should notbe considered as substitutes for net income (loss), cash flows from operating activities and other income or cash flowstatement data prepared in accordance with GAAP, or as measures of profitability or liquidity. Shown in the tablebelow is a reconciliation of throughput margin and throughput margin per barrel for each of the periods presented.These measures may not be calculated in the same way as similarly titled measures used by other companies.

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2009 2010

Three Months EndedMarch 31,

($ in millions, exceptper barrel data)

Net sales and sales to affiliates . . . . . . . . . . . . . . . . . . . . $ 4,837 $ 7,291Less Cost of sales and operating expenses . . . . . . . . . . . . 4,744 7,366

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 (75)Plus:

Refining and manufacturing costs . . . . . . . . . . . . . . . . $ 415 $ 418Other operating expenses . . . . . . . . . . . . . . . . . . . . . . 218 90EITF 99-19(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27) (41)

Throughput margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 699 $ 392

Throughput margin per barrel . . . . . . . . . . . . . . . . . . . . . $ 10.65 $ 6.12

(a) Reflects sales classified in accordance with EITF 99-19, which impacts only other operating expenses in thecosts of sales and operating expenses section of our income statement.

We present throughput margin and throughput margin per barrel because we believe it assists investors and analystsby providing a more transparent picture of our gross refining margin. Our calculation of throughput margin andthroughput margin per barrel has certain limitations as an analytical tool, however. Some of these limitations are:

• our total throughput margin includes contributions from sales of refined products that we purchase (includinglubricants which we blend but do not produce in our refinery operations) in addition to products that weproduce in our refinery operations; however, in calculating throughput margin per barrel we divide totalthroughput margin only by throughput barrels (i.e., barrels of crude oil and intermediate feedstock that weprocess), without including barrels of purchased refined products;

• our net sales and sales to affiliates include contributions from marketing and other programs such as creditcard programs for which we receive certain commissions for transactions unrelated to our sale of refinedproducts; and

• other companies in our industry may calculate throughput margin and throughput margin per barrel and othersimilar measures differently than we do, limiting its usefulness as a comparative measure.

Net Sales and Sales to Affiliates. Net sales and sales to affiliates increased by $2.5 billion, or 52%,from $4.8 billion in the first three months of 2009 to $7.3 billion in the same period in 2010. The increasewas due to an increase in average sales price of 60%, offset by a decrease in sales volumes of 4%. Theincrease in average sales price was driven largely by significant industry-wide increases in crude oil prices.Average sales price per gallon for gasoline increased from $1.29 in the first three months of 2009 to $2.09 inthe same period in 2010. The average sales price per gallon for diesel increased from $1.41 in the first threemonths of 2009 to $2.07 in the first three months of 2010. The average sales price per gallon for jet fuelincreased from $1.39 in the first three months of 2009 to $2.08 in the same period in 2010. Average salesprices per gallon for both petrochemicals and industrial products doubled from the first three months of 2009to the first three months of 2010.

Cost of Sales and Operating Expenses. Cost of sales and operating expenses increased $2.7 billion, or58%, from $4.7 billion in the first three months of 2009 to $7.4 billion in the same period in 2010. Theincrease is due primarily to an 87% increase in crude oil costs of $2.0 billion, from $2.3 billion in the firstthree months of 2009 to $4.3 billion in the first three months of 2010. Our average cost per barrel of crude oilincreased approximately $36, or 90%, from approximately $40 in the first three months of 2009 toapproximately $76 in the first three months of 2010. Refined product and intermediate feedstock costs alsoexperienced substantial increases, with refined product costs increasing by 20% from $1.5 billion to$1.8 billion, and feedstock costs almost doubling from $537 million to $1.1 billion. Refining andmanufacturing costs experienced a slight increase, while other operating expenses decreased from $218 millionto $90 million, primarily due to our cost reduction efforts and third-party revenues for use of our terminals.

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Throughput Margin. Throughput margin decreased $307 million, or 44%, from $699 million in thefirst three months of 2009 to $392 million in the first three months of 2010. During the same period,throughput margin per barrel decreased $4.53, or 43%, from $10.65 to $6.12. The decrease was due primarilyto substantial increases in crude oil, refined product and intermediate feedstock costs, which more than offsetthe 52% increase in net sales and sales to affiliates. While throughput margin benefitted from improvements inthe Gulf Coast light/heavy crude oil spread as compared to the first three months of 2009, this benefit wasmore than offset by a substantial narrowing of both the Gulf Coast and Chicago 3/2/1 crack spreads, primarilyas a result of decreased distillate crack spreads.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased$21 million, or 16%, from $135 million in the first three months of 2009 to $114 million in the first threemonths of 2010. The decrease was due primarily to a decrease of $9 million, or 13%, in donations made toour social development programs in the first three months of 2010 as compared to the first three months of2009.

Interest Expense, Including Capital Lease. Interest expense increased by $10 million, or 77%, in thefirst three months of 2010 as compared to the first three months of 2009. This was due primarily to anincrease in the interest rate under our 2005 senior secured credit agreement, following an amendment thatclosed on February 4, 2010. See “Description of Other Indebtedness.”

Income Taxes (Benefit). We recorded an income tax charge of $28 million during the first threemonths of 2010 as compared with the prior year period as a result of the Patient Protection and AffordableCare Act and the related Health Care and Education Reconciliation Act (the “Health Care Acts”). The HealthCare Acts, enacted by Congress in March 2010, included a provision to reduce the amount of retiree medicalcosts that will be deductible after December 31, 2012. The deferred tax asset associated with the tax treatmentof these retiree medical costs was reduced as a result of this legislation. Beginning in 2013, the Company willno longer be able to claim an income tax deduction related to prescription drug benefits provided to retireesand reimbursed under the Medicare Part D retiree drug subsidy.

Net Income (Loss). We recorded a net loss in the first three months of 2010 of $128 millioncompared to a net loss of $21 million in the same period in 2009.

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Summary Fiscal Year Financial and Operating Data

2007 2008 2009 2007 2008 2009

Year Ended December 31, Year Ended December 31,

($ in millions, except per barrel data) (Gallons in millions)

Refined Product SalesRevenues and Volumes:Light Fuels

Gasoline . . . . . . . . . . . $ 19,911 $ 21,110 $ 13,436 9,320 8,314 7,781Diesel/#2 fuel . . . . . . . 9,122 11,791 6,295 4,309 4,014 3,722Jet fuel . . . . . . . . . . . . 4,311 5,192 2,427 2,026 1,731 1,422

Petrochemicals . . . . . . . . 2,376 2,348 1,425 859 761 723Industrial products . . . . . . 3,306 3,325 2,118 2,259 1,674 1,643Lubricants and waxes. . . . 883 680 340 221 126 54Asphalt . . . . . . . . . . . . . . 1,318 86 - 1,004 59 -

Total refined productsales . . . . . . . . . . . . 41,227 44,532 26,041 19,998 16,679 15,345

EITF 04-13reclassification(1). . . . . . (2,960) (3,030) (968) - - -

EITF 99-19reclassification(2) . . . . . (312) (224) (150) - - -

Other sales . . . . . . . . . . . 60 2 9 - - -

Net sales and sales toaffiliates . . . . . . . . . 38,015 41,280 24,932 19,998 16,679 15,345

Cost of Sales andOperating Expenses:Crude oil . . . . . . . . . . . . . $ 17,838 $ 21,493 $ 13,684Refined products . . . . . . . 14,481 13,788 7,693Intermediate feedstocks . . 4,381 5,548 2,772Refining and

manufacturing costs . . . 1,885 1,913 1,527Other operating

expenses . . . . . . . . . . . 637 647 380EITF 04-13

reclassification(1) . . . . (2,960) (3,030) (968)EITF 99-19

reclassification(2) . . . . (312) (224) (150)

Total cost of sales andoperating expenses . . 35,950 40,135 24,938

Selected Operating Data:Throughput margin(3) . . . $ 4,275 $ 3,481 $ 1,751Throughput margin per

barrel(3) . . . . . . . . . . . $ 13.50 $ 12.38 $ 6.61

(1) Reflects sales reclassified in accordance with EITF 04-13. In cost of sales and operating expenses, EITF 04-13impacts only refined product costs.

(2) Reflects sales reclassified in accordance with EITF 99-19. In costs of sales and operating expenses, EITF 99-19impacts only other operating expenses.

(3) Throughput margin is calculated as net sales and sales to affiliates less hydrocarbon costs, which includes crude oiland intermediate feedstock costs and refined product purchases (adjusted for EITF 04-13 purchases). Throughputmargin per barrel is calculated by dividing total throughput margin by total throughput barrels. Total throughputbarrels were 316.6 million, 281.3 million and 264.8 million for the three years ended December 31, 2007, 2008 and2009, respectively. Throughput margin and throughput margin per barrel are not measures of performance underGAAP, and should not be considered as substitutes for net income (loss), cash flows from operating activities and

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other income or cash flow statement data prepared in accordance with GAAP, or as measures of profitability orliquidity. Shown in the table below is a reconciliation of throughput margin and throughput margin per barrel for eachof the periods presented. These measures may not be calculated in the same way as similarly titled measures used byother companies.

2007 2008 2009

Year Ended December 31,

($ in millions, except per barrel data)

Net sales and sales to affiliates . . . . . . . . . . . . . . . . . . . . . . . . $ 38,015 $ 41,280 $ 24,932Less cost of sales and operating expenses. . . . . . . . . . . . . . . . . 35,950 40,135 24,938

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,065 1,145 (6)Plus:

Refining and manufacturing costs . . . . . . . . . . . . . . . . . . . . 1,885 1,913 1,527Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 637 647 380EITF 99-19(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (312) (224) (150)

Throughput margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,275 $ 3,481 $ 1,751

Throughput margin per barrel . . . . . . . . . . . . . . . . . . . . . . . . . $ 13.50 $ 12.38 $ 6.61

(a) Reflects sales classified in accordance with EITF 99-19, which impacts only other operating expenses in thecosts of sales and operating expenses section of our income statement.

We present throughput margin and throughput margin per barrel because we believe it assists investors and analystsby providing a more transparent picture of our gross refining margin. Our calculation of throughput margin andthroughput margin per barrel has certain limitations as an analytical tool, however. Some of these limitations are:

• our total throughput margin includes contributions from sales of refined products that we purchase (includinglubricants which we blend but do not produce in our refinery operations) in addition to products that weproduce in our refinery operations; however, in calculating throughput margin per barrel we divide totalthroughput margin only by throughput barrels (i.e., barrels of crude oil and intermediate feedstock that weprocess), without including barrels of purchased refined products;

• our net sales and sales to affiliates include contributions from marketing and other programs such as credit cardprograms for which we receive certain commissions for transactions unrelated to our sale of refinedproducts; and

• other companies in our industry may calculate throughput margin and throughput margin per barrel and othersimilar measures differently than we do, limiting its usefulness as a comparative measure.

Fiscal Year Ended December 31, 2009 Compared to Fiscal Year Ended December 31, 2008

Net Sales and Sales to Affiliates. Net sales and sales to affiliates decreased by $16.4 billion, or 40%,from $41.3 billion in 2008 to $24.9 billion in 2009. This decrease was due to a decrease in average sales priceof 36% and a decrease in sales volume of 8%. The decrease in average sales price and sales volume wasprimarily driven by the global recession, which decreased demand for, and created a surplus supply of, refinedproducts. Decreased sales volume was also due in part to lower refinery utilization as a result of plannedreductions in the first quarter of 2009. Average sales price per gallon of gasoline decreased from $2.54 in2008 to $1.73 in 2009. The average sales price of diesel and our other refined products also trended down in2009 compared to 2008. Our total refined products sales volume decreased by 1.4 billion gallons, or 8%, from16.7 billion gallons in 2008 to 15.3 billion gallons in 2009.

Other Revenue and Income (Expense) Items. Other revenue and income (expense) items, net, in 2009totaled $35 million, compared to $528 million in 2008. Other revenue and income (expense) items, net, in2008 were primarily attributable to gains on sales of certain assets and interest earned on the $1 billion loanwe made to PDVSA in December 2007 (the “PDVSA Loan”). See “Related Party Transactions – Loans andOther Financing Arrangements.” We recorded insurance recoveries of $48 million in 2009 compared to$72 million in 2008. Total insurance recoveries (including the portion treated as an offset to cost of sales)

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were primarily related to a 2006 torrential rainfall event affecting the Lake Charles refinery, 2005 HurricaneRita damage affecting the Lake Charles refinery, and MTBE litigation settlement costs.

Cost of Sales and Operating Expenses. Cost of sales and operating expenses decreased $15.2 billion,or 38%, from $40.1 billion in 2008 to $24.9 billion in 2009. Approximately 50% of the decrease (or$7.8 billion) is attributable to a reduction in crude oil costs, which decreased from $21.5 billion in 2008 to$13.7 billion in 2009. The decrease in crude oil costs was primarily a function of an overall decrease inindustry crude oil prices and the effects of liquidating lower cost LIFO inventory levels. Our average cost perbarrel of crude oil decreased by $31, or 34%, from approximately $90 in 2008 to approximately $59 in 2009.Refined product and intermediate feedstock costs also decreased substantially, with refined product costsdecreasing by 44% from $13.8 billion to $7.7 billion, and feedstock costs decreasing by 49% from $5.5 billionto $2.8 billion. The decrease in refined product purchases reflected primarily a 16% decrease in volumespurchased, combined with the effects of the industry-wide decreases in refined product prices. Refined productpurchases represented 34% and 31% of cost of sales for 2008 and 2009, respectively. Refining andmanufacturing costs decreased by 21% from $1.9 billion to $1.5 billion, and other operating expensesdecreased by 41% from $647 million to $380 million, primarily reflecting the divestment of our asphaltbusiness in March 2008, lower energy costs, and our cost-cutting measures.

Throughput Margin. Throughput margin decreased $1.7 billion, or 49%, from $3.5 billion in 2008 to$1.8 billion in 2009. During the same period, throughput margin per barrel decreased $5.77, or 47%, from$12.38 to $6.61. Throughput margins in 2009 were negatively affected by a substantial decrease in averageGulf Coast and Chicago light/heavy crude oil spreads as compared to 2008, as well as by a narrowing of GulfCoast and Chicago 3/2/1 crack spreads, which were primarily driven by substantially lower average distillatecrack spreads.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased$20 million, or 6%, from $353 million in 2008 to $373 million in 2009. The increase was primarily driven bythe timing of expense recognition under the contract for our heating oil donation program, which causeddonation expenses related to our 2008 donations to be recognized in 2007, resulting in expenses related todonations to social development programs of $80 million in 2009 compared to $24 million in 2008. See“Business – Social Development Programs” for a discussion of our social development programs.

Interest Expense, Including Capital Lease. Interest expense, including capital lease interest charges,decreased approximately $59 million, or 53%, from $111 million in 2008 to $52 million in 2009. Thisdecrease was due primarily to a decrease from 2008 to 2009 in our average debt outstanding and averageinterest rates.

Income Taxes (Benefit). We had income tax benefits in 2009 of $148 million. In 2008, our provisionfor income taxes was $444 million.

Net Income (Loss). We recorded a net loss in 2009 of $201 million compared to net income of$801 million in 2008.

Fiscal Year Ended December 31, 2008 Compared to Fiscal Year Ended December 31, 2007

Net Sales and Sales to Affiliates. Net sales and sales to affiliates increased by $3.3 billion, or 9%,from $38 billion in 2007 to $41.3 billion in 2008. This increase was due to an increase in average sales priceof 30%, offset by a decrease in sales volume of 17%. The increase in average sales price reflected primarilyan increase in the average sales price of gasoline and diesel, which was driven largely by significant industry-wide increases in crude oil prices. Average sales price per gallon of gasoline increased from $2.14 in 2007 to$2.54 in 2008. The average sales price per gallon of diesel increased from $2.12 in 2007 to $2.94 in 2008.The decrease in sales volume was partially due to our market realignment initiative, which included decisionsnot to renew a sales agreement involving one of our largest retail customers and to discontinue marketingefforts in certain less profitable geographic regions. We also exited the asphalt business in March 2008 withthe sale of the fixed assets and inventory of our asphalt refineries, which contributed to the reduction in ourtotal sales volume in 2008 compared to 2007.

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Other Revenue and Income (Expense) Items. Other revenue and income (expense) items, net, in 2008totaled $528 million, compared to $966 million in 2007. Other revenue and income (expense) items, net, in2008 were primarily attributable to a $404 million gain on sale of assets, and $58 million of interest earned onthe $1 billion PDVSA Loan we made in December 2007. See “Related Party Transactions – Loans and OtherFinancing Arrangements.” $396 million of the gain on sale of assets in 2008 related to the sale of the fixedassets and inventories at our asphalt refineries in Paulsboro, New Jersey and Savannah, Georgia. Other revenueand income (expense) items, net, in 2007 related to gain on sales of assets of $207 million, primarily the saleof Eagle Pipeline, a common carrier pipeline that transports refined petroleum products from delivery pointsin the Gulf Coast area to Texas and Oklahoma, which we wholly owned, four related terminals, and$641 million related to the sale of our interests in Explorer Pipeline Company and Colonial Pipeline Company.We also recorded insurance recoveries of $72 million in 2008, compared to $46 million in 2007. Totalinsurance recoveries (including the portion treated as an offset to cost of sales) were primarily related to thelosses at the Lake Charles refinery as a result of torrential rainfall in 2006, property damage from HurricaneRita in 2005 at the Lake Charles refinery and a refinery in Houston, Texas, in which we previously owned a41.25% interest through LYONDELL-CITGO Refining L.P., a joint venture between us and Lyondell ChemicalCompany, a 2005 fire at a coker unit at the Lake Charles refinery, and litigation settlement costs related to theMTBE litigations.

Cost of Sales and Operating Expenses. Cost of sales and operating expenses increased $4.1 billion, or11%, from $36 billion in 2007 to $40.1 billion in 2008. The majority of the increase, $3.7 billion or 90%, isdue to an increase in crude oil cost, which increased by 21% from $17.8 billion in 2007 to $21.5 billion in2008. The increase in crude oil cost reflected an industry-wide increase in crude oil prices, offset in part by adecrease in volume of crude oil runs. Our average cost per barrel of crude oil increased $26, or 41%, from$64 in 2007 to $90 in 2008, consistent with overall industry crude oil prices. The remaining increase is dueprimarily to a 25% increase in intermediate feedstock costs, from $4.4 billion in 2007 to $5.5 billion in 2008,offset by a 5% decrease in refined product costs. The decrease in refined product costs, from $14.5 billion in2007 to $13.8 billion in 2008, reflected primarily a 24% decrease in volumes purchased due primarily to ourmarket realignment initiative, offset by the industry-wide increases in refined product prices. Refined productcosts represented 40% and 34% of cost of sales for 2007 and 2008, respectively. Refining and manufacturingcosts remained flat at $1.9 billion, with other operating expenses increasing slightly from $637 million to$647 million.

Throughput Margin. Throughput margin decreased $794 million, or 19%, from $4.3 billion in 2007to $3.5 billion in 2008. During the same period, throughput margin per barrel decreased $1.12, or 8%, from$13.50 to $12.38. These decreases were due primarily to increases in crude oil and intermediate feedstockcosts, which outpaced a 9% increase in net sales and sales to affiliates. While throughput margin benefittedfrom improvements in the Gulf Coast light/heavy crude oil spread as compared to 2007, this benefit waspartially offset by decreasing Chicago light/heavy crude oil spreads. Throughput margins in 2008 were alsonegatively affected by decreases in both Gulf Coast and Chicago 3/2/1 crack spreads, driven by largereductions in Gulf Coast and Chicago gasoline crack spreads that were only partially offset by improved heatcrack spreads.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased$150 million, or 30%, from $503 million in 2007 to $353 million in 2008. The decrease is primarily related tothe timing of expense recognition under the contract for our heating oil donation program, which causeddonation expenses related to our 2007 as well as our 2008 donations to be recognized in 2007, resulting indonation expenses related to our social development programs of $24 million in 2008 compared to$141 million in 2007. See “Business – Social Development Programs” for a discussion of our socialdevelopment programs.

Interest Expense, Including Capital Lease. Interest expense, including capital lease interest charges,increased $30 million, or 37%, from $81 million in 2007 to $111 million in 2008. This increase was dueprimarily to an increase from 2007 to 2008 in our average debt outstanding and the amortization of financingcosts associated with the bridge term loan entered into in December 2007.

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Income Taxes (Benefit). Our provision for income taxes in 2008 was $444 million. In 2007, ourprovision for income taxes was $878 million.

Net Income (Loss). Our net income in 2008 was $801 million compared to $1,586 million in 2007.

Liquidity and Capital Resources

Capital Resources

As of March 31, 2010, we had $3 million of cash and cash equivalents. By comparison, as ofDecember 31, 2009, 2008 and 2007, we had $353 million, $24 million and $9 million of cash and cashequivalents, respectively.

Our principal sources of liquidity are cash generated from our operations and proceeds of ourfinancing arrangements, including principally our existing revolving credit facility. As of March 31, 2010, wehad $613 million of available borrowing capacity under our revolving credit facility, net of $537 million ofissued outstanding letters of credit. Concurrently with the closing of this offering, we expect to enter into aNew Senior Credit Facility, the proceeds of which, together with the proceeds of the offering of the notes, willbe applied to repay all outstanding amounts under our Existing Senior Credit Facility and to finance thepurchase of our variable rate IRBs. On an as adjusted basis, after giving effect to the offering of the notes andthe New Senior Credit Facility, and the application of the proceeds therefrom, as of March 31, 2010 cash andcash equivalents would have been $84 million, and total available capacity under our new revolving creditfacility would have been $676 million. See “Capitalization.” See also “Description of Other Indebtedness” forsummaries of our New Senior Credit Facility and certain of our other financing arrangements. We also have anon-recourse facility under which a maximum of $450 million of undivided interests in specified eligible tradeaccounts receivable may be held by independent third parties. As of March 31, 2010, interests in receivablestotaling $278 million were held by independent third parties under this facility. We are currently in discussionsto renew this facility, which is scheduled to expire in June 2010.

During some periods, we have also generated cash from sales of assets and investments in affiliates.During 2008 and 2007, cash proceeds from sales of assets and sales of investments in affiliates totaled$815 million and $1 billion, respectively. See Note 7 to our audited consolidated financial statements includedin this offering memorandum, which describes certain assets identified by our management, the sale of whichwe are actively discussing with third parties pursuant to management approval. There is no assurance,however, that we will be able to sell these assets or of the amount of cash any such sale would generate.

In the near term, the amortization of the PDVSA Loan through the offset arrangement is expected toimprove our cash position by $386 million, an amount equivalent to the outstanding principal amount of thePDVSA Loan as of March 31, 2010, together with interest thereon. See “Related Party Transactions – Loansand Other Financing Arrangements.”

We believe we will have sufficient cash and other resources to carry out planned capital spendingprograms, including regulatory and environmental projects in the near term, and to meet working capital andother cash needs as they arise. However, we cannot guarantee that we will have sufficient cash and otherresources to fund these programs or our other obligations, including our obligations under the notes. Weperiodically evaluate other sources of capital in the marketplace and anticipate that longer-term capitalrequirements will be satisfied with current capital resources and future financing arrangements. Our ability toobtain such financing, and the terms thereof, would depend on numerous factors, including market conditions,compliance with existing debt covenants and our perceived creditworthiness at that time. There can be noassurances regarding the availability of any future financing arrangements or whether such arrangements canbe made available on terms that are acceptable to us. If we are unable to generate or borrow sufficient fundsto meet our current and anticipated capital requirements, we may be required to sell assets, reduce capitalexpenditures, or take other actions which may have a material adverse effect on our operations. See also“Forward-Looking Statements.”

In addition, the agreements relating to our New Senior Credit Facility and our fixed rate IRBfacilities impose certain restrictions and require compliance with certain specified financial ratios and other

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requirements, and impose certain restrictions on our activities, including on our ability to incur additionalindebtedness, grant liens on our assets, sell assets, make restricted payments, including dividends, repurchasesof equity and certain specified investments, and merge, consolidate or transfer assets. Our failure to complywith these restrictions, requirements or covenants, or other defaults under these agreements, would prevent usfrom being able to utilize these financing sources, and further could result in the acceleration of the maturityof the indebtedness under these facilities. For example, we are required to post letters of credit to securecertain of our variable rate IRBs. See “Risk Factors – Risks Related to the Notes and Our Other Indebtedness.”See also “Description of Other Indebtedness.”

Cash Flows Summary

The following summarizes cash flows during the three years ended December 31, 2007, 2008 and2009 and during the three months ended March 31, 2009 and 2010:

2007 2008 2009 2009 2010

Three Months EndedMarch 31,Year Ended December 31,

($ in millions)

Beginning cash and cash equivalentsbalance: . . . . . . . . . . . . . . . . . . . . . $ 38 $ 9 $ 24 $ 24 $ 353

Net cash provided by/(used in):Operating activities . . . . . . . . . . . . 686 1,170 861 188 94Investing activities . . . . . . . . . . . . . (396) 330 (502) (226) (121)Financing activities . . . . . . . . . . . . (319) (1,485) (30) 22 (323)

Net increase (decrease) in cashand cash equivalents. . . . . . . . (29) 15 329 (16) (350)

Ending cash and cash equivalentsbalance: . . . . . . . . . . . . . . . . . . . . . $ 9 $ 24 $ 353 $ 8 $ 3

Cash Flows for the Three Months Ended March 31, 2010

Net cash provided by operating activities during the first three months of 2010 was $94 million. Aweak, but improving refining margin environment negatively impacted first quarter cash flows from operatingactivities. However, operating cash flows benefited from a net increase in accounts payable (net of an increasein accounts receivable) of $521 million due to an increase in commodity prices, increased crude purchases totake advantage of increased margins expected in April 2010 and the repayment of $223 million of the PDVSALoan through the set-off arrangement. These cash flow impacts enabled us to build approximately 4.5 millionbarrels of additional inventory in response to improved refining margins and in preparation for the summerdriving season, while still maintaining positive operating cash flows for the quarter. The increase in inventorylevels decreased cash flows from operating activities by $370 million. In addition, an increase in prepaidexpenses and other current assets, due to an increase in estimated taxes receivable, decreased cash flows fromoperating activities by $63 million.

Net cash used in investing activities of $121 million was primarily due to capital expenditures on theULSD projects at our Lemont and Corpus Christi refineries.

Net cash used in financing activities of $323 million reflected the repayment of the outstandingbalance of our existing revolving credit facility of $400 million, incremental proceeds from our accountsreceivable securitization facility of $51 million, and a net increase in other debt of approximately $26 million,primarily due to costs associated with the February 4, 2010 amendment and waiver of our 2005 senior securedcredit agreement. See “Description of Other Indebtedness.”

The net cash provided by operating activities of $94 million, together with the opening cash balanceof $353 million, were primarily used to fund our capital expenditures of $121 million, including the ULSD

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projects at our Lemont and Corpus Christi refineries, as well as debt issuance costs and debt reduction ofapproximately $414 million, resulting in an ending cash position of approximately $3 million.

Cash Flows for the Year Ended December 31, 2009

Net cash provided by operating activities during 2009 totaled $861 million, down from $1.2 billionduring 2008, largely due to the weak refining margin environment. This negative impact was partially offsetby increased capacity under our accounts receivable securitization facility, which provided cash of$187 million. Operating cash flows benefited from an increase in our accounts payable and a decrease inaccounts receivable for 2009, as a result of increases in commodity prices in 2009 compared to commodityprices at December 2008 and the repayment of $393 million of the principal amount of the PDVSA Loanthrough the offset arrangement, which we account for as an account receivable. Cash flow from operatingactivities in 2009 also benefited from a decrease in inventory of 5 million barrels of inventory, which resultedin an $87 million reduction in our inventory balance for the period.

Net cash used in investing activities of $502 million included $524 million in capital expenditures,including the ULSD projects at our Lemont and Corpus Christi refineries.

Net cash used in financing activities decreased by $30 million primarily due to $25 million of debtrepayment and capital lease payments.

The net cash provided by operating activities of $861 million in 2009 was primarily used to fund our2009 capital expenditures of $524 million, including the ULSD projects at our Lemont and Corpus Christirefineries. The remaining net cash provided by operating activities was used to fund debt issuance costs,capital lease obligations and a net debt reduction in an aggregate amount of approximately $30 million,resulting in an increase in our cash position of approximately $329 million.

Cash Flows for the Year Ended December 31, 2008

Net cash provided by operating activities during 2008 totaled $1.2 billion, up from $686 millionduring 2007. Refined product margins were less favorable in 2008 than in 2007, due to the global economicslowdown. Despite improved distillate margins and the favorable refining margin impacts that resulted fromHurricanes Ike and Gustav, annual average refined product margins declined due primarily to a sharp declinein gasoline margins. Substantial declines in crude oil and other commodity prices in the fourth quarter of 2008negatively impacted our net accounts receivable and payable balances, and the capacity under our accountsreceivable securitization facility. Cash flow from operating activities in 2008 benefited from a decrease ininventory of 11.8 million barrels, which had a $68 million impact.

Net cash provided by investing activities was $330 million and reflected $485 million in capitalexpenditures, including the ULSD projects at our Lemont and Corpus Christi refineries, as well as sales ofassets that generated cash proceeds of $815 million.

Net cash used in financing activities was $1.5 billion, and reflected cash dividends of $1.3 billion, therepayment of the $1 billion bridge term loan we borrowed in December 2007, and the incurrence of$515 million of new borrowings under our Term Loan A, as well as additional net increases in other debt ofapproximately $330 million. See “Description of Other Indebtedness.”

The net cash provided by operating activities in 2008 was primarily used to fund our 2008 capitalexpenditures of $485 million, including the ULSD projects at our Lemont and Corpus Christi refineries. Theremaining net cash provided by operating activities, combined with proceeds from sales of assets of$815 million, were primarily used to fund cash dividends of $1.3 billion and to fund debt issuance costs and anet debt reduction of approximately $155 million, resulting in an increase in cash and cash equivalents ofapproximately $15 million.

Cash Flows for the Year Ended December 31, 2007

Net cash provided by operating activities during 2007 totaled $686 million. In response to strongmarket conditions, our results of operations benefited from strong and sustained gasoline margins, as well asimproved distillate margins. Working capital benefited from a reduction in inventories of 4.8 million barrels,resulting in a benefit to operating cash flows of $173 million. Partially offsetting these benefits were

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prepayments to PDVSA of $331 million for crude oil purchases and a reduction in cash from changes in non-current assets of approximately $198 million.

Net cash used in investing activities was $396 million. Investing activities included $361 million incapital expenditures, the PDVSA Loan of $1 billion, the sale of assets which generated cash proceeds of$248 million and the sale of investments in affiliates which generated cash proceeds of $756 million.

Net cash used in financing activities was $319 million. Financing activities included cash dividendsof $1.3 billion, borrowings under a $1 billion bridge term loan, as well as a net increase in other debt and debtissuance costs of approximately $20 million.

Cash flows from operating activities of $686 million combined with proceeds from sales of assets andinvestments in affiliates of approximately $1 billion were primarily used to fund capital expenditures of$370 million and pay cash dividends of $1.3 billion. Borrowings under a bridge term loan of $1 billion were usedto fund the PDVSA Loan in the principal amount of $1 billion. Net debt, other than the $1 billion bridge termloan, increased by approximately $20 million resulting in a net cash decrease of approximately $29 million.

See “Capital Expenditures” below for further discussion of our capital expenditures during the yearsended December 31, 2007, 2008 and 2009, and for the three month periods ended March 31, 2009 and 2010,as well as our projected capital expenditures.

Capital Expenditures

In general, our capital expenditures fall into five categories: regulatory/environmental, strategic,maintenance, safety/risk mitigation and other. Strategic projects are discretionary projects that are implementedto improve or increase the overall performance of a facility and which typically generate new earnings or costsavings. Capital expenditures during the years ended December 31, 2007, 2008 and 2009 and during the threemonths ended March 31, 2009 and 2010 consisted of:

2007 2008 2009 2009 2010

Three Months EndedMarch 31,Year Ended December 31,

($ in millions)

Regulatory/Environmental . . . . . . . . . $185 $249 $296 $ 66 $105Maintenance . . . . . . . . . . . . . . . . . . . 103 126 90 36 14Strategic. . . . . . . . . . . . . . . . . . . . . . . 58 45 11 37 1Safety/Risk Mitigation . . . . . . . . . . . . - - 5 1 1Other(1) . . . . . . . . . . . . . . . . . . . . . . . 24 65 122 81 -

Total capital expenditures . . . . . . . $370 $485 $524 $221 $121

(1) Reflects the acquisition of certain non-operating assets subsequently distributed as indirect non-cash dividends. See“Related Party Transactions – Other Arrangements.”

Regulatory/environmental and strategic capital expenditures during the 2007 through 2009 fiscal yearsand the first three months of 2010 included $470 million related to our ULSD projects at the Lemont andCorpus Christi refineries.

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Our projected capital expenditures for 2010 and for 2011 through 2014 are as follows:

Capital Expenditures – 2010 through 2014(1)

2010Projected

2011-2014Projected Total

($ in millions)

Regulatory/Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 349 $ 316 $ 665

Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 554 669

Strategic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 51 54

Safety/Risk Mitigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 81 88

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 474 $ 1,002 $ 1,476

(1) These estimates may change as future regulatory events unfold. See “Forward-Looking Statements.”

Estimated capital expenditures necessary to comply with the Clean Air Act and other environmentallaws and regulations, not including safety/risk mitigation items, are provided in additional detail below. See“Management’s Discussion and Analysis of Financial Condition and Results of Operations – CriticalAccounting Policies – Environmental Expenditures,” “Management’s Discussion and Analysis of FinancialCondition and Results of Operations – Environmental and Safety Liabilities,” “Business – GovernmentRegulation.” As shown in the table, we expect our ULSD capital expenditures to be largely completed in 2010.

2010 2011 2012 2013 2014 Total

($ in millions)

ULSD(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 282 $ 8 $ - $ - $ - $ 290

Other environmental(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 67 74 74 71 89 375

Total regulatory/environmental . . . . . . . . . . . . . . . . . . . $ 349 $ 82 $ 74 $ 71 $ 89 $ 665

(1) As of March 31, 2010, we had spent $470 million to be able to manufacture ULSD at the Corpus Christi and Lemontrefineries. The projected capital expenditures for ULSD do not include two hydrogen plants which are planned at theCorpus Christi and Lemont refineries. These hydrogen plants have been treated as capital leases and are expected to beoperational in 2010.

(2) Other environmental spending assumes $33 million in spending during the period shown in the table to comply withCITGO’s New Source Review consent decree with the EPA, which requires us to implement control equipment at ourrefineries and a supplemental environmental project at our Corpus Christi refinery. See “Risk Factors – Risks Relatedto Our Business and the Petroleum Industry – Environmental statutes and regulations impose significant costs andliabilities” and “Business – Governmental Regulation – Environmental Matters.”

Environmental and Safety Liabilities

The petroleum refining and marketing industry is subject to extensive and constantly evolving federal,state and local environmental and safety laws and regulations, including, but not limited to, those relating tothe discharge of materials into the environment or that otherwise relate to the protection of the environment,waste management and the characteristics and composition of fuels. As described above, we have made, andwill continue to make, significant capital and other expenditures in order to comply with these laws andregulations and minimize our impact on the environment. Compliance with these current and future laws andregulations also increases our operating costs. We are also subject to public and private actions in relation toenvironmental matters. See “Risk Factors – Risks Related to Our Business and the Petroleum Industry,”“Business – Governmental Regulation” and “– Legal Proceedings.”

At March 31, 2010, our balance sheet included an environmental accrual of $81 million comparedwith $83 million at December 31, 2009. We estimate that an additional loss of $23 million as of March 31,2010 is reasonably possible in connection with environmental matters. Potential liability for environmental

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matters is inherently uncertain, however, and we are not always able to predict the extent or magnitude of suchpotential liabilities. Our accounting policy establishes environmental reserves as probable site restoration andremediation obligations become reasonably capable of estimation. Environmental liabilities are not discountedto their present value, but are recorded at their actual estimated amounts, and without consideration ofpotential recoveries from third parties. Subsequent adjustments to estimates, to the extent required, may bemade as more refined information becomes available. We believe the amounts provided in our financialstatements, as prescribed by GAAP, are adequate in light of probable and estimable liabilities and obligations.However, there can be no assurance that the actual amounts required to discharge alleged liabilities andobligations and to comply with applicable laws and regulations will not exceed amounts provided for or willnot have a material adverse affect on our consolidated results of operations, financial condition and cashflows.

Litigation Contingencies

In the ordinary course of business, we become party to or otherwise involved in lawsuits,administrative proceedings and governmental investigations, including environmental, regulatory, personalinjury and property damage, commercial, tax, anti-trust and employment-related matters. We record accrualsfor losses when, in management’s opinion, such losses are probable and reasonably estimable. As of March 31,2010 and December 31, 2009, our balance sheet included an accrual for lawsuits and claims of $69 million.We estimate that in addition to the accrued amount, losses of $52 million as of March 31, 2010 are reasonablypossible in connection with such lawsuits and claims. While we cannot provide assurance of the outcome ofany matter, we do not believe that an adverse resolution of currently known or pending claims, individually orin the aggregate, would have a material adverse effect on our financial position or results of operations,although certain identified matters could significantly adversely affect us during individual financial reportingperiods. See “Business – Legal Proceedings.”

Pension and Other Postretirement Benefit Obligations

Our employees participate in one or more of four qualified and three nonqualified noncontributorydefined benefit pension plans. Our recorded pension cost and liability are based on actuarial calculations,which are dependent on assumptions concerning discount rates, expected rates of return on plan assets,employee turnover, estimated retirement dates, salary levels at retirement and mortality rates. In addition,differences between actual experience and the assumptions also affect the actuarial calculations. Whilemanagement believes that the assumptions used are appropriate, differences in actual experience or changes inassumptions may significantly affect our future pension cost and liability. Benefit obligations for our pensionplans as of December 31, 2009 were $733 million. The fair value of our pension plan assets at December 31,2009 was $535 million. As of December 31, 2009, we have recognized a net liability of $198 million for thedifference between the benefit obligation and the fair value of the plan assets.

In addition to pension benefits, we also provide certain health care and life insurance benefits forcurrent and former employees. These benefits are subject to deductibles, copayment provisions and otherlimitations and are funded on a pay-as-you-go basis. We reserve the right to change or terminate the benefitsat any time. Benefit obligations for postretirement benefits other than pensions, as reported in our auditedconsolidated balance sheet at December 31, 2009, were $555 million. The cost of providing health care tocurrent employees and retired employees continues to increase at a significant rate. Historically, we haveabsorbed the majority of these cost increases which increase our liability and reduce our profitability. There isno indication that the trend of increasing health care costs will be reversed in future periods. Our recordedliability for such health care costs is based on actuarial calculations that could be subject to significantrevision as the underlying assumptions regarding future health care costs and interest rates change.

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Contractual Obligations and Commercial Commitments

The following table summarizes future payments for our contractual obligations as of December 31,2009.

Contractual Obligations at December 31, 2009

Less than1 Year 1-3 Years 3-5 Years

Morethan

5 Years Total

Payments Due by Period

($ in millions)

Long-term debt(1) . . . . . . . . . . . . . . . . . . $ 406 $ 1,119 $ - $ 653 $ 2,178

Interest expense(2) . . . . . . . . . . . . . . . . . . 36 95 81 909 1,121

Capital lease obligations(3) . . . . . . . . . . . . 9 4 4 17 34

Operating leases(4) . . . . . . . . . . . . . . . . . . 120 50 19 20 209

Estimated crude purchase obligations(5) . . 10,330 9,058 - - 19,388

Estimated product purchaseobligations(6) . . . . . . . . . . . . . . . . . . . . 6,265 317 9 - 6,591

Estimated capital project spendingcommitments . . . . . . . . . . . . . . . . . . . . 20 - - - 20

Other commitments(7) . . . . . . . . . . . . . . . 189 326 328 1,996 2,839

Total contractual cash obligations . . . . . $17,375 $10,969 $ 441 $ 3,595 $32,380

(1) Includes maturities of principal, but excludes interest payments. Does not reflect letters of credit issued under ourexisting revolving credit facility, which are reflected on the following table summarizing our contingent commitments.See “Description of Other Indebtedness.” On an “As Adjusted” basis, after giving effect to this offering and theconcurrent financing and the application of the proceeds therefrom, and assuming no amounts are initially drawn underour new revolving credit facility, future payments for our debt obligations as defined under “Capitalization” would be$331 million for less than one year, $18 million for one to three years, $20 million for three to five years, $2,165 formore than five years, and a total of $2,534 million. Total debt obligations as defined in “Capitalization” as ofMarch 31, 2010 include: (i) $307 million in capital lease obligations (included in “Capital lease obligations” and“Other commitments” in the table above); (ii) $278 million of obligations represented by the amount of our receivablesin which third parties that participate in our accounts receivable securitization facility hold an undivided interest and(iii) $41 million of payables owed to a third party under a product financing arrangement in which we sold to andcommitted to purchase crude oil from the third party (the arrangement was settled in April 2010).

(2) Includes interest on fixed and variable rate debt. Variable rate debt was estimated using the all-in rate at December 31,2009.

(3) Includes amounts classified as interest.

(4) Represents future minimum lease payments for noncancelable operating leases.

(5) Represents an estimate of contractual crude oil purchase commitments. These supply contracts specify minimumvolumes to be purchased through March 2012. Prices were estimated using actual prices paid in December 2009 orDecember 2009 market prices, as appropriate.

(6) Represents an estimate of contractual refined product and feedstock purchase commitments. These supply contractsspecify minimum volumes to be purchased. Prices were estimated using actual prices paid in December 2009 orDecember 2009 market prices, as appropriate.

(7) Represents an estimate of contractual commitments to purchase various commodities and services, including hydrogen,electricity, steam and fuel gas. Includes commitments for future purchases of hydrogen related to the ULSD projects,which were recorded as capital leases in March 2010.

See Notes 4, 11, 14 and 15 to our audited consolidated financial statements included in this offeringmemorandum.

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The following table summarizes our contingent commitments at December 31, 2009.

Other Commercial Commitments at December 31, 2009

Less than1 Year 1-3 Years 3-5 Years

Morethan

5 Years Total

Payments Due by Period

($ in millions)

Letters of credit(1) . . . . . . . . . . . . . . . . . . $ 99 $ - $ - $ - $ 99

Guarantees . . . . . . . . . . . . . . . . . . . . . . . . - 6 - - 6

Surety bonds . . . . . . . . . . . . . . . . . . . . . . 104 - - - 104

Total commercial commitments . . . . . . . $203 $ 6 $ - $ - $209

(1) As of December 31, 2009, letters of credit for $612 million were issued and outstanding under our existingrevolving credit facility, of which $513 million support our obligations under the variable rate IRBs in an amountequivalent to the outstanding principal and 30 days of interest payments. These letters of credit issued for ourvariable rate IRBs have been excluded from this table as the related amounts are included in long-term debt in ourcontractual obligations table above. As of December 31, 2009, our variable rate IRBs were also supported by aseparate $41 million letter of credit, which is excluded from this table for the same reason. In addition, as ofMarch 31, 2010, a $75 million letter of credit was issued and outstanding to support certain trade payables.

See Note 14 to our audited consolidated financial statements included in this offering memorandum.

Quantitative and Qualitative Disclosures About Market Risk

Introduction. We have exposure to price fluctuations of crude oil and refined products and changes ininterest rates associated with our variable rate debt. The fluctuations in future prices create risk to us as ouractivities involve commitments to pay or receive fixed prices in the future. To manage and reduce exposuresin connection with the commodity price, management enters into certain derivative instruments. Our petroleumcommodity derivatives, comprised of physical and financial derivatives, include exchange-traded futurescontracts, forward purchase and sale contracts, exchange-traded and over-the-counter (“OTC”) options andOTC swaps. We do not currently utilize derivative instruments to manage our interest rate risk but may do soin the future.

We have risk management policies and practices in place to identify, analyze and act on the risks weface. We do not attempt to manage the price risk related to all of our inventories of crude oil and refinedproducts. As a result, at March 31, 2010, we were exposed to the risk of broad market price volatility withrespect to a substantial portion of our crude oil and refined product inventories. As of March 31, 2010, ourtotal crude oil and refined products inventory was approximately 30 million barrels. The aggregate commodityderivative positions held in the regulated exchanges and OTC markets related to the management of the pricemovement was approximately 5 million barrels. The following disclosures do not attempt to quantify the pricerisk associated with such commodity inventories. The disclosures included in the following table include thederivatives referenced above as well as all other derivatives.

Commodity Instruments. We balance our crude oil and petroleum product supply and demand byentering into petroleum commodity derivative contracts. We do not designate any of our derivative instrumentsas hedges, as these instruments are designed to hedge risk associated with the market price fluctuations or fortrading purposes. Changes in the fair value of these contracts are recorded in cost of sales and operatingexpense.

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The following table summarizes our non-trading commodity derivatives open positions at March 31,2010.

Non-Trading Commodity DerivativesOpen Positions at March 31, 2010

Commodity DerivativeMaturity

DateLong/(Short)

Number OfContracts

ContractValue

MarketValue(2)

Asset/(Liability)($ in Millions)

Unleaded Gasoline(1) . . . Futures Purchased . . . . . . . . . . . . . . . . 2010 175 $ 16.6 $ 17.0

Forward Purchase Contracts . . . . . . . . . 2010 276 24.8 25.4

Forward Sale Contracts . . . . . . . . . . . . 2010 (1,200) (109.6) (109.4)

Distillates(1) . . . . . . . . . Futures Purchased . . . . . . . . . . . . . . . . 2010 314 25.5 29.2

Futures Purchased . . . . . . . . . . . . . . . . 2011 20 1.8 2.0

Futures Sold . . . . . . . . . . . . . . . . . . . . 2010 (217) (18.7) (20.0)

Futures Sold . . . . . . . . . . . . . . . . . . . . 2011 (1) (0.1) (0.1)

OTC Swaps (Pay Fixed / ReceiveFloat)(4) . . . . . . . . . . . . . . . . . . . . . . . 2010 184 - 1.2

Forward Purchase Contracts . . . . . . . . . 2010 45 4.0 4.1

Forward Sale Contracts . . . . . . . . . . . . 2010 (468) (41.8) (43.3)

Forward Sale Contracts . . . . . . . . . . . . 2010 (278) (23.7) (26.3)

Forward Sale Contracts . . . . . . . . . . . . 2011 (22) (2.1) (2.2)

Crude Oil(1) . . . . . . . . . Futures Purchased . . . . . . . . . . . . . . . . 2010 340 27.8 28.2

Futures Sold . . . . . . . . . . . . . . . . . . . . 2010 (515) (41.8) (42.9)

OTC Swaps (Pay Fixed / ReceiveFloat)(4) . . . . . . . . . . . . . . . . . . . . . . . 2010 - - 0.1

NYMEX Call Options Purchased . . . . . 2010 300 - 0.6

NYMEX Call Options Sold . . . . . . . . . 2010 (300) - (0.8)

NYMEX Put Options Purchased . . . . . . 2010 300 - 0.0

NYMEX Put Options Sold . . . . . . . . . . 2010 (300) - (0.1)

Natural Gas(3) . . . . . . . . Futures Purchased . . . . . . . . . . . . . . . . 2010 247 14.4 12.8

Futures Sold . . . . . . . . . . . . . . . . . . . . 2010 (222) (11.4) (9.5)

NYMEX Call Options Purchased . . . . . 2010 600 - 0.2

NYMEX Call Options Sold . . . . . . . . . 2010 (200) - (0.1)

(1) Thousands of barrels per contract.

(2) Based on actively quoted prices.

(3) Ten-thousands of million British thermal units (“MMBtu”) per contract.

(4) Floating price based on market index designated in contract. Fixed price agreed upon at date of contract.

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Debt Related Instruments. We have fixed and variable U.S. currency denominated debt. At March 31,2010, our primary exposures were to LIBOR and variable rates on tax-exempt bonds. We currently manage therisk related to interest rates by using both fixed and variable rate debt. We do not currently utilize derivativeinstruments to manage our interest rate risk but may do so in the future.

For debt obligations, the tables below present principal cash flows and related weighted averageinterest rates by expected maturity dates on an actual basis at March 31, 2010. Weighted average variable ratesare based on implied forward rates in the yield curve at the reporting date.

Debt Obligationsat March 31, 2010

Expected MaturitiesFixed

Rate DebtAverage FixedInterest Rate

Variable RateDebt

ExpectedAverage

Variable InterestRate

($ in millions) ($ in millions)

2010 . . . . . . . . . . . . $ - - $ 5 1.29%

2011 . . . . . . . . . . . . - - 206 1.85%

2012 . . . . . . . . . . . . - - 913 2.43%

2013 . . . . . . . . . . . . - - - -

2014 . . . . . . . . . . . . - - - -

Thereafter . . . . . . . . 108 7.71% 544 8.66%

Total . . . . . . . . . . . . $ 108 7.71% $ 1,668 4.39%

Fair Value . . . . . . . . $ 110 $ 1,665

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DESCRIPTION OF OTHER INDEBTEDNESS

New Senior Credit Facility

Concurrently with the closing of the offering of the notes we expect to enter into a New Senior CreditFacility. The New Senior Credit Facility is expected to consist of a $700 million senior secured revolvingcredit facility and a senior secured term loan (the “New Term Loan”). The final principal amount of the NewTerm Loan will be determined based on market demand for the New Term Loan and the notes. The proceedsof the New Senior Credit Facility, together with the proceeds of the notes, will be used to repay the ExistingSenior Credit Facility, to finance the purchase of our variable rate IRBs and for general corporate purposes.

New Revolving Credit Facility. We expect that the new revolving credit facility will have a total sizeof $700 million. We may increase the amount available to us under the new revolving credit facility on one ormore occasions for up to one year following the closing of the facility, subject to satisfaction of customaryconditions. We expect that the new revolving credit facility will be available for three years following theclosing date and may be used to refinance existing indebtedness, to fund working capital and capitalexpenditures, and for general corporate purposes. Amounts borrowed under the new revolving credit facilitywill bear interest at variable rates based on the credit rating of our New Senior Credit Facility. We will alsoincur quarterly commitment fees for the unused portion of the new revolving credit facility (less outstandingletters of credit).

New Term Loan. Our New Senior Credit Facility is also expected to include a New Term Loan in anamount to be determined based on market demand for both the New Term Loan and the notes. We expect thatthe New Term Loan will mature five years following the closing date and, together with the proceeds of thenotes, will be used to refinance our Existing Senior Credit Facility and to purchase our variable rate IRBs. TheNew Term Loan will bear interest at a variable interest rate based on the credit rating of our New SeniorCredit Facility. The New Term Loan will also be subject to quarterly amortization of principal, in an amountto be determined.

Guarantees. The New Senior Credit Facility will be guaranteed by our subsidiaries that will alsoguarantee the notes. All guarantees will be guarantees of payment and not of collection and will rank equal inright of payment to all of the senior indebtedness of the guarantors.

Security. The New Senior Credit Facility will be secured, subject to certain exceptions and permittedliens, on a first priority basis by:

k our refineries in Lake Charles, Louisiana, Lemont Illinois and, upon acquiring the West Plantpursuant to our purchase option in 2011, our refinery in Corpus Christi, Texas, including, withoutlimitation, all real and personal property comprising a part thereof;

k our and the guarantors’ accounts receivable (other than accounts receivable pledged pursuant toany permitted receivables securitization program) and inventory (with certain conditions forinventory not located in our three refineries);

k all capital stock of our guarantors and, subject to the execution of an intercreditor agreement bythe participants in our accounts receivable securitization facility, CITGO AR2008 FundingCompany, LLC, our accounts receivable subsidiary; and

k all proceeds and products of the property and assets described above.

Representations and Warranties, Covenants and Events of Default. The New Senior Credit Facilitywill contain customary representations and warranties, funding and yield protection provisions, borrowingconditions precedent, financial and other covenants and restrictions, and events of default. The covenantscontained in the New Senior Credit Facility will restrict (with certain exceptions), among other things, ourability and our restricted subsidiaries’ ability to:

k engage in mergers, consolidations, liquidations and dissolutions, or dispose of assets;

k make loans, investments and advances;

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k incur additional indebtedness, guarantee indebtedness or create or incur liens;

k enter into certain sale and leaseback transactions;

k make certain dividend, debt and other restricted payments; and

k make changes to our business.

The New Senior Credit Facility will also be governed by three financial covenants, to be calculatedon a consolidated basis and for each consecutive four fiscal quarter period:

k a maximum indebtedness to total capitalization of 60%;

k a minimum interest coverage ratio of 1.5x as of December 31, 2010, increasing quarterly to 3.0xas of December 31, 2011; and

k a minimum liquidity of $400 million as of June 30, 2010 and each fiscal quarter thereafter untilDecember 31, 2011.

Payments of Dividends. The New Senior Credit Facility will allow us to pay dividends equal to100% of our cumulative net income (commencing with fiscal year 2009 and excluding the after-tax effect ofgain on sales of assets) plus net after-tax proceeds from certain permitted assets sales. The New Senior CreditFacility will prohibit us from paying dividends during the existence of an event of default and to the extentpayment of dividends would trigger an event of default, and further restrict our payment of dividends byinstituting a number of debt incurrence tests, including the following:

k minimum liquidity of $500 million post-dividend plus the excess, if any, of (i) budgetedmaintenance and regulatory capital expenditures over (ii) budgeted amortization and depreciationexpense; and

k maximum indebtedness to total capitalization of 55% post dividend.

Incurrence of Indebtedness. The New Senior Credit Facility will allow us to issue the notes offeredhereby. In addition, the New Senior Credit Facility will allow us to issue up to $400 million in fixed rateIRBs, which will share in the collateral securing the New Senior Credit Facility and the notes offered herebyon a pari passu basis. We currently have $108 million fixed rate IRBs outstanding, allowing us to issue up to$292 million in additional fixed rate IRBs, either by conversion of existing variable rate IRBs or issuance ofnew fixed rate IRBs.

Existing Senior Credit Facility

Our Existing Senior Credit Facility is evidenced by a credit agreement, dated as of November 15,2005, as amended and supplemented on May 30, 2007, December 17, 2007, June 13, 2008 and February 4,2010 (as amended, the “Existing Senior Credit Agreement”).

Existing Revolving Credit Facility. The Existing Senior Credit Agreement provides us with a$1.15 billion revolving credit facility, for which BNP Paribas serves as the administrative agent. The existingrevolving credit facility provides for letters of credit and swing line loans, in addition to cash draws, and canbe used to refinance existing indebtedness, to fund working capital and capital expenditures, and for othergeneral corporate purposes. Amounts borrowed under the existing revolving credit facility bear interest atvariable rates based on the credit rating of our Existing Senior Credit Facility. As of March 31, 2010, we hadno borrowings outstanding under our existing revolving credit facility. As of March 31, 2010, letters of creditfor $537 million were also issued and outstanding under our existing revolving credit facility. Of this amount,$513 million support our obligations under the variable rate IRBs (discussed below) in an amount equivalentto the outstanding principal and 30 days of interest payments. We incur quarterly commitment fees for theunused portion of the existing revolving credit facility (less outstanding letters of credit) at rates ranging from0.50% to 1.25% per annum. As of March 31, 2010, the quarterly commitment fee for the unused portion ofthe facility was 0.625% per annum. The existing revolving credit facility has a final maturity and terminationdate of November 15, 2010.

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Term Loan B. Our Existing Senior Credit Agreement also includes a $700 million term loan (the“Term Loan B”). BNP Paribas serves as the administrative agent for the Term Loan B. The Term Loan Bbears interest at a variable interest rate based on the credit rating of our Existing Senior Credit Facility. As ofMarch 31, 2010, the outstanding principal amount of the Term Loan B was $609 million and the interest ratewas 5.25%. The Term Loan B amortizes in scheduled amounts of $6.4 million annually, and has a finalmaturity date of November 15, 2012.

Term Loan A. The June 13, 2008 supplement to our Existing Senior Credit Agreement established a$515 million term loan facility (the “Term Loan A”), for which Sumitomo Mitsui Banking Corporation servesas administrative agent. The Term Loan A bears interest at a variable interest rate based on the credit rating ofour Existing Senior Credit Facility. As of March 31, 2010, the outstanding principal amount of the Term LoanA was $515 million and the interest rate was 5.25%. The Term Loan A amortizes in scheduled amounts of$200 million in February 2011 and $100 million in February 2012, and has a final maturity date ofNovember 15, 2012.

Security. The Existing Senior Credit Facility is secured on a first priority basis by our interests in theLake Charles, Corpus Christi and Lemont refineries and a portion of our trade accounts receivable andinventories (together, the “Existing Collateral”).

Representations and Warranties, Covenants and Events of Default. The Existing Senior CreditAgreement contains customary representations and warranties, funding and yield protection provisions,borrowing conditions precedent, financial and other covenants and restrictions, and events of default. Thecovenants contained in the Existing Senior Credit Agreement restrict (with certain exceptions), among otherthings, our ability and our restricted subsidiaries’ ability to:

k engage in mergers, consolidations, liquidations and dissolutions, or dispose of assets;

k make loans, investments and advances;

k incur additional indebtedness, guarantee indebtedness or create or incur liens;

k enter into certain sale and leaseback transactions;

k make certain dividend, debt and other restricted payments; and

k make changes to our business.

The Existing Senior Credit Agreement also requires us to maintain a maximum debt to capitalizationratio, a minimum interest coverage ratio and certain minimum liquidity levels, in each case as defined in theExisting Senior Credit Agreement.

Certain Interest Rate Adjustments. In the event of a downgrade in the ratings of our Existing SeniorCredit Facility, the interest rate on the facilities would increase.

Recent Amendments and Waivers of Existing Senior Credit Facility. The February 4, 2010 amendmentto the Existing Senior Credit Facility permits us to:

k refinance the Existing Senior Credit Facility in whole or in part;

k issue the notes; and

k enter into the New Senior Credit Facility.

The amendments also, among other things (including certain amendments to the financial covenantsand their calculations) modify certain covenants under the Existing Senior Credit Agreement to:

k permit us to issue up to $400 million of secured indebtedness incurred in connection withpollution control or IRB financings secured by the Existing Collateral, subject to an intercreditoragreement acceptable to the lenders;

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k restrict us from paying any dividends in 2010, and to subject our ability to pay dividends to aliquidity incurrence test of $500 million, after giving effect to such dividends, and a maximumdebt to capitalization ratio of 0.55 to 1.00;

k waive the then-existing debt to capitalization ratio requirement of 0.55 to 1.00 for December 31,2009 and revise it to 0.60 to 1.00 thereafter; and

k impose a minimum liquidity requirement of $300 million at March 31, 2010, increasing to$400 million at June 30, 2010, which will remain in effect through September 30, 2011. Liquidityfor these purposes consists of our cash and cash equivalents as well as availability under ourexisting revolving credit facility.

The lenders under our Existing Senior Credit Facility also agreed to waive compliance with theinterest coverage ratio for fiscal quarters ending December 31, 2009 through September 30, 2010, and torevise the ratio to 1.50 to 1.00 at December 31, 2010. Thereafter, the interest coverage ratio requirement willincrease each quarter until it reaches 3.00 to 1.00 at December 31, 2011. Furthermore, the lenders agreed thatin connection with requests for borrowings, letters of credit and other extensions of credit under the ExistingSenior Credit Facility, we will be required to represent and warrant that since September 30, 2009, no event orcondition has occurred that has had or could reasonably be expected to have a material adverse effect. Prior tothe amendment we were required to represent and warrant that no such event or condition had occurred sinceDecember 31, 2004.

Industrial Revenue Bonds

As of March 31, 2010, we had outstanding indebtedness of $653 million under 19 series of industrialrevenue bonds (“IRBs”) issued through various governmental issuers in Illinois, Louisiana and Texas tofinance solid waste disposal and environmental facilities at our refineries in those states. Of the bondsoutstanding at March 31, 2010, $593 million were tax-exempt and the remaining $60 million were taxable. Atour option and upon the occurrence of certain specified conditions, all or any portion of the taxable bondsmay be converted to tax-exempt bonds. The final maturity dates for the bonds range from 2023 to 2043.

Interest Rates. The bonds bear interest at various fixed and variable rates, which ranged from 1.1% to8.0% as of March 31, 2010. Of the $653 million of outstanding bonds at that date, $545 million were variablerate IRBs, while $108 million were fixed rate IRBs. As discussed in “Use of Proceeds,” we are seeking topurchase our variable rate IRBs, a portion of which we will hold in treasury until such time as we either repayor remarket the bonds as fixed rate IRBs.

Security; Covenants Applicable to Variable Rate IRBs. The variable rate IRBs are supported by directpay letters of credit issued under our existing revolving credit facility and under a separate letter of creditissued by Sumitomo Mitsui Banking Corporation. The covenants and events of default contained in thereimbursement agreements for the letters of credit generally match those contained in our existing revolvingcredit facility. Our obligations under the reimbursement agreements are unsecured, although we may berequired to cash collateralize our obligations following an event of default and if the letters of credit issuedunder our existing revolving credit facility are drawn, the borrowings would also be secured by the collateralfor the Existing Senior Credit Facility. In addition, if new collateral is pledged to secure the Existing SeniorCredit Facility, we would be required to grant an equal and ratable lien to certain of the letter of credit lenders.The reimbursement agreements have a remaining term of one year or less and are subject to renewal orextension at the discretion of the lender or lenders party to the particular reimbursement agreement. As ofMarch 31, 2010, we had approximately $554 million of letters of credit issued and outstanding to support ourobligations under the variable rate IRBs, which amount is equivalent to the outstanding principal and 30 daysof interest payments, of which $513 million are under our existing revolving credit facility and the remaining$41 million is under the letter of credit issued by Sumitomo.

Covenants Applicable to Fixed Rate IRBs. We have agreed with the holders of the fixed rate IRBs,through separate guarantees of the individual bond issues, to extend to them the benefit of specified covenants.The covenants and events of default contained in these guarantees generally match those contained in our

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Existing Senior Credit Facility. The fixed rate IRBs share pari passu in the collateral securing our ExistingSenior Credit Facility.

Accounts Receivable Securitization Facility

In June 2008, our limited purpose consolidated subsidiary, CITGO AR2008 Funding Company, LLC,established a one-year non-recourse trade accounts receivables facility with BNP Paribas and certain otherindependent third parties. Under the facility, we transfer to CITGO AR2008 Funding Company, LLC our tradeaccounts receivables from which undivided interests in specified eligible accounts are acquired by independentthird parties. The proceeds from these transactions are released to us. The maximum interest that may be heldby third parties as of any date of determination cannot exceed $450 million. As of March 31, 2010,$946 million of our accounts receivable were included in the pool of eligible receivables under the facility andundivided interests in an aggregate of $278 million were held by third parties. We are currently engaged indiscussions to renew this facility, which is scheduled to expire in June 2010.

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BUSINESS

Our Company

We are one of the largest independent crude oil refiners and marketers of refined products in theUnited States as measured by refinery capacity. We own and operate three petroleum refineries with a totalrated crude oil capacity of approximately 749,000 bpd, located in Lake Charles, Louisiana, Corpus Christi,Texas and Lemont, Illinois. Our refining operations are supported by an extensive distribution network, whichprovides reliable access to our refined product end-markets. We own 37 refined product terminals spreadacross 17 states with a total storage capacity of 18.4 million barrels, and have equity ownership of anadditional 2.1 million barrels of refined product storage capacity through our joint ownership of an additional11 terminals. We also have access to over 150 third-party terminals through exchange, terminaling and similararrangements. We believe that we are the seventh largest branded gasoline supplier within the United States asmeasured by by sales volume, with an approximate 5% market share of the branded gasoline market. Thereare approximately 6,500 independently owned and operated CITGO-branded retail outlets located in ourmarkets, which are located east of the Rocky Mountains. We and our predecessors have had a recognizedbrand presence in the United States for approximately 100 years.

Key Market Trends

We believe the following are key factors that will influence the long-term outlook for the overallrefining industry and the markets we serve.

Improving Economic Conditions. In 2008 and 2009, demand for refined petroleum products wasnegatively impacted by, among other factors, the economic recession. Starting in the last quarter of 2009,several key measures of economic conditions in the United States, including gross domestic product and non-farm payrolls, began to improve. We believe that increases in these measures signal an improvement in generaleconomic conditions, which we believe will result in an increase in the demand for gasoline, distillate andother refined products.

Capacity Rationalization. In response to excess refining capacity in the United States throughout2009, many refiners reduced utilization rates and announced unit or refinery-wide shutdowns. We believe thatcapacity rationalization will continue and could result in a reduction of overall refining capacity from currentlevels. In particular, our competitors could continue to shut down certain of their refineries that we believe areat a competitive disadvantage, including their less complex refineries, those requiring significant capitalexpenditures in order to remain compliant with current or pending environmental regulations and changingcustomer preferences, and those that are not well positioned geographically relative to their distributionmarkets. In addition, many refiners have deferred or are considering deferring their investment plans due torecent refining economics. We believe this capacity rationalization will contribute to keeping the supply ofpetroleum products in balance with the longer-term trend in demand.

Increasing Light/Heavy Differentials. In 2009, the continuing economic recession led OPEC to reduceits production of crude oils. We believe the reduction was significantly related to heavy sour crudes, andcontributed to an increase in the price of heavy sour crudes relative to light sweet crudes and a narrowing ofthe historical price differential between light and heavy crudes. In 2009, the average price differential betweenlight and heavy crudes, as illustrated by the WTI-Maya differential, declined to one of its lowest levels in thepast decade, averaging $5.20 per barrel or 8.4% of WTI. By comparison, between 2000 and 2008 the annualaverage ranged from a low of $5.19 per barrel to a high of $15.59 per barrel, or between 19.9% and 27.6% ofWTI. As economic conditions improve and demand for petroleum products increases, we believe that OPECwill relax production restrictions, which should increase the supply of heavy sour crudes and contribute to awidening of the light/heavy differential, resulting in improved margins for refiners that process significantamounts of heavy crudes.

Trend Towards Lower Quality Crudes. Historically, the crude slate available to U.S. refineries hasbecome heavier (lower API gravity) and more sour (higher sulfur content). Due to their higher density andmetals and sulfur content, heavy sour crudes require additional conversion units to enable processing into fuel

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products. As a result, heavy sour crudes have historically sold at a discount to lighter, sweeter crude oils,contributing to lower crude oil costs for refineries that can process these types of crudes. Currently, less thanhalf of U.S. refiners have coking units with the ability to convert heavy crudes into lighter transportation fuels.Given the world’s current heavy sour crude reserves, such as those in Brazil, Canada, Iraq and Venezuela, theproportion of lower quality crudes is expected to continue to trend upward over the long term. We believe thisupward trend should result in a widening of the light/heavy differential and improved margins for refineriesthat have the ability to process these types of crudes.

Competitive Strengths

Industry-Leading Refining Capability with Significant Asset Value. We own and operate three large-scale, high complexity refineries with a total rated crude capacity of approximately 749,000 bpd. We believethat we are the third largest independent refiner in the United States by refinery capacity, and the mostcomplex independent refiner in the country. Our refineries have large coking units that enable us to processsubstantial amounts of heavy sour crude oils, which are typically priced at a discount to lighter, sweeter crudeoils, giving us a cost advantage over competitors with less complex refineries. Our large downstreamconversion units, such as catalytic cracking, hydrotreating and desulfurization units, enable us to produce aflexible range of refined products, and optimize margins in response to market changes. Over the 2007 to2009 period, an average of 71% of the crude oils processed through our refineries were heavy sour crude oils.In 2009, our refineries had a total yield of 84% high-value products, including gasoline, jet fuel, diesel, no. 2fuel oil and petrochemicals, with the remaining output comprised primarily of industrial products. Accordingto a December 2009 appraisal conducted by Turner Mason, an independent petroleum and petrochemicalsconsulting firm, the total asset value of our three refineries is estimated to be $6 billion (excluding relatedworking capital assets), based on typical industry valuation methodologies. Turner Mason’s report is subject toa number of estimates and assumptions as discussed in more detail in “Risk Factors – The appraisal of ourthree refineries may not reflect the value that would be realized if the collateral agent were to foreclose onthem.”

Strategic Access to Diversified Crude Supplies. The geographic location of our three refineries givesus access to a diversified supply of crude oil types. In 2009, our crude oil supply was comprised of over 40different types of crude from 16 different countries. Our Gulf Coast refineries (Lake Charles and CorpusChristi) have direct marine access and pipeline connections, giving us the ability to optimize our use of lowcost crude oil. Due to its geographic location, our Lemont refinery, which processes mainly heavy sourWestern Canadian crude oils, is able to capture significant discounts on its crude oil costs compared to otherMidwest refineries whose processing capabilities are limited to lighter, sweeter crudes. The diversity of ourthree locations also better positions us to withstand potential disruptions in supply and unexpected downtimeat one of the refineries. We are an indirect wholly owned subsidiary of PDVSA, the national oil company ofthe Bolivarian Republic of Venezuela, and we serve as PDVSA’s principal outlet for heavy sour crude oil inthe U.S. market. This relationship gives us access to one of the largest proven oil reserves in the WesternHemisphere.

Integrated Product Marketing and Distribution System. We market and distribute refined productsthrough our 48 wholly or partly owned terminals, as well as over 150 additional third-party terminals whichwe utilize under exchange, terminaling and similar arrangements. This terminal network enables us to optimizeour refined product distribution across more than 27 states in support of our extensive network ofindependently owned and operated CITGO-branded retail locations. Sales through our retail marketing networkprovide us with a more secure and consistent distribution outlet while also allowing us to capture additionalmargin over the bulk spot market. Our broad refining footprint enables us to distribute our refined products todifferent regions of the United States, including the Northeast, Southeast, Southwest and Midwest regions,each of which has different pricing structures and growth dynamics; it also provides us with marine access tointernational markets.

Industry-Leading Safety Track Record. We believe that we have one of the leading safety trackrecords in the refining industry. According to the National Petrochemical and Refiners Association, in four ofthe five years between 2004 and 2008 we had the lowest total recordable incident rate among U.S. refiners

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with more than 100 employees. Our safety record reflects our proactive focus on preventive safety measures.We believe our strong safety focus reduces business, environmental and legal risks and enhances our operatingresults.

Experienced, Proven Management Team. Our management team has an average of nearly 30 years ofexperience in the energy industry and approximately 13 years with us. This experience underscores ourmanagement’s ability to develop and implement strategies to align our operations with trends in the refiningindustry. Since the end of 2008, our management team successfully reduced operating costs, improved ourworking capital position and repaid outstanding revolver borrowings, leading to an improvement in ourliquidity position despite a challenging economic environment. We believe our management’s continued effortsto improve the capabilities and reliability of our refineries and optimize our marketing and distributionnetworks, while maintaining a strong focus on operational safety, position us to take advantage of improvingmarket conditions.

Our Strategy

Our primary objective is to maximize the profitability and cash flow of our refining and marketingoperations while maintaining our strong environmental and safety track record. Our strategy is focused onefficiently processing a broad range of low cost, primarily heavy sour crude oils into high-value light fuels,petrochemicals, and industrial products. We intend to achieve this objective through the following strategies:

Continue to Invest in Safe, Environmentally Sound and Reliable Operations. We will continue to fundcapital investments to maintain and improve our safety performance and to comply with increasingly stringentenvironmental regulations. Our capital program also includes capital expenditures designed to upgrade ouroperating units and increase the reliability of our refining operations. In 2006, we converted a hydrotreatingunit at our Lake Charles refinery to enable us to produce up to 91,300 bpd of ULSD, and we are currentlycompleting ULSD units at our Corpus Christi and Lemont refineries. By the end of 2010 we will havecompleted significant capital expenditures to increase our production of ULSD, which will help us meetdemand for clean fuels products. In 2005, we also completed a project to increase the crude oil distillationcapacity of the Lake Charles refinery by 105,000 bpd.

Capitalize on Our Capability to Process Low Cost, Heavy Sour Crude Oil. We continually seek tomaximize our refining margin through our ability to process low cost, heavy sour crude and optimize ourcrude slates. In 2009, the amount of heavy crude oil processed at our refineries was 441,000 bpd (69% of thetotal crude oil processed), with an average API gravity of 21.3 degrees (well below the 25 degrees thresholdthat defines heavy crudes) and an average sulfur content of 2.2% (well above the 0.5% that defines sourcrudes). We continuously review the economics of multiple available crudes and feedstocks and determine theoptimal crude slate and product yields for our refineries in order to maximize our refining margins.

Optimize Our Refining Production and Marketing Network. We continually seek to optimize the valueof our refining production by distributing our products in markets which can be supplied in a cost-advantagedmanner and by balancing our branded marketing volumes with our production and long-term contract supplysources. In 2007, we implemented a plan to rationalize our branded marketing sales to focus on moreprofitable geographical areas and third-party customers and subsequently divested non-strategic terminal andpipeline assets. We also seek to maximize the value of our refining and distribution assets by marketing ourunderutilized storage capacity at our owned terminals, installing ethanol blending facilities at our certain ofequity-owned terminals, and focusing our sales efforts in regions where our marketing network provides uswith a competitive advantage.

Maintain Focus on Improving Refinery Cost Structure. We seek to continue to perform in the top halfof all U.S. refineries on key cost measures, as reported in industry publications and other publicly availableinformation. Our management team has successfully reduced our cost structure in response to the economicconditions resulting from the global recession. In 2009, we reduced refining and manufacturing costs byapproximately $386 million, with approximately $170 million attributable to lower energy costs and$216 million attributable to non-energy costs, such as labor, third-party services and materials.

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Our Refineries

We own and operate three large-scale, high complexity petroleum refineries with a total rated crudeoil capacity of approximately 749,000 bpd, located in Lake Charles, Louisiana, Corpus Christi, Texas, andLemont, Illinois. We believe that we are the third largest and the most complex independent refiner in theUnited States, with each of our refineries capable of processing large volumes of heavy sour crude oils into aflexible range of refined products. Refinery complexity refers to a refinery’s ability to process and convertcrude oil and other feedstocks into higher-value products and is commonly measured by the Nelson RefineryComplexity Index. In general, a refinery with a higher complexity is more capable of processing heavy sourcrude oils in an economically efficient manner. Over the 2007 to 2009 period, an average of 71% of the crudeoils processed through our refineries were heavy sour crude oils. In 2009, our total yield of high-valueproducts was 84%, including gasoline, jet fuel, diesel, no. 2 fuel oil and petrochemicals. Our refineries alsoproduce industrial products, which are used in a wide variety of end-market applications. Each of ourrefineries is supported by an extensive logistics network for receiving foreign and domestic crude oils viamarine facilities and pipelines, and for distributing products via connections to major product pipelines andmarine terminals.

LocationTotal Rated CrudeRefining Capacity

2010 NelsonRefinery Complexity

Index(1)(bpd in thousands)

Lake Charles, LA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425 11.83

Corpus Christi, TX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 14.75

Lemont, IL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 11.55

Total rated crude oil refining capacity . . . . . . . . . . . . . . . . . 749

(1) The average 2010 Nelson Refinery Complexity Index for independent U.S. refineries is 10.11, as calculated by theOil & Gas Journal. We internally calculate the Nelson Refinery Complexity Index using our current unit specificationsand believe these values are a more accurate representation of our current refinery complexity.

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The following table summarizes the rated refining capacity and utilization rates, crude oil andfeedstock input, and product yield of our three refineries for the three years ended December 31, 2007, 2008and 2009 and the three months ended March 31, 2009 and 2010.

Total Refinery Production(1)

2007(1) 2008(1) 2009 2009 2010

Year Ended December 31,Three Months Ended

March 31,

(bpd in thousands, except percentages)

Rated refining crude capacity atyear/period end . . . . . . . . . . . 861 749 749 749 749

Refinery input. . . . . . . . . . . . . .Crude oil

Heavy(2) . . . . . . . . . . . . . . 559 73% 446 69% 441 69% 490 78% 395 63%Light(3)

Sour(4) . . . . . . . . . . . . . 112 15% 128 20% 85 14% 87 14% 90 14%Sweet(5) . . . . . . . . . . . . 90 12% 76 11% 110 17% 55 8% 144 23%

Total % of crude oil . . . . . . . 100% 100% 100% 100% 100%

Total crude oil . . . . . . . . . . . . 761 88% 650 85% 636 88% 632 87% 629 88%Other feedstocks . . . . . . . . . . 108 12% 118 15% 89 12% 97 13% 83 12%

Total . . . . . . . . . . . . . . . . . 869 100% 768 100% 725 100% 729 100% 712 100%Product yield

Light fuelsGasoline . . . . . . . . . . . . . . 351 40% 338 44% 328 45% 326 44% 324 45%Jet fuel . . . . . . . . . . . . . . . 70 8% 71 9% 71 9% 68 9% 79 11%Diesel/#2 fuel . . . . . . . . . . 197 22% 184 24% 175 24% 175 24% 154 22%

Petrochemicals . . . . . . . . . . . . . 46 5% 44 5% 43 6% 46 6% 48 7%Industrial products. . . . . . . . . . . 163 19% 130 17% 116 16% 123 17% 110 15%Asphalt . . . . . . . . . . . . . . . . . . . 50 6% 7 1% - - - - - -

Total . . . . . . . . . . . . . . . . . 877 100% 774 100% 733 100% 738 100% 715 100%Utilization of rated capacity. . . . 88% 87% 85% 84% 84%

(1) Includes asphalt refinery operations at our refineries in Paulsboro, New Jersey and Savannah, Georgia throughMarch 20, 2008, the date we sold the fixed assets and inventories and certain related rights and obligations associatedwith these operations.

(2) Heavy crude oil is defined as crude oil with an average API gravity of less than 25 degrees.

(3) Light crude oil is defined as crude oil with an average API gravity of 25 degrees or greater.

(4) Sour crude oil is defined as crude oil with an average sulfur content greater than 0.5%.

(5) Sweet crude oil is defined as crude oil with an average sulfur content of 0.5% or less.

Lake Charles Refinery

Our Lake Charles refinery has a rated crude capacity of 425,000 bpd and is one of the largestrefineries in the United States. The Lake Charles refinery, which has a Nelson Refinery Complexity Index of11.83, processed an average of 61% heavy sour crude oils over the 2007 to 2009 period. Light fuel productsrepresented approximately 83% of Lake Charles’ total product yield in 2009. The Lake Charles refinery’s lightfuel products include significant quantities of unleaded gasoline and reformulated gasoline, as well as jet fueland ULSD. The Lake Charles refinery also produces, petrochemicals, including refinery-grade propylene,benzene and mixed xylenes, and industrial products including sulfur, residual oils and petroleum coke.

The major conversion units at our Lake Charles refinery include three fluid catalytic cracking unitswith a combined capacity of 143,000 bpd, three naphtha reforming units, two coking units with a combinedcapacity of 110,000 bpd, an alkylation unit, and a two-stage hydrocracking unit. Our Lake Charles refinery’s

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high coking capacity enables us to run a heavier crude slate and to convert heavy residual oils to high-valuetransportation fuels. The hydrocracking unit is used to upgrade gas oil or low quality distillates to high qualitynaphtha, jet fuel and diesel fuel. Additionally, hydrotreating units such as our ULSD and gasolinehydrotreating units help us meet regulatory and customer demands for clean fuels products. Our Lake Charlesrefinery’s petrochemical units produce high-value aromatic-based petrochemicals and refinery-grade propylene.

The following table shows the rated refining capacity and utilization rates, crude oil and feedstockinput, and product yield at our Lake Charles refinery for the three years ended December 31, 2007, 2008 and2009 and the three months ended March 31, 2009 and 2010.

Lake Charles Refinery Production

2007 2008 2009 2009 2010

Year Ended December 31,Three Months Ended

March 31,

(bpd in thousands, except percentages)

Rated refining crude capacity atyear/period end . . . . . . . . . . . 425 425 425 425 425

Refinery input. . . . . . . . . . . . . .Crude oil

Heavy(1) . . . . . . . . . . . . . . 236 64% 200 57% 217 62% 252 78% 168 47%Light(2)

Sour(3) . . . . . . . . . . . . . 52 14% 72 21% 32 9% 24 7% 53 15%Sweet(4) . . . . . . . . . . . . 84 22% 76 22% 100 29% 48 15% 135 38%

Total % of crude oil . . . . . . . 100% 100% 100% 100% 100%

Total crude oil . . . . . . . . . . . . 372 94% 348 93% 349 94% 324 95% 356 94%Other feedstocks . . . . . . . . . . 25 6% 26 7% 21 6% 16 5% 22 6%

Total . . . . . . . . . . . . . . . . . 397 100% 374 100% 370 100% 340 100% 378 100%Product yield

Light fuelsGasoline . . . . . . . . . . . . . . 160 39% 152 40% 155 41% 133 38% 166 43%Jet fuel . . . . . . . . . . . . . . . 69 17% 69 18% 68 18% 63 18% 77 20%Diesel/#2 fuel . . . . . . . . . . 96 24% 94 25% 92 24% 82 24% 78 20%

Petrochemicals . . . . . . . . . . . . . 16 4% 14 4% 18 5% 19 5% 22 6%Industrial products. . . . . . . . . . . 64 16% 51 13% 48 12% 52 15% 43 11%

Total . . . . . . . . . . . . . . . . . 405 100% 380 100% 381 100% 349 100% 386 100%Utilization of rated capacity. . . . 88% 82% 82% 76% 84%

(1) Heavy crude oil is defined as crude oil with an average API gravity of less than 25 degrees.

(2) Light crude oil is defined as crude oil with an average API gravity of 25 degrees or greater.

(3) Sour crude oil is defined as crude oil with an average sulfur content greater than 0.5%.

(4) Sweet crude oil is defined as crude oil with an average sulfur content of 0.5% or less.

The Lake Charles refinery’s Gulf Coast location provides it with access to crude oil feedstockdeliveries from multiple sources. The Lake Charles refinery has direct marine access to crude oil and otherfeedstock transportation facilities and is connected via company-owned or third-party pipelines to variouscrude oil terminals, as well as to the U.S. Strategic Petroleum Reserve. Imported heavy crude oil and feedstocksupplies are delivered by ship directly to the Lake Charles refinery, while light sour crude oil supplies aredelivered to a nearby third-party marine terminal and delivered to Lake Charles by our Sour Lake, Texaspipeline. In addition, the refinery is connected by pipelines to the Louisiana Offshore Oil Port and to terminalfacilities in St. James, Louisiana and the Houston, Texas area through which it can receive crude oil deliveries.The wide range of logistics options enhances the refinery’s ability to access low cost feedstock and majorproduct pipelines.

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For delivery of refined products, the Lake Charles refinery has injecting capabilities directly into twoof the largest product pipelines in the United States, Colonial Pipeline and Explorer Pipeline, which are themajor refined product pipelines supplying the Northeast and Midwest regions of the United States,respectively. Other pipelines carry our light end products such as butanes, refinery-grade propylene andpropane to the market. The Lake Charles refinery also uses adjacent terminals and docks, which provideaccess for ocean tankers and barges to load refined products for shipment to domestic and internationalmarkets.

The vice president of the Lake Charles refinery, Eduardo Assef, has over 25 years of experience inthe energy industry, 11 of which have been spent with us. Mr. Assef is supported at Lake Charles by a seniormanagement team that, together with Mr. Assef, has an average of almost 30 years of energy industryexperience, including an average of approximately 21 years with us.

Corpus Christi Refinery

Our Corpus Christi refinery has a rated crude capacity of 157,000 bpd. We believe that our CorpusChristi refinery is one of the most complex petrochemical refineries in the United States. The Corpus Christirefinery, which has a Nelson Refinery Complexity Index of 14.75, processed an average of 94% heavy sourcrude oils over the 2007 to 2009 period. In 2009, light fuel products represented approximately 69% of thetotal product yield for the Corpus Christi refinery, with petrochemicals representing approximately 10% andthe balance comprised of industrial products.

The major conversion units at our Corpus Christi refinery include two fluid catalytic cracking unitswith a combined capacity of 78,000 bpd, two state-of-the-art naphtha continuous catalytic reforming units, a43,000 bpd delayed coking unit, and an alkylation unit. Our Corpus Christi refinery’s high coking capacityenables us to run a heavier crude slate and to convert heavy residual oils into high-value transportation fuels.Corpus Christi’s conversion units are able to process approximately 60,000 bpd of intermediate feedstock inaddition to intermediate feedstock from its crude topping capacity. We completed the conversion of an existingdiesel hydrotreating unit at our Corpus Christi refinery for production of ULSD in May 2010 at a capacity ofapproximately 30,000 bpd, and are building another new unit for production of ULSD at a capacity ofapproximately 40,000 bpd, scheduled for completion in December 2010. These units will help us meetregulatory and customer demands for clean fuels products. The Corpus Christi refinery is also capable ofproducing high-value aromatic-based petrochemicals from gasoline, in addition to producing cumene andcyclohexane.

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The following table shows the rated refining capacity and utilization rates, crude oil and feedstockinput, and product yield at our Corpus Christi refinery for the three years ended December 31, 2007, 2008 and2009 and the three months ended March 31, 2009 and 2010.

Corpus Christi Refinery Production

2007 2008 2009 2009 2010

Year Ended December 31,Three Months Ended

March 31,

(bpd in thousands, except percentages)

Rated refining crude capacity atyear/period end . . . . . . . . . . . 157 157 157 157 157

Refinery inputCrude oil

Heavy(1) . . . . . . . . . . . . . . 141 90% 137 99% 132 92% 135 89% 137 94%Light(2)

Sour(3) . . . . . . . . . . . . . 9 6% 2 1% 4 3% 9 6% 7 5%Sweet(4) . . . . . . . . . . . . 6 4% - - 7 5% 7 5% 2 1%

Total % of crude oil . . . . . . . 100% 100% 100% 100% 100%

Total crude oil . . . . . . . . . . . . 156 72% 139 65% 143 74% 151 69% 146 76%Other feedstocks . . . . . . . . . . 62 28% 74 35% 51 26% 67 31% 46 24%

Total . . . . . . . . . . . . . . . . . 218 100% 213 100% 194 100% 218 100% 192 100%Product yield

Light fuelsGasoline . . . . . . . . . . . . . . 97 44% 99 46% 88 45% 102 46% 86 45%Jet fuel . . . . . . . . . . . . . . . - - - - - - - - - -Diesel/#2 fuel . . . . . . . . . . 60 28% 50 24% 47 24% 53 24% 44 23%

Petrochemicals . . . . . . . . . . . . . 22 10% 22 10% 18 10% 21 10% 18 9%Industrial products. . . . . . . . . . . 39 18% 43 20% 41 21% 44 20% 44 23%

Total . . . . . . . . . . . . . . . . . 218 100% 214 100% 194 100% 220 100% 192 100%Utilization of rated capacity. . . . 99% 89% 91% 96% 93%

(1) Heavy crude oil is defined as crude oil with an average API gravity of less than 25 degrees.

(2) Light crude oil is defined as crude oil with an average API gravity of 25 degrees or greater.

(3) Sour crude oil is defined as crude oil with an average sulfur content greater than 0.5%.

(4) Sweet crude oil is defined as crude oil with an average sulfur content of 0.5% or less.

The Corpus Christi refinery receives crude oil and other feedstock supplies primarily by marinetransport, utilizing six wholly owned ship docks and a jointly owned dock, as well as third-party docks.

For delivery of refined products, the refinery utilizes marine, pipeline and adjoining terminalfacilities. More than half of the Corpus Christi refinery’s shipments are made via marine transport and third-party pipelines, primarily to the Southeast region of the United States and Texas.

The vice president of the Corpus Christi refinery, Kevin Ferrall, has over 30 years of experience inthe energy industry, 15 of which have been spent with us. Mr. Ferrall is supported at Corpus Christi by asenior management team that, together with Mr. Ferrall, has an average of more than 26 years of energyindustry experience, including an average of more than 20 years with us.

Lemont Refinery

Our Lemont refinery has a rated crude capacity of 167,000 bpd and is a major supplier oftransportation fuels primarily to the Upper Midwest region of the United States. We believe our Lemontrefinery has a logistical advantage to refineries located outside the Midwest with respect to both crude oil

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purchases and product sales. The Lemont refinery’s deep conversion capacity enables it to process largeamounts of heavy sour Canadian crude oils, which gives it an advantage over other Midwest refineries withoutsimilar capabilities. The Lemont refinery also benefits from the lower transportation cost of Canadian heavycrude oils and its location in a historically net import market for petroleum products. The Lemont refinery,which has a Nelson Refinery Complexity Index of 11.55, processed an average of 66% heavy sour crude oilsover the 2007 to 2009 period. In 2009, light fuel products represented approximately 79% of the total productyield for the Lemont refinery, with the remaining output comprised of petrochemicals, including benzene,toluene and mixed xylenes, plus a range of aliphatic solvents, and industrial products.

The major conversion units at our Lemont refinery include a fluid catalytic cracking unit, tworeforming units, two coking units, and an alkylation unit. As with our other refineries, Lemont’s high cokingcapacity enables us to run a heavier crude slate and to convert heavy residual oils into high-valuetransportation fuels. We are building a new unit at our Lemont refinery for production of ULSD at a capacityof approximately 45,000 bpd, scheduled to be completed in July 2010. This unit will help us meet regulatoryand customer demands for lean fuels products. Petrochemical units give Lemont the capability of producingaromatic-based petrochemicals in addition to aliphatic solvents.

The following table shows the rated refining capacity and utilization rates, crude oil and feedstockinput, and product yield at the Lemont refinery for the three years ended December 31, 2007, 2008 and 2009the three months ended March 31, 2009 and 2010.

Lemont Refinery Production

2007 2008 2009 2009 2010

Year Ended December 31,Three Months Ended

March 31,

(bpd in thousands, except percentages)

Rated refining crude capacity atyear/period end . . . . . . . . . . . . . . . . . 167 167 167 167 167

Refinery inputCrude oil

Heavy(1) . . . . . . . . . . . . . . . . . . . . 108 68% 99 65% 92 64% 103 66% 90 71%Light(2) . . . . . . . . . . . . . . . . . . . . .

Sour(3) . . . . . . . . . . . . . . . . . . . . 52 32% 54 35% 49 34% 54 34% 30 24%Sweet(4) . . . . . . . . . . . . . . . . . . . - - - - 3 2% - - 7 5%

Total % crude oil . . . . . . . . . . . . . . . . 100% 100% 100% 100% 100%

Total crude oil . . . . . . . . . . . . . . . . . . 160 88% 153 89% 144 89% 157 92% 127 89%Other feedstocks . . . . . . . . . . . . . . . 21 12% 18 11% 17 11% 14 8% 15 11%

Total. . . . . . . . . . . . . . . . . . . . . . 181 100% 171 100% 161 100% 171 100% 142 100%Product yield

Light fuelsGasoline . . . . . . . . . . . . . . . . . . . . . 94 52% 87 51% 85 54% 91 54% 72 53%Jet fuel . . . . . . . . . . . . . . . . . . . . . . 1 1% 2 1% 3 2% 5 3% 2 1%Diesel/#2 fuel . . . . . . . . . . . . . . . . . 41 23% 40 24% 36 23% 40 23% 32 23%

Petrochemicals . . . . . . . . . . . . . . . . . . . . 8 4% 8 5% 7 4% 6 4% 8 6%Industrial products . . . . . . . . . . . . . . . . . 37 20% 33 19% 27 17% 27 16% 23 17%

Total . . . . . . . . . . . . . . . . . . . . . . . 181 100% 170 100% 158 100% 169 100% 137 100%Utilization of rated capacity . . . . . . . . . . 96% 92% 86% 94% 76%

(1) Heavy crude oil is defined as crude oil with an average API gravity of less than 25 degrees.

(2) Light crude oil is defined as crude oil with an average API gravity of 25 degrees or greater.

(3) Sour crude oil is defined as crude oil with an average sulfur content greater than 0.5%.

(4) Sweet crude oil is defined as crude oil with an average sulfur content of 0.5% or less.

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Approximately 64% of the Lemont refinery’s crude oil input is heavy Canadian crude oil, which istransported from Western Canada via a third-party pipeline, the Enbridge Pipeline system. The refinery is alsocapable of receiving crude oil and other feedstocks by barge and rail.

The Lemont refinery is strategically positioned along major shipping routes. The facility is adjacentto the Chicago Sanitary and Ship Canal, which connects by the Des Plaines River to the Illinois andMississippi Rivers. This system of waterways provides access to the Great Lakes area of the United States andthe Gulf of Mexico for delivery of product. The Lemont refinery also is positioned in close proximity to twomajor rail systems as well as to third-party pipelines for the delivery of product.

The vice president of the Lemont refinery, Jim Cristman, has over 30 years of experience in theenergy industry, all of which have been spent with us. Mr. Cristman is supported at Lemont by a seniormanagement team that, together with Mr. Cristman, has an average of more than 25 years of energy industryexperience, including an average of more than 25 years with us.

Crude Oil and Other Feedstock Purchases

We do not own any crude oil reserves or production facilities, and must therefore rely on purchases of crudeoil and feedstocks for our refinery operations. The complexity and geographic location of our three refineries gives usthe flexibility to process a wide range of crude oils, including heavy sour grades, and better positions us to withstandpotential disruptions in supply and unexpected downtime at one of the refineries. In 2009, our crude oil supply wascomprised of over 40 different types of crude from 16 different countries. Our Gulf Coast refineries (Lake Charlesand Corpus Christi) have direct marine access and pipeline connections, giving us the ability to optimize on low costfeedstocks. Due to its geographic location, our Lemont refinery, which processes mainly Western Canadian crude oils,is able to capture significant discounts on its crude oil costs to most other refineries in the United States.

The following table shows our net purchases of crude oil by type for our three refineries for the threeyears ended December 31, 2007, 2008 and 2009 and the three months ended March 31, 2009 and 2010.

Crude Oil Purchases by Type

2007 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009

Lake Charles, LA Corpus Christi, TX Lemont, IL Total

Year Ended December 31,

Crude Oil Type (bpd in thousands)

Heavy(1) . . . . . . . 235 198 222 146 133 130 109 99 91 490 430 443

Light(2)

Sour(3) . . . . . . . 55 73 32 4 - 4 50 52 46 109 125 82

Sweet(4) . . . . . . 86 77 103 - - 3 - 1 5 86 78 111

Total(5) . . . . . . . . 376 348 357 150 133 137 159 152 142 685 633 636

2009 2010 2009 2010 2009 2010 2009 2010

Lake Charles, LA Corpus Christi, TX Lemont, IL Total

Three Months Ended March 31,

Crude Oil Type (bpd in thousands)

Heavy(1) . . . . . . . . 277 181 144 119 108 90 529 390

Light(2)

Sour(3) . . . . . . . 29 67 12 5 53 29 94 101

Sweet(4) . . . . . . . 36 144 4 5 2 8 42 157

Total(5) . . . . . . . . . 342 392 160 129 163 127 665 648

(1) Heavy crude oil is defined as crude oil with an average API gravity of less than 25 degrees.

(2) Light crude oil is defined as crude oil with an average API gravity of 25 degrees or greater.

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(3) Sour crude oil is defined as crude oil with an average sulfur content greater than 0.5%.

(4) Sweet crude oil is defined as crude oil with an average sulfur content of 0.5% or less.

(5) Total crude oil purchases do not equal crude oil refinery inputs because of changes in inventory.

Our largest single supplier of crude oil is PDVSA, from whom we source a substantial amount of thecrude oil requirements for our Lake Charles and Corpus Christi refineries. We also purchase additionalVenezuelan crude oil from other affiliated Venezuelan suppliers. In 2009, approximately 40% of our crude oilpurchases were from PDVSA, with an additional 5% coming from other affiliated Venezuelan suppliers. See“Related Party Transactions.” The remaining 55% of our crude oil purchases in 2009 were supplied by morethan 45 suppliers. This included approximately 25 suppliers of Canadian crude oil for our Lemont refinery.

In total in 2009, approximately 64% of our crude oil requirements were purchased under termcontracts, with the remainder being purchased on the spot market.

Our largest contractual relationship is with PDVSA. Our contract purchases with PDVSA arecurrently under a supply agreement with a term expiring March 31, 2012. This agreement requires PDVSA tosupply minimum quantities of crude oil to us, and incorporates formula pricing based on the average spotmarket values of widely traded crudes and other hydrocarbons plus an adjustment for market change similar tothe Maya crude price formula, which is a common market-based price mechanism. Our crude oil purchasecommitment under the agreement is approximately 250,000 bpd. We also purchase Venezuelan crude oil forour Lake Charles and Corpus Christi refineries on a spot basis from PDVSA and other affiliated suppliers. See“Related Party Transactions – Supply and Sales Agreements.”

Approximately 67% of the Canadian crude oil requirements for our Lemont refinery in 2009 werepurchased under supply contracts with various suppliers. These contracts generally have terms of one year,which are typically renewed upon expiration. The contracts generally incorporate formula pricing based onspot market values of widely traded crude oils.

The following tables summarize our purchases of crude oil by source and type of purchasearrangement for the three years ended December 31, 2007, 2008 and 2009 and the three months endedMarch 31, 2009 and 2010.

Crude Oil Purchases by Source(1)

2007 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009Lake Charles, LA Corpus Christi, TX Lemont, IL Total

Year Ended December 31,

Supplier/Source (bpd in thousands)

PDVSA and Other Affiliates

Contract Purchases. . . . . . . 119 122 128 129 120 119 - - - 248 242 247

Spot Purchases. . . . . . . . . . 21 16 38 - - - - - - 21 16 38

Canadian Crude Oil Suppliers

Contract Purchases. . . . . . . - - - - - - 77 82 95 77 82 95

Spot Purchases. . . . . . . . . . - - - - - - 82 70 47 82 70 47

Other sources

Contract Purchases. . . . . . . 98 75 61 1 3 4 - - - 99 78 65

Spot Purchases. . . . . . . . . . 138 135 130 20 10 14 - - - 158 145 144

Total . . . . . . . . . . . . . . . . . . . 376 348 357 150 133 137 159 152 142 685 633 636

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2009 2010 2009 2010 2009 2010 2009 2010Lake Charles, LA Corpus Christi, TX Lemont, IL Total

Three Months Ended March 31,

Supplier/Source (bpd in thousands)

PDVSA and Other Affiliates

Contract Purchases. . . . . . . . . . 161 123 138 109 - - 299 232

Spot Purchases. . . . . . . . . . . . . 38 16 - - - - 38 16

Canadian Crude Oil Suppliers

Contract Purchases. . . . . . . . . . - - - - 101 85 101 85

Spot Purchases. . . . . . . . . . . . . 1 - - - 60 38 61 38

Other sources

Contract Purchases. . . . . . . . . . 58 42 5 11 - - 63 53

Spot Purchases. . . . . . . . . . . . . 84 211 17 9 2 4 103 224

Total . . . . . . . . . . . . . . . . . . . . . . 342 392 160 129 163 127 665 648

(1) Total crude oil purchases do not equal crude oil refinery inputs because of changes in inventory.

In addition to crude oil, we utilize intermediate feedstocks to optimize the capacity of our refineryconversion units. Although the majority of our intermediate feedstocks are produced internally from crudeprocessing, we also purchase intermediate feedstocks in order to utilize refinery spare capacity and optimizeunit run rates.

Purchased intermediate feedstocks include naphtha, a refined product used as a feedstock for catalyticreforming units; catalytic feed, used as a feedstock for fluid catalytic cracking units; coker feed, used as afeedstock for coking units; and cycle oil, used as a feedstock for hydrocracking units. The mix of intermediatefeedstocks purchased varies by refinery because of the differences in available capacity. For example, our LakeCharles refinery has available hydrocracking capacity, which allows us to purchase more cycle oil, while ourCorpus Christi refinery has available fluid catalytic cracking capacity, which allows us to purchase morecatalytic feed.

Purchased intermediate feedstocks include naphtha, a refined product used as a feedstock for catalyticreforming units; catalytic feed, used as a feedstock for fluid catalytic cracking units; coker feed, used as afeedstock for coking units; and cycle oil, used as a feedstock for hydrocracking units. The mix of intermediatefeedstocks purchased varies by refinery because of the differences in available capacity. For example, our LakeCharles refinery has available hydrocracking capacity, which allows us to purchase more cycle oil, while ourCorpus Christi refinery has available fluid catalytic cracking capacity, which allows us to purchase morecatalytic feed.

Intermediate feedstocks are purchased from a number of different sources. We purchase the majorityof our naphtha requirements for our Lake Charles and Corpus Christi refineries under a feedstock supplyagreement with PDVSA expiring January 1, 2012. The agreement requires PDVSA to supply a minimumquantity of 10,000 bpd of naphtha at formula prices that are based primarily on gasoline market prices andadjusted for the value of the content of other products, associated expenses, and a deemed margin. See“Related Party Transactions – Supply and Sales Agreements.” Other intermediate feedstocks are purchasedmainly on a spot basis.

Refined Product Marketing and Distribution

In 2009, our total product yield was composed of 78% light fuels, 6% petrochemicals, and 16%industrial products. Our products are supported by an extensive distribution network and are sold through avariety of channels, including our branded independently owned and operated retail network, as well as in thebulk market and directly and indirectly to large manufactures, retailers and markets. The following table shows

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revenues and volumes of each of our refined product categories for the three years ended December 31, 2007,2008 and 2009.

Refined Product Sales Revenues and Volumes(1)

2007 2008 2009 2007 2008 2009

Year Ended December 31, Year Ended December 31,

Light fuels ($ in millions) (Gallons in millions)

Gasoline . . . . . . . . . . . . . . . . . . . . . . $19,911 $21,110 $13,436 9,320 8,314 7,781

Diesel/#2 fuel . . . . . . . . . . . . . . . . . . 9,122 11,791 6,295 4,309 4,014 3,722

Jet fuel . . . . . . . . . . . . . . . . . . . . . . . 4,311 5,192 2,427 2,026 1,731 1,422

Petrochemicals . . . . . . . . . . . . . . . . . . . . . 2,376 2,348 1,425 859 761 723

Industrial Products. . . . . . . . . . . . . . . . . . . 3,306 3,325 2,118 2,259 1,674 1,643

Lubricants and waxes . . . . . . . . . . . . . . . . 883 680 340 221 126 54

Asphalt . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,318 86 - 1,004 59 -

Total refined product sales . . . . . . . . . 41,227 44,532 26,041 19,998 16,679 15,345

EITF 04-13 reclassification(2) . . . . . . . . . . (2,960) (3,030) (968) - - -

EITF 99-19 reclassification(3) . . . . . . . . . . (312) (224) (150) - - -

Other sales . . . . . . . . . . . . . . . . . . . . . . . . 60 2 9 - - -

Total sales . . . . . . . . . . . . . . . . . . . . . $38,015 $41,280 $24,932 19,998 16,679 15,345

(1) Includes asphalt refinery operations at our refineries in Paulsboro, New Jersey and Savannah, Georgia throughMarch 20, 2008, the date we sold the fixed assets and inventories and certain related rights and obligations associatedwith these operations.

(2) Reflects sales reclassified in accordance with EITF 04-13.

(3) Reflects sales reclassified in accordance with EITF 99-19.

Light Fuels

We sell gasoline to approximately 450 marketers who in turn sell to approximately 6,500independently owned and operated CITGO-branded retail outlets located east of the Rocky Mountains. Webelieve that we are the seventh largest branded gasoline supplier within the United States as measured by salesvolume, with an approximate 5% market share of the branded gasoline market. Our extensive branded retailnetwork provides us with a more secure and consistent distribution outlet while also allowing us to captureadditional margin over the bulk spot market. We sell diesel and a small portion of our gasoline through anetwork of unbranded or commercial customers. In addition, we market jet fuel directly to major airlinecustomers as well as to resellers for use at seven airports, including major hub cities such as Boston andMiami. We sell our heating oil primarily through distributors.

Our refineries and supply distribution networks are strategically located for our service markets. Ourbroad refining footprint enables us to distribute our refined products to different regions of the United States,including the Northeast, Southeast, Southwest and Midwest regions, each of which have different pricingstructures and growth dynamics.

Our light fuel marketing activities are supported by an extensive terminal distribution networkthroughout our service regions. We own or have equity ownership in 48 refined product storage and transferterminals located across 22 states. Of these terminals, 37 are wholly owned by us and 11 are jointly ownedand are operated by us. Eleven of our product terminals have waterborne docking facilities, which greatlyenhance our logistical flexibility. Refined product terminals owned or operated by us provide a total storagecapacity of approximately 21 million barrels. In addition, we have access to over 150 third-party terminalsthrough exchange, terminaling and similar arrangements with other major refined product suppliers and

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terminal operators. These arrangements provide us the flexibility and timely response capability to meet thedistribution needs of our customers, while allowing us to optimize our refinery utilization, balance refinedproduct supply and demand, and minimize transportation costs.

Sales to our independent branded marketers are typically made under contracts which run for aninitial term of three years and automatically renew for successive three year periods unless earlier terminated.The contracts require the marketers to purchase a minimum amount of CITGO-branded gasoline each monthat prices established by CITGO on a point-of-sale basis. In addition, the contracts require the marketers todisplay the CITGO brand and maintain certain minimum standards relating to cleanliness, safety andappearance at their retail facilities.

Petrochemicals, Industrial Products and Lubricants

We produce a diverse range of petrochemicals, industrial products and lubricants.

The petrochemicals we produce include benzene, cumene, mixed xylenes, toluene, cyclohexane,refinery-grade propylene, and solvents. We sell petrochemicals primarily to large chemical and petrochemicalmanufacturers for use in the production of plastics, fibers and building materials, including paints, adhesivesand coatings. Our petrochemicals sales are typically governed by contracts that range from one to five yearsand have a minimum volume requirement.

Industrial products are byproducts that are produced or consumed during the refining process. Ourindustrial products include sulfur, which is sold to the U.S. and international fertilizer industries; cycle oils,which are sold for feedstock processing and blending; natural gas liquids, which are sold to the U.S. fuel andpetrochemical industry for gasoline blending, heating and as feedstocks for petrochemicals; petroleum coke,which is sold primarily in international markets for use as kiln and boiler fuel; and residual fuel blendstocks,which are sold to a variety of fuel oil blenders or other refiners for further processing.

We blend and market lubricants such as industrial lubricants and automotive oils on a branded basis,with particular penetration in the retail markets for 2-cycle and small engine oil, grease products, metalworking fluids, and environmentally friendly and food-grade lubricants. Besides direct sales to large directaccounts, we have over 200 contract marketers that distribute our finished lubricant products throughout theUnited States and internationally.

Refined Product Purchases

We supply our distribution network primarily from our three refineries in Lake Charles, CorpusChristi, and Lemont, as well as from the products we purchase from HOVENSA, L.L.C. (“HOVENSA”), a50-50 joint venture between a subsidiary of PDVSA and Hess Corporation. See “Related Party Transactions.”We purchased approximately 134,000 bpd, 142,000 bpd and 157,000 bpd from HOVENSA in 2009, 2008 and2007, respectively. In 2009, our internal production, together with our supply from HOVENSA, exceeded ourmarketing sales by approximately 39,000 bpd for gasoline, 62,000 bpd for distillate, and 45,000 bpd for jetfuel. In addition, to optimize our refineries and meet our customers’ demands, we also buy and sell gasolineand distillate through bulk sales channels. Our bulk purchases and sales are with various unaffiliated oilcompanies and trading companies and allow us to balance location, grade, volume, and timing differencesbetween our supply sources and demand from our customers.

Properties

Our principal properties are described above under the caption “Our Refineries.” We also owndirectly or have interests in pipelines and terminals, as described under the caption “Refined ProductMarketing and Distribution.”

Our Corpus Christi refinery complex consists of an East Plant and a West Plant, located within fivemiles of each other. While we own the East Plant, we operate the West Plant under a sublease agreement. Thesublease expires on January 31, 2011. We have an option to purchase the facility for a nominal amount uponexpiration of the sublease. We gave notice during 2009 of our intent to exercise this option. In addition,

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certain third parties own and operate hydrogen production plants located near or within the boundaries of ourCorpus Christi and Lemont refineries, which are treated as capital leases scheduled to expire between August2023 and March 2030.

We also have various other operating leases, primarily for product storage facilities, office space,marine vessels, computer equipment and various facilities and equipment used to store and transportfeedstocks and refined products. Operating lease expense totaled $90 million and $43 million for the threemonths ended March 31, 2010 and 2009, respectively, and $171 million and $266 million for the years endedDecember 31, 2009 and 2008, respectively. See Note 15 to our audited consolidated financial statementsincluded in this offering memorandum for a discussion of certain of our lease arrangements.

Competition

The petroleum refining and marketing business is highly competitive. Our competitors includecompanies engaged in petroleum refining, as well as companies that produce similar or alternative products orservices to meet the needs of industrial, commercial and individual consumers. Within the refining industry,we compete with other independent refiners as well as with integrated oil companies. Increasing environmentalregulations and changing consumer preferences could in the future increase the level of competition fromcompanies that produce alternative products and services. For example, mandated increases in the ethanol andother alternative fuel content of gasoline have benefited and are expected to continue to benefit producers ofthese products. Many of our competitors have significantly greater capital resources at their disposal, whichmay provide them greater flexibility in responding to volatile or changing industry and market conditions.

We compete on the basis of competitive pricing, brand loyalty, quality products and services,dependability and excellent customer services to our network of independent marketers. We also seek toenhance the CITGO brand through advertising and promotional campaigns, including campaigns thatemphasize the value of our social development programs and the contributions that local owners and operatorsof CITGO-branded retail outlets make to their neighboring communities.

We believe the size and complexity of our refineries, which enable us to process large volumes oflower cost, heavy sour crude oils into a flexible slate of refined products, gives us a significant advantage overour competitors. See “– Competitive Strengths and “– Our Refineries.”

Employees

We have a total of approximately 3,600 employees, approximately 1,300 of whom are covered byunion contracts. Most of our union employees are employed in refining operations. The remaining unionemployees are located in various refined product terminals. Our collective bargaining agreements will expirebetween January 2012 and July 2012. We believe our relations with our employees are satisfactory.

Social Development Programs

Social responsibility and a commitment to helping others are core values of CITGO, consistent withthe social development principles of our shareholder. In this regard, we create value for our stakeholders byusing our core resources to design, develop and implement social development programs that give back, investin the development of people and communities, particularly the underprivileged, and help make the world abetter place for future generations. Our social responsibility framework focuses on four key areas: energyassistance and conservation; environmental protection and restoration; education; and health.

The CITGO-Venezuela Heating Oil Program program began in the winter of 2005 and has grown toprovide heating assistance to people in 25 states plus the District of Columbia. Additionally, CITGO promotesthe efficient use of energy by providing compact fluorescent light bulbs to low-income families. The use ofcompact fluorescent light bulbs produces additional environmental benefits by reducing carbon dioxideemissions.

Our recent donation to the State of New Jersey of a conservation easement affecting Petty’s Islandwas pursuant to an agreement whereby we will transfer title to Petty’s Island to the State by 2017. Our

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continuing commitment to its restoration evidences our focus on preserving and protecting the environment.Petty’s Island will be used as an ecological preserve that will provide both historical and environmentaleducation for future generations.

Our focus on education and social investment can be seen in various projects initiated in the SouthBronx area of New York which promote community and economic sustainability through education, jobtraining and environmental conservation. Additionally, we have implemented an aggressive initiative, ourSupplier Diversity Initiative, which gives minority- and/or women-owned businesses the opportunity toparticipate in the CITGO supply chain.

Our 24-year relationship with the Muscular Dystrophy Association and the creation of the SimónBolívar Foundation in 2006 demonstrate our dedication to improving the lives of people with critical illnesses.Through the Simón Bolívar Foundation patients receive specialized medical care, including cochlear implants,liver transplants and bone marrow transplants.

Our commitment to helping those in need is further demonstrated by our aid efforts to Haiti followingthe earthquake that struck the island nation on January 12, 2010. We donated 300 tons of humanitarian aid toHaiti. In addition, we conducted a fund-raising campaign involving our employees and more than a thousandenergy companies, suppliers, marketers and owners of CITGO-branded service stations, and non-governmental/non-profit organizations.

These programs, combined with our other local initiatives, provide support to a wide range of peopleand communities and illustrate our corporate commitment to social responsibility.

Governmental Regulation

We are subject to extensive and evolving federal, state and local environmental laws and regulations,including, but not limited to, those relating to the discharge of materials into the environment or that otherwiserelate to the protection of the environment, waste management and the characteristics and composition offuels. These laws and regulations, and enforcement actions thereunder, may require us to take additionalcompliance actions and actions to remediate the effects on the environment of prior disposal or release ofpetroleum, hazardous substances and other regulated materials and/or pay for natural resource and otherrelated damages. Compliance with these laws and regulations also increases our operating costs and requiressignificant capital expenditures. For additional information on and discussion of environmental matters relatingto our business, see “Risk Factors – Risks Relating to Our Business and the Petroleum Industry,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity andCapital Resources – Capital Expenditures” and “Management’s Discussion and Analysis of Financial Conditionand Results of Operations – Environmental and Safety Liabilities.”

We are subject to the federal Clean Air Act, which includes the New Source Review program as wellas the Title V Air Permitting Program; the federal Clean Water Act, which includes the National PollutionDischarge Elimination System program; and the federal Resource Conservation and Recovery Act (“RCRA”)and their equivalent state programs. For each of our refineries, we are required to obtain permits under each ofthese programs and believe we are in material compliance with the terms of these permits. We are subject toliability under the RCRA and the Comprehensive Environmental Response, Compensation and Liability Act(“CERCLA”) for remediation of contamination at or migrating from our refineries. Such liability is offsetbecause the former owners of our Lake Charles and Lemont refineries have assumed all or the materialportion of the remediation obligations related to those assets. We are currently incurring costs to remediatecertain sites. We do not expect these costs to be material if indemnifying parties continue to indemnify us fora significant portion of these costs at the Lake Charles and Lemont refineries. However, we could incursignificant costs if the former owners are unwilling or unable to pay their shares.

The U.S. refining industry is required to comply with increasingly stringent product specificationsunder the 1990 Clean Air Act Amendments for reformulated gasoline and low sulfur gasoline and diesel fuel.The EPA adopted regulations under the Clean Air Act that require significant reductions in the sulfur contentin gasoline, on-road diesel fuel, and off-road diesel fuel. These regulations required most refineries to begin

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reducing sulfur content in gasoline to 30 parts per million, or ppm, on January 1, 2004, with full complianceby January 1, 2006, and required reductions in sulfur content in on-road diesel to 15 ppm beginning onJune 1, 2006, with full compliance by January 1, 2010. We have incurred additional operating costs and madesignificant capital expenditures in order to maintain compliance with these requirements. See “Management’sDiscussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources –Capital Expenditures.”

Various federal and state legislative and regulatory measures to address greenhouse gas emissions(including carbon dioxide, methane and nitrous oxides) are in varying phases of discussion or implementationat the federal, state and regional levels. These measures include EPA-enacted regulations to require reportingof greenhouse gas emissions as well as proposed federal legislation (including cap-and-trade programs) andstate actions to develop programs which, among other things, would regulate or require reductions ingreenhouse gas emissions. The proposed actions could result in increased costs to (i) operate and maintain ourfacilities, (ii) install new emission controls on our facilities and (iii) administer and manage any greenhousegas emissions program. The proposed actions could also impact demand for refined products, thereby affectingour operations.

The petroleum refining and distribution industry is subject to stringent federal and state occupationalhealth and safety laws and regulations. We also believe that the safety of our employees and facilities is tieddirectly to productivity in our facilities and financial results. We maintain a comprehensive safety managementsystem which includes safety policies, procedures, recordkeeping, internal reviews, training, incident reviewsand corrective actions. We track not only accidents, but also “near miss” events and conditions, equipmentmalfunctions, first aid events and medical treatments. Each employee at our facilities has a role in maintainingsafe work conditions and has the authority to stop unsafe acts or unsafe conditions.

While we do not believe that any currently pending or proposed environmental or safety complianceor remediation requirements or currently pending or asserted litigation, investigatory or other matters,including those described below and in our consolidated financial statements included herein, will have amaterial adverse impact on our financial condition, results of operations or cash flows, we cannot assure youthat such requirements or the outcome of such matters would not, individually or in the aggregate, have amaterial adverse effect on our financial condition and results of operations and certain indicated matters couldsignificantly affect us during individual financial reporting periods. At March 31, 2010, our balance sheetincluded an environmental accrual of $81 million. We estimate that an additional loss of $23 million as ofMarch 31, 2010 is reasonably possible in connection with environmental matters.

Environmental Matters

In 1992, we reached an agreement with the Louisiana Department of Environmental Quality (the“LDEQ”) to cease usage of certain surface impoundments at the Lake Charles refinery by 1994. A mutuallyacceptable closure plan was filed with the LDEQ in 1993. The remediation commenced in December 1993.We are now implementing the plan pursuant to a June 2002 LDEQ administrative order. We and the formerowner of the refinery are sharing the related closure costs based on estimated contributions of waste andownership periods.

In June 1999, we and numerous other industrial companies received notice from the EPA that theEPA believes these companies have contributed to contamination in the Calcasieu Estuary, near Lake Charles,Louisiana and are potentially responsible parties (“PRPs”) under CERCLA. The EPA made a demand forpayment of its past investigation costs from us and other PRPs and since 1999 has been conducting a remedialinvestigation/feasibility study under its CERCLA authority. The LDEQ has also made similar allegationsagainst us and other industrial companies. While we disagree with many of the EPA’s and LDEQ’s earlierallegations and conclusions, in December 2003 we signed a Cooperative Agreement with the LDEQ on issuesrelative to the Bayou d’Inde tributary section of the Calcasieu Estuary. Other companies have entered intosimilar agreements with the LDEQ and the companies are proceeding with a related Feasibility Study WorkPlan. We intend to continue to contest this matter if necessary.

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In January and July 2001, we received notices of violation (“NOVs”) from the EPA allegingviolations of the Clean Air Act at our refineries. The NOVs are an outgrowth of an industry-wide and multi-industry EPA enforcement initiative alleging that many refineries, electric utilities and other industrial sourcesmodified air emission sources without complying with the New Source Review provisions of the Clean AirAct. Without admitting any violations, we executed a consent decree with the United States and the states ofLouisiana, Illinois, New Jersey and Georgia. The consent decree requires the implementation of pollutioncontrol equipment at our refineries and a supplemental environment project at our Corpus Christi refinery. Wehave incurred $434 million in capital costs related to the consent decree, primarily between 2006 and 2008.We expect to incur an additional $26 million in related capital costs through the end of 2011.

On June 19, 2006, as the result of torrential rainfall, two stormwater storage tanks at the Lake Charlesrefinery wastewater treatment plant overflowed and, according to the EPA’s estimate, approximately53,000 barrels of slop oil were discharged to the Indian Marais and the Calcasieu River. In connection withthe same event, hydrogen sulfide and sulfur dioxide were released to the air. The EPA and the LDEQcommenced the following three enforcement actions:

(i) The EPA commenced a criminal proceeding against us alleging the negligent discharge of oilunder the Clean Water Act. In September 2008, we entered into a plea agreement under which we pleadedguilty to one misdemeanor charge of negligent discharge of oil, paid a $13 million fine and entered into anEnvironmental Compliance Program. Our Environmental Compliance Program is ongoing.

(ii) On April 9, 2007, the LDEQ issued a Consolidated Compliance Order and Notice of PotentialPenalty to us with regards to the June 19, 2006 event and several other alleged violations over a five-yearperiod. The Order does not set forth a specific penalty amount, but the LDEQ has separately indicated that themaximum penalty it would seek would be approximately $155,000. On May 14, 2007, we filed an appeal ofthis Order.

(iii) On June 24, 2008, the EPA and the LDEQ filed civil complaints against us under the CleanWater Act in the U.S. District Court for the Western District of Louisiana for slop oil release to the CalcasieuRiver. The EPA is seeking injunctive relief and penalties to prevent a recurrence of this release. On April 7,2009, the EPA filed a Motion for Partial Summary Judgment based in part on our prior admission of liabilityunder the criminal plea agreement. We filed a motion admitting to liability but challenging thecharacterization of the facts alleged. The EPA’s complaint does not set forth a specific penalty; however, underSection 311 of the Clean Water Act, the EPA can seek penalties up to $1,100 per barrel released for ordinarynegligence and up $4,300 per barrel for gross negligence or willful misconduct. The trial of the EPA case isexpected to take place in the fall of 2010.

In addition to the above actions, trustees from both the federal government and the State of Louisianaare seeking payment from us for alleged damages to natural resources. We have submitted the required NaturalResource Damage Assessment (“NRDA”) studies and have since agreed with the federal government to apartial NRDA of approximately $316,000 for loss of recreational use of the Calcasieu and IntercoastalWaterway; however, we have deferred payment until completion of the entire NRDA process. In connectionwith the NRDA, in February 2009 the National Oceanic and Atmospheric Administration (“NOAA”)submitted a request for cost reimbursement in the amount of $901,000 for expenses incurred throughDecember 2007. Separately, the LDEQ is seeking reimbursement of an unspecified amount for its responsecosts to the incident.

We do not believe that the resolution of these matters will have a material adverse effect on ourfinancial condition over an extended period; however they may have a significant effect on our financialresults for a given period.

In February 2009, the EPA issued an NOV to our Lemont refinery for alleged violations of the CleanAir Act resulting from the combustion of pollutants in its refinery flares. According to the EPA, the LemontNOV was the beginning of a nationwide effort to improve flaring operations in the industry by requiringcontinuous monitoring and control equipment that will record steam-to-waste gas ratios during flaring events.The EPA contends that only through conducting such monitoring can refineries determine whether the flares

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are maintained in conformance with their design and conform to good air pollution control practices. Thepurported goal is to control these ratios in an automated fashion as well as create a new body of operationsand monitoring records. The EPA envisions refining companies entering into agreements with the EPA similarto the NSR consent decree we executed concerning alleged modifications of air emission sources. We haveinformed the EPA that its proposed program is neither required nor necessary and have provided it withrecords indicating that our flare operations conform to recommended design standards.

We own Petty’s Island, an island in the Delaware River under the jurisdiction of New Jersey thatcontains a closed petroleum terminal and other industrial facilities. The island is a habitat for the bald eagleand other wildlife. In April 2009, we granted a conservation easement encumbering Petty’s Island to the NewJersey Natural Lands Trust. In connection with the April 2009 conservation easement, we entered into anAgreed Consent Order and related agreements with the New Jersey Department of Environment Protection,which among other things provide for us to remediate hydrocarbon contamination on Petty’s Island. We mustremove the structures associated with the former petroleum operations and remediate the soil and groundwatercontamination on the island before title can be transferred to the New Jersey Lands Trust. In connection withthe conservation easement, we obtained a release for all claims for natural resource damages to ground waterarising from discharges at Petty’s Island and five other properties in New Jersey prior to October 14, 2009.

As a result of a July 19, 2009 fire at the hydrogen fluoride alkylation unit at our Corpus Christirefinery, the refinery exceeded its waste water treatment and storage capacity and was compelled to releasefire control water that exceeded some of the permit limits of the refinery’s discharge permit to the CorpusChristi Bay. The U.S. Chemical Safety Board, the Occupational Safety and Health Administration (“OSHA”),the EPA, the U.S. Coast Guard, and the Texas Commission on Environmental Quality (“TCEQ”) haveinvestigated the incident. On December 18, 2009, the TCEQ issued a Notice of Enforcement for allegeddischarges in excess of certain Texas Pollution Discharge Elimination System limits and demanded anadministrative civil penalty of $963,000, and on January 15, 2010, OSHA issued a citation against us in theamount of $237,000 for alleged violations of its regulations. In February 2010, the TCEQ increased theamount of its civil penalty to approximately $1 million to include additional alleged violations discoveredduring an air investigation. We are engaged in discussions and negotiations of the terms of a settlement withthe TCEQ. The safety aspects of this fire are discussed below under “— Safety” and certain civil lawsuitsrelated to the incident are discussed under “— Legal Proceedings.”

Safety Matters

As described above under “— Environmental Matters,” on July 19, 2009, a fire occurred at thealkylation unit at our Corpus Christi refinery. One of our employees was seriously burned during the incidentand another employee sustained minor injuries. We have completed internal and external investigations of theincident and are in the process of implementing the recommended improvements. On December 9, 2009, theU.S. Chemical Safety Board issued urgent recommendations regarding the incident, which we areimplementing. We do not believe that implementation of these recommendations will have a material adverseeffect on our financial condition.

Legal Proceedings

In the ordinary course of business, we become party to or otherwise involved in lawsuits,administrative proceedings and governmental investigations, including environmental, regulatory, personalinjury and property damage, commercial, tax, anti-trust and employment-related matters. Large and sometimesunspecified damages or penalties may be sought from us in some matters and some matters may require yearsfor us to resolve. We cannot provide assurance of the outcome of any matter. However, we vigorously defendclaims filed against us. While we do not believe that an adverse resolution of currently known or pendingclaims, including those described below, would have a material adverse effect on our financial position orresults of operations, we cannot assure you that the outcome of these matters would not, individually or in oneaggregate, have a material adverse effect on our financial conditions and results of operations and certainindicated matters could significantly adversely affect us during individual financial reporting periods. For

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information on our accruals and potential exposure for legal proceedings see “Management’s Discussion andAnalysis of Financial Condition and Results of Operations – Litigation Contingencies.”

We, along with most of the other major oil companies in the United States, are a defendant in anumber of federal and state lawsuits alleging contamination of private and public water supplies by methyltertiary butyl ether (“MTBE”), a gasoline additive. In general, the plaintiffs, which include individuals andbusinesses as well as state and local governments and governmental authorities, claim that MTBE renders thewater not potable. In addition to compensatory and punitive damages, plaintiffs seek injunctive relief to abatethe contamination. The first MTBE cases were filed in 2001. We and some of the other defendants previouslysettled 60 of the MTBE cases, with our share of the settlement being $34.4 million ($16 million of which werecovered from our insurance carriers). In addition, the defendants are responsible for any future claims forcleanup costs for any new MTBE-contamination in certain wells, with our share being 5.76% of any suchcosts. As of July 12, 2009, a settlement agreement was executed with the City of New York City to resolve theCity’s MTBE claims for approximately $13.8 million, of which our approximately $1 million share has beenpaid. We and the other defendants are also contingently liable for the future cleanup of certain wells if thosewells become contaminated. On April 15, 2010, we and most of the other MTBE defendants entered into asettlement with 47 plaintiffs in New York and Florida. The total settlement is for $35 million, of which ourshare is approximately $2.3 million. As of December 31, 2009, there were approximately 30 cases pending,the majority of which were filed by municipal authorities. Many of the remaining cases are pending in federalcourt and are consolidated for pre-trial proceedings in the U.S. District Court for the Southern District of NewYork in Multi-District Litigation (“MDL”) No. 1358. Six cases are also pending against us in state courts inNew York, New Hampshire, New Jersey, California and the Commonwealth of Puerto Rico. While we do notbelieve that the resolution of these matters will have a material adverse effect on our financial condition, asignificant adverse effect on our financial results for a given period is possible.

Claims have been made against us in a number of asbestos, silica and benzene lawsuits pending instate and federal courts. Most of these cases involve multiple defendants and are brought by former employeesor contract employees seeking damages for asbestos, silica and benzene related illnesses allegedly caused, atleast in part, from exposure at refineries owned or operated by us in Lake Charles, Louisiana, Corpus Christi,Texas, and Lemont, Illinois. In many of these cases, the plaintiffs’ alleged exposure occurred over a period ofyears extending back to a time before we owned or operated the premises at issue. There have been no furtherhearings or developments since 2007.

In November 2004, the Athos I, a merchant tanker, struck a submerged anchor in the public channelof the Delaware River near Paulsboro, New Jersey and released crude oil owned by CITGO Asphalt RefiningCompany (“CARCO”), our then wholly owned subsidiary. Frescati Shipping Company Ltd. (“Frescati”), theowner of the Athos I, filed suit against CARCO in the U.S. District Court for the Eastern District ofPennsylvania for over $125 million in oil spill recovery and cleanup costs. In 2008, we were also sued in thesame court by the federal government, which is seeking to recover $87 million it paid out of the Oil SpillLiability Trust Fund to Frescati for its costs in responding to the oil spill. The cost of the entire cleanup anddamages was approximately $268 million. We do not believe CARCO has any liability for the oil spill;however, we have entered into an agreement with the government to cap our potential damages at$123.5 million if we were to lose the Frescati lawsuit.

In addition to the government and regulatory claims and investigations relating to the slop oildischarge into the Indian Marais and the Calcasieu River and the hydrogen sulfide and sulfur dioxide releasesresulting the June 19, 2006 torrential rainfall that affected our Lake Charles, Louisiana refinery, numerousclaims have been made against us by private claimants, who allege bodily injury, property damage, businessinterruption and demurrage. We have settled many of these claims and a number of these cases have beenresolved at trial; however, numerous other claims, including individual and class action lawsuits remain to beresolved. Most recently, on July 28, 2009, a state trial judge in Lake Charles entered a judgment ofapproximately $560,000 against us in favor of 14 individuals who claimed to have suffered personal injuriesresulting from releases associated with the rainfall event. Most of the judgment, $420,000, represents an awardof punitive damages against us. We are appealing this decision. See “— Governmental Regulation” for furtherinformation concerning the rainfall event and related government and regulatory actions.

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In 2006 and 2007, a number of class action lawsuits were filed against us and certain other oilcompanies and other oil producers in federal courts across the country, which alleged that we and the otherdefendants violated the antitrust laws by conspiring and aiding and abetting with PDVSA and OPEC to fixcrude prices and hence, refined petroleum products prices. These cases were consolidated in the U.S. DistrictCourt for the Southern District of Texas in MDL No. 1886, and in January 2009, the court granted thedefendants’ motion to dismiss. The plaintiffs, Spectrum Stores and Fast Break Foods, LLC, appealed thisdecision. The appeal was heard in March 2010, and the parties are awaiting a decision.

In 2007, we were tried in the U.S. District Court for the Southern District of Texas for five criminalviolations of the Clean Air Act for having uncovered water equalization tanks and incorrectly computingbenzene emission amounts and exceeding benzene permitted levels in waste water streams and we and theformer environmental manager at our Corpus Christi refinery were tried for five criminal violations under theMigratory Bird Treaty Act for killing migratory birds. We were found guilty under the Clean Air Act onfelony charges regarding the uncovered water equalization tanks, the charges pertaining to the computation ofbenzene emission levels were dismissed and we were found not guilty on the charges relating to the benzenelevel in waste water streams. With respect to the five misdemeanor counts under the Migratory Bird TreatyAct, the court granted directed verdicts of not guilty for CITGO on two counts pertaining to 25 birds, foundus guilty on three counts involving 10 birds and found our former environmental manager not guilty. Weintend to appeal the felony convictions once a sentence is pronounced. We filed a motion for a not guiltyverdict notwithstanding the jury verdict for the felony conviction based on a subsequent U.S. Supreme Courtdecision. Sentencing for the 2007 convictions has not yet been scheduled. The probation officer assigned tothe matter to recommend a fine recommended a $19.6 million fine based on our alleged economic gain fromdelaying the installation of roofs on the two tanks in question. He did not adopt the Government’s argumentfor a fine in the amount of gross profits it claims were earned during the period of the alleged Clean Air Actviolation, which the Government asserts could approach $600 million. We believe that no economic benefitresulted from this delay and that, if the felony conviction were to be upheld on appeal, the maximum fineunder applicable law should be less than proposed by the probation officer.

In January 2007, we were named one of several defendants in at least 19 consumer class action casesin California, Missouri, Kansas, Oklahoma, Kentucky, Maryland, Virginia, Alabama, Mississippi, NorthCarolina, Nevada, New Mexico, Florida, Puerto Rico, and Tennessee. The complaints allege that thedefendants sold gasoline to the plaintiffs when the temperature was greater than 60™ Fahrenheit. The plaintiffsclaim that they received less gasoline at the retail pump because gasoline expands at temperatures above 60™Fahrenheit and the gasoline was not temperature corrected to 60™ and the defendants prohibited dealers fromtemperature correcting the gasoline at the retail pump. We have filed a motion to dismiss.

On June 30, 2008, Stephenson Oil Company, as a purported class action representative on behalf ofall CITGO-branded distributors, sued us in U.S. District Court for the Northern District of Oklahoma forallegedly breaching the implied covenant of good faith and fair dealing in the distributor agreements throughdifferential pricing of gasoline sold to distributors in the same market. Extensive discovery against us iscontinuing. On October 2, 2009, the judge denied our motion to dismiss. In late October 2009, Stephensonfiled a brief for class certification.

See also “— Governmental Regulation” above for information regarding various enforcement andsafety-related actions.

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MANAGEMENT

The following table sets forth the names and titles of our directors and executive officers:

Executive Officers

Name Position

Alejandro Granado . . . . . . . . . . President, Chief Executive Officer and ChairmanRobert Kent . . . . . . . . . . . . . . . Vice President, RefiningGustavo Velásquez . . . . . . . . . . Vice President, Supply and MarketingBrian O’Kelly . . . . . . . . . . . . . . Vice President, FinanceDaniel Cortez . . . . . . . . . . . . . . Vice President, Government and Public AffairsJim Cristman . . . . . . . . . . . . . . Vice President and General Manager, Lemont RefineryEduardo Assef . . . . . . . . . . . . . Vice President and General Manager, Lake Charles Manufacturing ComplexKevin Ferrall . . . . . . . . . . . . . . Vice President and General Manager, Corpus Christi RefineryWladimir Noriega . . . . . . . . . . . General AuditorDean Hasseman . . . . . . . . . . . . General CounselJohn Butts . . . . . . . . . . . . . . . . Corporate ControllerMaritza Villanueva . . . . . . . . . . Corporate Treasurer

Directors

Name Position

Alejandro Granado . . . . . . . . . . President, Chief Executive Officer and ChairmanEudomario Carruyo. . . . . . . . . . DirectorAsdrúbal Chávez. . . . . . . . . . . . DirectorEulogio Del Pino . . . . . . . . . . . Director

Executive Officers

Alejandro Granado has served as President and CEO since 2007 and has been Chairman of the Boardof Directors since 2005. With 28 years in the oil industry, Mr. Granado began his CITGO career in 1997 andserved in various roles, including Technology Manager at the Lemont refinery. Prior to joining CITGO, he hadan illustrious career at PDVSA, holding many supervisory and managerial positions responsible for refining atboth domestic and international levels. These included Managing Director of Refining for PDVSA’s EasternDivision, Managing Director of Domestic and International Refining and Vice President of both PDV Marinaand PDVSA.

Robert Kent has served as Vice President, Refining since 2008. Mr. Kent began his CITGO career in1999 as an Engineering Consultant at the Corpus Christi refinery. He also has served as Vice President andGeneral Manager for both the Lemont refinery and our Lake Charles Manufacturing Complex.

Gustavo Velásquez has served as Vice President, Supply and Marketing since 2008. He joined CITGOin 1997, initially serving as Manager, Crude Supply and Refining Coordination and General Manager, CrudeSupply. In his current position, Mr. Velásquez is responsible for the supply, commercial and operationalactivities related to Crude Supply and Transportation, Product Supply and Distribution, Branded Light OilsMarketing, Petrochemicals and Lubricants Marketing, Terminals and Pipelines and Procurement.

Brian O’Kelly has served as Vice President, Finance since 2009. Before coming to CITGO,Mr. O’Kelly spent 27 years at PDVSA where he held a number of supervisory positions managing financialendeavors with PDVSA subsidiaries in South America, North America, the Caribbean and Europe.

Daniel Cortez has served as Vice President, Strategic Shareholder Relations, Government and PublicAffairs since 2007. Mr. Cortez began his career at PDVSA in 1992 where he held multiple supervisory andmanagerial positions, including International Communications Manager, Communications Manager,Communication and International Relations Advisor, and Head of Communications for the Refining, Supplyand Marketing Division.

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Jim Cristman has served as Vice President and General Manager, Lemont refinery since 2008.Mr. Cristman joined CITGO in 1980 and has held various positions at the refinery, including OperationsManager, Area Manager and Operations Central Services Manager.

Eduardo Assef has served as Vice President and General Manager, Lake Charles ManufacturingComplex since 2008. Mr. Assef began his career with PDVSA in 1985. He joined CITGO in 1999 and hasheld various positions, including General Manager, Operations and Maintenance and Vice President andGeneral Manager for the Corpus Christi refinery.

Kevin Ferrall has served as Vice President and General Manager, Corpus Christi refinery since 2009.Mr. Ferrall joined CITGO in 1995 and has held various technical and operations management positions at boththe Corpus Christi and Lake Charles refineries, including General Manager of Technical and AdministrativeServices at the Corpus Christi refinery.

Wladimir Noriega has served as General Auditor since 2004. In this position he leads the CITGOaudit group in directing a program of company audits to evaluate operating, administrative and financialcontrols and testing the adequacy of operating and accounting systems. Before coming to CITGO in 2003Mr. Noriega spent 22 years at PDVSA where he served in several capacities, including International BusinessAudit Manager.

Dean Hasseman has served as General Counsel since 2006. Mr. Hasseman joined CITGO in 1991 asSenior Corporate Counsel after holding general counsel and attorney positions in the oil and gas industry.

John Butts has served as Corporate Controller since 2007. Mr. Butts joined CITGO in 1991, and hasheld numerous supervisory positions, including Assistant Controller of Manufacturing and OperationalAccounting, Manager of General Accounting, Bank Operations Manager and Feedstock Accounting Manager.

Maritza Villanueva has served as Corporate Treasurer since 2006. In this position, she is responsiblefor cash management activities, debt negotiations and debt compliance reporting. Ms. Villanueva previouslyserved as General Manager Accounting and President of CITGO International Latin America during the periodfrom 2003 to 2006. Prior to joining CITGO in 2003, Ms. Villanueva served in several capacities at PDVSA,including Functional Manager of Treasury and Manager of Financial Operations.

Board of Directors

In addition to Mr. Granado, who is our President, CEO and Chairman of the Board of Directors, thefollowing individuals serve on our Board of Directors:

Eudomario Carruyo has served as a Board Member of CITGO and PDVSA since 2005. In 1964, hestarted his career in the Corporación Venezolana del Petróleo (“CVP”), a subsidiary of PDVSA. He has heldmultiple supervisory and managerial positions in PDVSA, including Corporate Treasury Manager of CorpovenS.A., Finance Director of Palmaven, and Controller and Executive Director of finance. Currently, Mr. Carruyois a member of the Boards of Directors of PDVSA, responsible for finance, PDVSA Oil, PDVSA Insurance,Isla Refinery, S.A. and Vice President of PDV Marina.

Asdrúbal Chávez has served as a Board Member since 2005. In 1979, Mr. Chávez joined PDVSA andhas held several supervisory and managerial positions including Process Engineering Superintendent, HumanResources Manager of the subsidiary BITOR, Manager of El Palito Refinery, Executive Director for HumanResources, and Executive Director for Commerce and Supply. In 2005, he was appointed to the Board ofDirectors of PDVSA, President of PDV Marina, the Board of Directors of CITGO and representative of otheraffiliates. Since 2007, Mr. Chávez has held the position of Vice President of PDVSA responsible for Refining,Commerce and Supply.

Eulogio Del Pino has served as a Board Member since 2005. In 1979, Mr. Del Pino started his careerin the Venezuelan oil industry at INTEVEP, PDVSA’s technology and research center. Throughout his careerhe has held many supervisory and managerial positions, including Exploration and Delineation Manager ofPDVSA, General Manager of Strategic Associations of CVP, and Director of PDVSA. He also holds thepositions of Vice President of PDVSA responsible for Exploration and Production, and President of CVP.

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RELATED PARTY TRANSACTIONS

We have engaged and expect to continue to engage in various transactions with our shareholder,PDVSA, and its other subsidiaries and affiliates. We purchase significant portions of the crude oil processed inour refineries from PDVSA under contracts and in spot transactions. We also purchase other feedstock andrefined products, and obtain transportation services, from PDVSA and its other subsidiaries and affiliates. Inaddition, we sell feedstocks and refined products to PDVSA, and from time to time we advance or otherwiselend funds to and participate in other financing and other arrangements with PDVSA. At March 31, 2010,December 31, 2009 and December 31, 2008, we owed PDVSA and its other subsidiaries and affiliates (otherthan our consolidated subsidiaries and owned affiliates) an aggregate of $629 million, $678 million and$358 million, respectively, primarily in respect of payments under supply arrangements, and PDVSA and itsother subsidiaries and affiliates (other than our consolidated subsidiaries and direct affiliates) owed us anaggregate of $510 million, $729 million and $1.1 billion, respectively, primarily in respect of the PDVSALoan (as defined below). See “Risk Factors – Risks Related to Our Relationship with PDVSA” for adiscussion of certain risks relating to the reduction or termination of our relationship with PDVSA. SeeNotes 3 and 4 to our audited consolidated financial statements included in this offering memorandum.

Supply and Sales Arrangements

We are party to a crude oil supply agreement with PDVSA Petróleo, S.A., entered into December 1,2008, under which we purchase crude oil for our Lake Charles and Corpus Christi refineries (the “PDVSACrude Oil Supply Agreement”). Under the PDVSA Crude Oil Supply Agreement we have a minimumpurchase commitment of 250,000 bpd. The PDVSA Crude Oil Supply Agreement utilizes a formula pricingmechanism based on the average spot market values of widely traded crude oil types and other hydrocarbonswith an adjustment for market change. The pricing formula is intended to approximate U.S. Gulf Coast spotprices for market crude grades and residual fuel. The PDVSA Crude Oil Supply Agreement extends throughMarch 31, 2012 and automatically renews for successive 12-month terms unless terminated by either party.

We are also party to a feedstock supply agreement with PDVSA (the “Feedstock Supply Agreement”),which supplies naphtha for our Corpus Christi refinery. The Feedstock Supply Agreement requires PDVSA tosupply a minimum quantity of 10,000 bpd of naphtha at formula prices that are based primarily on gasolinemarket prices and adjusted for the value of the content of other products, associated expenses, and a deemedmargin. The Feedstock Supply Agreement expires on January 1, 2012.

In addition to purchases under contracts, we also purchase significant amounts of crude oil and otherfeedstocks from PDVSA on a spot basis. These purchases are typically at market prices.

We purchased $1.7 billion and $1.3 billion of crude oil, feedstocks, and other products from PDVSAand its wholly owned subsidiaries for the three months ended March 31, 2010 and 2009, respectively, underthe PDVSA Crude Oil Supply Agreement, the Feedstock Supply Agreement and other purchase agreementsand in spot transactions. We purchased $6.2 billion, $9.6 billion and $9.5 billion of crude oil, feedstocks, andother products from PDVSA and its wholly owned subsidiaries for the years ended December 31, 2009, 2008,and 2007, respectively, under the PDVSA Crude Oil Supply Agreement, the Feedstock Supply Agreement andother purchase agreements and in spot transactions. At March 31, 2010, December 31, 2009 andDecember 31, 2008, $428 million, $459 million and $263 million, respectively, were included in payables toaffiliates as a result of these transactions.

We also purchase refined products from various other affiliates, including HOVENSA and MountVernon Phenol Plant Partnership, a joint venture in which we have a 49% equity interest, under long-termcontracts which incorporate various formula prices based on published market prices and other factors. Ourpurchases from HOVENSA are made pursuant to a product sales agreement in which a subsidiary of PDVSAassigned to us its option to purchase 50% of the refined products produced by HOVENSA (less any portion ofsuch products that HOVENSA elects to market directly). The product sales agreement will be in effect for thelife of the joint venture, which is indefinite, subject to termination events based on default by either of, ormutual agreement of both of, the PDVSA subsidiary and Hess Corporation. Refined product purchases fromthese other affiliates totaled $919 million and $722 million for the three months ended March 31, 2010 and

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2009, respectively, and $3.4 billion, $5.8 billion, and $5.1 billion for the years ended December 31, 2009,2008, and 2007, respectively. At March 31, 2010, December 31, 2009 and December 31, 2008, $136 million,$150 million and $33 million, respectively, were included in payables to affiliates as a result of thesetransactions.

We sell refined products, feedstocks, and other products to affiliates at market prices in spot andcontract transactions. These sales totaled $110 million and $58 million for the three months ended March 31,2010 and 2009, respectively, and $400 million, $545 million and $544 million for the years endedDecember 31, 2009, 2008, and 2007, respectively. At March 31, 2010, December 31, 2009 and December 31,2008, $77 million, $61 million and $85 million, respectively, were included in due from affiliates as a result ofthese and related transactions.

Loans and Other Financing Arrangements

In December 2007, we lent $1 billion to PDVSA (the “PDVSA Loan”). The PDVSA Loan wasevidenced by a note, payable in one year, and bearing interest at a rate of 3.82% per annum, payable quarterly.In December 2008, the transaction was restructured, and the original note was replaced and superseded by anew one-year, $1 billion note bearing interest at a rate of 1.36% per annum, payable quarterly. In October2009, we restructured the PDVSA Loan to amortize in part through offsets of amounts payable by us for crudeoil delivered by PDVSA Petróleo, S.A. under the PDVSA Crude Oil Supply Agreement, and on February 2,2010, we restructured the PDVSA Loan, which had a then-outstanding principal amount of $529 million, toprovide for the amortization of the remaining outstanding amount of the PDVSA Loan through continuedoffsets of amounts payable by us under the PDVSA Crude Oil Supply Agreement. Under the restructuredarrangement, we are entitled to designate two cargoes per month from deliveries under the PDVSA Crude OilSupply Agreement to be subject to the offset arrangement until the PDVSA Loan is repaid in full. Theremaining outstanding balance of the PDVSA Loan will become due no later than December 31, 2010 if theoffset arrangement is to be terminated for any reason. The restructured loan continues to bear interest at a rateof 1.36% per annum, payable quarterly. At March 31, 2010, December 31, 2009 and December 31, 2008, theoutstanding principle balance of the PDVSA Loan was $384 million, $607 million and $1 billion, respectively.We recorded interest income of approximately $2 million and $3 million related to the PDVSA Loan in theconsolidated statement of income for the three months ended March 31, 2010 and 2009, respectively. Werecorded interest income of approximately $12 million, $58 million and $2 million related to the PDVSA Loanin the consolidated statement of income for the years ended December 31, 2009, 2008, and 2007, respectively.

We have guaranteed $6 million of debt of an unconsolidated affiliate. See Note 14 to our auditedconsolidated financial statements included in this offering memorandum.

PDVSA has guaranteed our obligations under the lease for the West Plant at our Corpus Christirefinery.

Other Arrangements

We are party to a tax allocation agreement with PDV Holding, our ultimate U.S. parent company, andits other subsidiaries. In addition to the tax allocation requirements under the agreement, we serve as PDVHolding’s agent to handle the payment of income tax liabilities on its behalf. In this capacity, we may berequired to advance, on behalf of other members of the consolidated group, amounts required to pay taxliabilities allocable to them under the tax allocation agreement. At March 31, 2010, we had net related partypayables related to federal income taxes of $35 million included in payables to affiliates. At December 31,2009, we had net related party payables related to federal income taxes of $31 million included in payables toaffiliates. At December 31, 2008 we had net related party receivables of $16 million related to federal incometaxes included in due from affiliates.

From time to time we provide services for and make payments on behalf of PDVSA for various itemssuch as medical expenses, travel and accommodations, advertising and transportation. We have in the past andmay in the future declare and pay indirect non-cash dividends in order to settle such payments. In 2009, wedeclared indirect non-cash dividends in the amount of $100 million, consisting of $28 million to settle such

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payments and $72 million to settle the transfer of certain non-operating assets to PDVSA. In 2008, wedeclared indirect non-cash dividends of $105 million to settle the transfer of non-operating assets to PDVSA.As of March 31, 2010, PDVSA and its other subsidiaries and affiliates (other than our consolidatedsubsidiaries and direct affiliates) owed us an aggregate of approximately $6.5 million in respect of suchservices.

In November 2009, we sold certain non-operating assets and related spare parts to PDVSA for anaggregate price of $69 million, which is payable to us on a deferred basis. Interest income of $1 million wasrecorded in our consolidated statement of operations for the three months ended March 31, 2010 as well as forthe year ended December 31, 2009, and $2 million was due from PDVSA at March 31, 2010. The paymentschedule and future interest terms are currently being negotiated.

We purchase a portion of our insurance coverage through a wholly owned captive insurancesubsidiary of PDVSA’s at competitive market rates. At March 31, 2010, we had $14 million in payables toaffiliates relating to insurance coverage we purchase from this subsidiary.

From time to time we enter into agreements with PDVSA under which we manage and administer theprocurement of equipment and other goods and services on PDVSA’s behalf. Under these agreements, weprovide all services required for the procurement and delivery to PDVSA or its affiliate of the specifiedequipment, goods or services. We arrange payment for all or any portion of the purchase price or service fee tothe vendor and all other costs and expenses incurred in connection with the procurement as and when theybecome due. Before we process any such payments, PDVSA is required to provide us with the requisite funds byoffsetting amounts otherwise payable by us under the long-term crude oil supply agreement. Under theagreements, PDVSA is required to indemnify us for any liabilities, costs or expenses incurred in connection withthe agreements and the provision of services thereunder and to pay us a fee for our services, which is intendedto cover our internal costs incurred in providing the services and provide additional compensation to us.

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DESCRIPTION OF THE NOTES

General

Certain terms used in this description are defined under the subheading “Certain Definitions.” In thisdescription, (i) the term “Issuer” refers to CITGO Petroleum Corporation and not to any of its Subsidiaries,and (ii) the terms “we,” “our” and “us” each refer to the Issuer and its consolidated Subsidiaries.

The Issuer will issue the Notes under an indenture (the “Indenture”) among the Issuer, the Guarantorsand Wilmington Trust FSB, as trustee (the “Trustee”). The Notes will be issued in a private transaction that isnot subject to the registration requirements of the Securities Act. See “Notice to Investors.” The terms of theNotes will include those stated in the Indenture and those made part of the Indenture by reference to theTrust Indenture Act.

The following description is only a summary of the material provisions of the Indenture, theIntercreditor Agreement and the Security Documents and does not purport to be complete and is qualified inits entirety by reference to the provisions of the Indenture, the Intercreditor Agreement and the SecurityDocuments, including the definitions therein of certain terms used below. We urge you to read the Indenture,the Intercreditor Agreement and the Security Documents because those agreements, not this description, defineyour rights as Holders of the Notes. You may request a copy of the Indenture, the Intercreditor Agreement andthe Security Documents at our address set forth under the heading “Summary—Principal Offices.”

Brief Description of Notes

The Notes will:

k be secured by a first-priority security interest, subject to permitted liens, in the Collateral grantedto the Collateral Agent for its benefit and the benefit of the Trustee and the Holders of the Notes,which liens will be pari passu with the liens securing the Senior Credit Facilities Obligations, theFixed Rate IRB Obligations and the Additional First Priority Lien Obligations, subject to certainexceptions (including the fact that proceeds from the disposition of assets (other than therefineries and certain inventory) may be applied as a mandatory prepayment of Senior CreditFacility Obligations);

k rank equally in right of payment with all of the Issuer’s existing and future senior debt (includingthe Senior Credit Facilities, the Fixed Rate IRBs and Additional First Priority Lien Obligations)and other obligations that are not, by their terms, expressly subordinated in right of payment tothe Notes;

k rank senior in right of payment to the Issuer’s existing and future debt and other obligations thatare, by their terms, expressly subordinated in right of payment to the Notes;

k be effectively equal in right of payment to all of the Issuer’s existing and future senior secureddebt and other obligations (including the Senior Credit Facilities, the Fixed Rate IRBs andAdditional First Priority Lien Obligations) secured on a pari passu basis with the Notes to theextent of the value of the Collateral securing the Notes and such indebtedness; provided that ournew revolving credit facility will be senior to the Notes with respect to proceeds from inventorylocated outside the battery limits of each of the refineries and inventory located in our pipelines;

k be effectively senior in right of payment to all of the Issuer’s existing and future unsecured debtand other obligations to the extent of the value of the Collateral securing the Notes;

k be structurally subordinated to all obligations of each of the Issuer’s Subsidiaries that is not aguarantor of the Notes; and

k be effectively subordinated in right of payment to all of the Issuer’s secured debt and otherobligations to the extent of the value of the collateral securing such indebtedness and otherobligations which does not also secure the Notes.

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Guarantees

The Guarantors, as primary obligors and not merely as sureties, will initially jointly and severallyirrevocably and unconditionally guarantee, on a senior secured basis, the performance and full and punctualpayment when due, whether at maturity, by acceleration or otherwise, of all obligations of the Issuer under theIndenture and the Notes, whether for payment of principal of or interest on the Notes, expenses,indemnification or otherwise, on the terms set forth in the Indenture by executing the Indenture.

The Restricted Subsidiaries that guarantee the Senior Credit Facilities will initially guarantee theNotes. Each of the Guarantees of the Notes will:

k be secured by a first-priority security interest, subject to permitted liens, in the Collateral grantedto the Collateral Agent for its benefit and the benefit of the Trustee and the holders of the Notes,which liens will be pari passu with the liens securing the Senior Credit Facilities Obligations, theFixed Rate IRB Obligations and the Additional First Priority Lien Obligations, subject to certainexceptions;

k rank equally in right of payment with all of the applicable Guarantor’s existing and future seniordebt (including the guarantees under the Senior Credit Facilities, the Fixed Rate IRBs andAdditional First Priority Lien Obligations) and other obligations that are not, by their terms,expressly subordinated in right of payment to such Guarantor’s Guarantee;

k rank senior in right of payment to all of the applicable Guarantor’s existing and future debt andother obligations that are, by their terms, expressly subordinated in right of payment to suchGuarantor’s Guarantee;

k be effectively equal in right of payment to all of the applicable Guarantor’s existing and futuresenior secured debt and other obligations (including such Guarantor’s guarantees of the SeniorCredit Facilities, the Fixed Rate IRBs and Additional First Priority Lien Obligations) secured on apari passu basis with such Guarantor’s Guarantee to the extent of the value of the Collateralsecuring such Guarantor’s Guarantee and such indebtedness; provided that our new revolvingcredit facility will be senior to the Notes with respect to proceeds from inventory located outsidethe battery limits of each of the refineries and inventory located in our pipelines;

k be effectively senior in right of payment to all of the applicable Guarantor’s existing and futuresenior unsecured debt and other obligations to the extent of the value of the Collateral securingsuch Guarantor’s Guarantee;

k be structurally subordinated to all obligations of any Subsidiary of a Guarantor if that Subsidiaryis not also a Guarantor of the Notes; and

k be effectively subordinated in right of payment to all of the applicable Guarantor’s secured debt tothe extent of the value of the collateral securing such indebtedness which does not secure suchGuarantor’s Guarantee.

The obligations of each Guarantor under its Guarantee will be limited as necessary to prevent theGuarantee from constituting a fraudulent conveyance under applicable law.

Any entity that makes a payment under its Guarantee will be entitled upon payment in full of allguaranteed obligations under the Indenture to a contribution from each other Guarantor in an amount equal tosuch other Guarantor’s pro rata portion of such payment based on the respective net assets of all theGuarantors at the time of such payment determined in accordance with GAAP.

If a Guarantee is rendered voidable, it could be subordinated by a court to all other indebtedness(including guarantees and other contingent liabilities) of the Guarantor, and, depending on the amount of suchindebtedness, a Guarantor’s liability on its Guarantee could be reduced to zero. See “Risk Factors—RisksRelated to the Notes and Our Other Indebtedness—The subsidiary guarantees could be avoided underfraudulent transfer laws, which could prevent the holders of the notes from relying on that subsidiary to satisfyclaims.”

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Each Guarantee by a Guarantor shall provide by its terms that it shall be automatically andunconditionally released and discharged upon:

(1) (a) any sale, exchange or transfer (by merger or otherwise) of (i) the Capital Stockof such Guarantor (including any sale, exchange or transfer), after which the applicable Guarantor isno longer a Restricted Subsidiary or (ii) all or substantially all the assets of such Guarantor to aPerson other than a Restricted Subsidiary which sale, exchange or transfer is made in a manner incompliance with the applicable provisions of the Indenture;

(b) the release or discharge of the guarantee by such Guarantor of the SeniorCredit Facilities or the guarantee which resulted in the creation of such Guarantee, except adischarge or release by or as a result of payment under such guarantee;

(c) the designation of any Restricted Subsidiary that is a Guarantor as anUnrestricted Subsidiary; or

(d) the Issuer exercising its legal defeasance option or covenant defeasanceoption as described under “Legal Defeasance and Covenant Defeasance” or the Issuer’sobligations under the Indenture being discharged in a manner not in violation of the terms ofthe Indenture; and

(2) such Guarantor delivering to the Trustee an Officer’s Certificate and an Opinion ofCounsel, each stating that all conditions precedent provided for in the Indenture relating to suchrelease have been complied with.

Upon any release of a Guarantor from its Guarantee, such Guarantor shall be automatically andunconditionally released from its obligations under the Security Documents.

Ranking

The payment of the principal of, premium, if any, and interest on the Notes and the payment of anyGuarantee will rank pari passu in right of payment to all senior indebtedness of the Issuer or the relevantGuarantor, as the case may be, including the obligations of the Issuer and such Guarantor under the SeniorCredit Facilities but, to the extent of the value of the Collateral securing the Notes, will be effectively seniorto unsecured senior indebtedness of the Issuer and each Guarantor.

Although the Indenture will contain limitations on the amount of additional Indebtedness that theIssuer and the Guarantors may incur, under certain circumstances the amount of such Indebtedness could besubstantial and, in any case, such Indebtedness may be Senior Indebtedness. See “Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock.”

Security

General

The Notes and Guarantees will be secured by first-priority security interests (subject to PermittedLiens) in the Collateral, and the Notes and the Guarantees will share in the benefit of such security interestson a pari passu basis with the Senior Credit Facilities Obligations, the Fixed Rate IRBs and Additional FirstPriority Lien Obligation; provided that our new revolving credit facility will be senior to the Notes withrespect to proceeds from inventory located outside the battery limits of each of the refineries (includingrefined product and inventory located in our pipelines). The Collateral shall exclude Excluded Property.

We do not expect that mortgages on and lender’s title insurance with respect to our Corpus Christirefinery will be in place at the time of issuance of the Notes. In addition certain leasehold parcels may not beincluded in the mortgage nor covered under the lender’s title insurance policy relating to our Lemont refinery.See “Risk Factors—Risks Relating to the Our Indebtedness and the Notes—mortgages and lender’s titleinsurance policies covering the Corpus Christi refinery and a portion of the Lemont refinery securing thenotes will not be in place at the time of the issuance of the notes.

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In connection with any enforcement action with respect to the Collateral or any insolvency orliquidation proceeding of the Issuer or any Guarantor, all proceeds of Collateral (after paying the fees andexpenses of the Collateral Agent and the Trustee and any expenses of selling or otherwise foreclosing on theCollateral) will be applied pro rata to the repayment of the obligations under the Notes and the otheroutstanding First Priority Lien Obligations, subject to the terms of the Intercreditor Agreement; provided thatour new revolving credit facility will be senior to the Notes with respect to proceeds from inventory locatedoutside the battery limits of each of the refineries and inventory located in our pipelines and proceeds fromsuch inventory will be applied first to the payment of borrowings under the revolving credit facility.

The Issuer and the Guarantors are and will be able to incur additional Indebtedness in the futurewhich could share in or be senior with respect to the Collateral, including Additional First Priority LienObligations and Obligations secured by Permitted Liens. The amount of such additional secured Obligations isand will be limited by the covenant described under “Certain Covenants—Liens” and the covenant describedunder “Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock andPreferred Stock.” Under certain circumstances, the amount of any such additional secured Obligations could besignificant.

After-Acquired Collateral

From and after the Issue Date and subject to certain limitations and exceptions, if the Issuer or anyGuarantor creates any additional security interest to secure any First Priority Lien Obligations in any propertyor assets that are not at the time of such creation of such additional security interest included in Collateralunder the Security Documents, such Issuer or Guarantor must concurrently grant a first-priority perfectedsecurity interest (subject to Permitted Liens) in such property as security for the Notes and such property orassets shall thereafter become Collateral.

Liens with Respect to the Collateral

The Issuer, the Guarantors and the Collateral Agent will enter into Security Documents on the IssueDate (or, in the case of the mortgage on the Corpus Christi refinery, within 120 days after we acquire title tothe West Plant of the Corpus Christi refinery), that will define the terms of the security interests that securethe Notes, the Guarantees as well as the Senior Credit Facilities Obligations, the Fixed Rate IRB Obligationsand the Additional First Priority Lien Obligations with respect to such Collateral.

Intercreditor Agreement

The Issuer, the Trustee, the Collateral Agent and the Fixed Rate IRB Trustees will enter into theIntercreditor Agreement with the Authorized Representative of the Senior Credit Facilities Obligations withrespect to the Collateral, pursuant to which the Collateral Agent will be appointed, which may be amended,restated, amended and restated, supplemented or otherwise modified from time to time without the consent ofthe Holders to add other parties holding First Priority Lien Obligations permitted to be incurred under theIndenture, the Senior Credit Facilities and the Intercreditor Agreement.

Under the Intercreditor Agreement, as described below, the Collateral Agent may take such actionsunder the Security Documents and with respect to the Collateral, and refrain from taking any such actions, inits sole discretion, unless the Applicable Authorized Representative, acting on behalf of the ControllingSecured Parties, have delivered written direction to the Collateral Agent in which case the Collateral Agentshall take or refrain from taking any such action as specified in such direction. The Collateral Agent shall befully justified in failing or refusing to take action under the Intercreditor Agreement or the SecurityDocuments unless it shall first receive such direction from the Applicable Authorized Representative on behalfof the Controlling Secured Parties, and it shall first be indemnified to its reasonable satisfaction by the FirstPriority Lien Secured Parties (other than the agent under the Senior Secured Facilities, the Trustee, and theFixed Rate IRB Trustee) against any and all liability and expense which may be incurred by it by reason oftaking, continuing to take or refraining from taking any such action. The Authorized Representatives of otherSeries of First Priority Lien Obligations have no right to take actions with respect to the Collateral. The

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Applicable Authorized Representative will initially be the administrative agent under the Credit Agreement, asAuthorized Representative in respect of the Senior Credit Facilities Obligations.

The Applicable Authorized Representative shall have the sole right to instruct the Collateral Agent toact or refrain from acting with respect to the Collateral, the Collateral Agent shall not follow any instructionswith respect to such Collateral from any representative of any Non-Controlling Secured Party or other FirstPriority Lien Secured Party (other than the Applicable Authorized Representative), and no AuthorizedRepresentative of any Non-Controlling Secured Party or other First Priority Lien Secured Party (other than theApplicable Authorized Representative) will instruct the Collateral Agent to commence any judicial or non-judicial foreclosure proceedings with respect to, seek to have a trustee, receiver, liquidator or similar officialappointed for or over, attempt any action to take possession of, exercise any right, remedy or power withrespect to, or otherwise take any action to enforce its interests in or realize upon, or take any other actionavailable to it in respect of, the Collateral.

In the event that the Trustee, on behalf of the Holders of the Notes, shall be the ApplicableAuthorized Representative, the Trustee shall only act in its capacity as Applicable Authorized Representativeas directed by the Holders of the Notes pursuant to the terms of the Indenture.

The administrative agent under the Senior Credit Facilities will remain the Applicable AuthorizedRepresentative until the earlier of (1) the Discharge of Senior Credit Facilities Obligations and (2) the Non-Controlling Authorized Representative Enforcement Date (such date, the “Applicable Authorized Agent Date”).After the Applicable Authorized Agent Date, the Applicable Authorized Representative will be the MajorNon-Controlling Authorized Representative.

Each First Priority Lien Secured Party will agree to, subject to certain exceptions, (a) refrain fromtaking or filing any action, judicial or otherwise, to enforce any rights or pursue any remedy under theSecurity Documents, except for delivering notices under the Intercreditor Agreement; (b) refrain fromaccepting any guaranty of, or any other security for, the First Priority Lien Obligations from the Issuer or anyof its Affiliates, except for any guaranty or security granted to the Collateral Agent for the benefit of all FirstPriority Lien Secured Parties; (c) refrain from exercising any rights or remedies under the Security Documentswhich have or may have arisen or which may arise as a result of a default; and (d) refrain from accepting anymandatory prepayment or offer to purchase with respect to a disposition of assets under the terms of theSenior Credit Facilities and/or the Indenture, as applicable, except as set forth in the Intercreditor Agreement.

Each of the Trustee, for itself and on behalf of the Holders of the Notes, and the administrative agentunder the Senior Credit Facilities, for itself and on behalf of the lenders under the Senior Credit Facilities, willagree that it will not, directly or indirectly, contest or support any other Person in contesting, in anyproceeding (including a bankruptcy proceeding): (a) the priority, validity or enforceability of a Lien on theCollateral held by or on behalf of the Collateral Agent, (b) the priority, validity or enforceability of any FirstPriority Lien Secured Obligation in any bankruptcy proceeding or (c) the provisions of the IntercreditorAgreement.

If an “Event of Default” under and as defined in the Senior Credit Facilities, the Indenture or anyother First Priority Lien Documents governing First Priority Lien Obligations has occurred and is continuingand the Collateral Agent is taking action to enforce rights in respect of any Collateral, or any distribution ismade with respect to any Collateral in any bankruptcy case of the Issuer or any Guarantor, the proceeds of anysale, collection or other liquidation of any such collateral by the Collateral Agent or any other First PriorityLien Secured Party, as applicable, and proceeds of any such distribution shall be applied among the FirstPriority Lien Obligations to the payment in full of the First Priority Lien Obligations on a ratable basis, afterpayment of all amounts owing to the Collateral Agent and the Trustee; provided that our new revolving creditfacility will be senior to the Notes with respect to proceeds from the sale of inventory located outside thebattery limits of each of our refineries (including refined product inventory located in our pipelines) andproceeds from such inventory will be applied first to the payment of the revolving credit facility.

The Collateral Agent shall not be required to marshal any present or future security for (including,without limitation, the Collateral), or guaranties of, the First Priority Lien Secured Obligations or any of them,

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or to resort to such security or guaranties in any particular order; and all of each of such Person’s rights inrespect of such security and guaranties shall be cumulative and in addition to all other rights, however existingor arising. To the extent that they lawfully may, the First Priority Lien Secured Parties will agree that they willnot invoke any law relating to the marshalling of collateral which might cause delay in or impede theenforcement of the First Priority Lien Secured Parties’ rights under the Security Documents or under any otherinstrument evidencing any of the First Priority Lien Obligations or under which any of First Priority LienObligations is outstanding or by which any of the First Priority Lien Obligations is secured or guaranteed.During the term of the Intercreditor Agreement, whether or not any bankruptcy proceeding has commencedagainst the Issuer or any Guarantor, the parties will agree, subject to the provisions of the IntercreditorAgreement, that neither the Issuer nor any Guarantor shall grant or suffer to exist any additional Lien onassets, unless the Issuer or such Guarantor shall grant a Lien on such asset in favor of the Collateral Agent forthe benefit of all the First Priority Lien Secured Parties. If, in contravention of the foregoing, theadministrative agent under the Senior Credit Facilities, the Trustee or any First Priority Lien Secured Partyobtains possession of any Collateral or realizes any proceeds or payment in respect thereof, at any time priorto the discharge of each of the First Priority Lien Obligations, then it must hold such Collateral, proceeds orpayment in trust for the other First Priority Lien Secured Parties and promptly transfer such Collateral,proceeds or payment to the Collateral Agent to be distributed in accordance with the Intercreditor Agreement.

The First Priority Lien Secured Parties acknowledge that the First Priority Lien Obligations of anySeries may, subject to the limitations set forth in the other First Priority Lien Documents, be increased,extended, renewed, replaced, restated, supplemented, restructured, repaid, refunded, refinanced or otherwiseamended or modified from time to time, all without affecting the priorities set forth in the IntercreditorAgreement defining the relative rights of the First Priority Lien Secured Parties of any Series. TheIntercreditor Agreement may also be amended from time to time to add other parties holding Additional FirstPriority Lien Obligations permitted to be incurred under the Indenture.

Subject to the terms of the Security Documents, the Issuer and the Guarantors have the right toremain in possession and retain exclusive control of the Collateral securing the Notes and the NotesObligations, to freely operate the Collateral and to collect, invest and dispose of any income therefrom.

Release of Collateral

Under the Intercreditor Agreement, unless an Event of Default has occurred and is continuing and theCollateral Agent has received written notice thereof from the Applicable Authorized Representative, theCollateral Agent may, without the approval of the lenders under the Senior Credit Facilities, the Holders of theNotes, the Authorized Representatives or any other First Priority Lien Secured Party, release (a) any Collateralunder the Security Documents which is permitted to be sold or disposed of by the Issuer and its Affiliates(other than any such sale to another grantor), including, without limitation, the Guarantors, and (b) release anyGuarantor that is permitted to be sold or disposed of, or released, in each case pursuant to the Senior CreditFacilities, the Indenture and each agreement governing any additional First Priority Lien Obligations, andexecute and deliver such releases as may be necessary to terminate of record the Collateral Agent’s securityinterest in such Collateral or release such Guarantor and Guarantees. In determining whether any such releaseis permitted, the Collateral Agent may rely upon a certificate of the Issuer that the Collateral is permitted tobe released under the Senior Credit Facilities and the Indenture or that the Guarantor is permitted to bereleased under the Senior Credit Facilities and the Indenture, as applicable.

The Issuer and the Guarantors will be entitled to the release of property and other assets constitutingCollateral from the Liens securing the Notes and the Notes Obligations under any one or more of thefollowing circumstances:

(1) to enable the Issuer and the Guarantors to consummate the sale, transfer or otherdisposition of such property or assets (other than any such sale, transfer or other disposition to theIssuer or another Guarantor) to the extent not prohibited under the covenant described under“Repurchase at the Option of Holders—Asset Sales”;

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(2) in respect of the property and assets of a Guarantor, upon the designation of suchGuarantor to be an Unrestricted Subsidiary in accordance with the covenant described under“— Certain Covenants—Limitation on Restricted Payments” and the definition of “UnrestrictedSubsidiary”; and

(3) in respect of the property and assets of a Guarantor, upon the release or dischargeof the pledge granted by such Guarantor to secure the obligations under the Senior Credit Facilities orany other Indebtedness or the guarantee of any other Indebtedness which resulted in the obligation tobecome a Guarantor with respect to the Notes other than in connection with a release or discharge byor as a result of payment in full in respect of the Senior Credit Facilities or such other Indebtedness.

The Liens on the Collateral securing the Notes and the Guarantees also will be released upon(i) payment in full of the principal of, together with accrued and unpaid interest on, the Notes and all otherObligations under the Indenture, the Guarantees and the Security Documents that are due and payable at orprior to the time such principal, together with accrued and unpaid interest, is paid or (ii) a legal defeasance orcovenant defeasance under the Indenture as described below under “Legal Defeasance and CovenantDefeasance” or a discharge of the Indenture as described under “Satisfaction and Discharge.”

The Issuer and the Guarantors may, subject to the provisions of the Indenture, among other things,without any release or consent by the Collateral Agent, conduct ordinary course activities with respect to theCollateral, including, without limitation:

k disposing of obsolete or worn out property, whether now owned or hereafter acquired, in theordinary course of business;

k abandoning, terminating, canceling, releasing or making alterations in or substitutions of orwaiving rights under any leases or contracts or in respect of any tort or other claim;

k surrendering or modifying any franchise, license or permit that they may own or under whichthey may be operating;

k altering, repairing, replacing, changing the location or position of and adding to its structures,machinery, systems, equipment, fixtures and appurtenances;

k granting a license of any intellectual property;

k selling, transferring or otherwise disposing of inventory in the ordinary course of business;

k disposing of property by any Subsidiary to the Issuer or to a Wholly-Owned Subsidiary that is aGuarantor;

k disposing of assets with a book value of zero and an immaterial market value to be disposed withno consideration or for non-cash consideration;

k collecting, discounting and compromising accounts receivable in the ordinary course of business;

k making payments (including for the repayment of Indebtedness or interest) from cash and CashEquivalents that is at any time part of the Collateral in the ordinary course of business that arenot otherwise prohibited by the Indenture and the Security Documents; and

k abandoning any intellectual property that is no longer used or useful in the Issuer’s business.

Paying Agent and Registrar for the Notes

The Issuer will maintain one or more paying agents for the Notes. The initial paying agent for theNotes will be the Trustee.

The Issuer will also maintain a registrar in respect of the Notes. The registrar will maintain a registerreflecting ownership of the Notes outstanding from time to time to facilitate transfer of Notes on behalf of theIssuer. The initial registrar shall be the Trustee.

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The Issuer may change the paying agents or the registrars without prior notice to the Holders. TheIssuer or any Restricted Subsidiary may act as a paying agent or registrar.

For as long as the Notes are admitted to trading on the Euro MTF market of the Luxembourg StockExchange, the Issuer will maintain a paying agent and transfer agent in Luxembourg. The Issuer has appointedDeutsche Bank Luxembourg S.A. to act as initial Luxembourg Paying Agent or Luxembourg Transfer Agent.The Issuer may replace the Luxembourg Paying Agent or Luxembourg Transfer Agent, at any time, subject tothe appointment of a replacement Luxembourg Paying Agent or Luxembourg Transfer Agent.

Transfer and Exchange

A Holder may transfer or exchange Notes in accordance with the Indenture. The registrar and theTrustee may require a Holder to furnish appropriate endorsements and transfer documents in connection with atransfer of Notes. Holders will be required to pay all taxes due on transfer. The Issuer is not required totransfer or exchange any Note selected for redemption. Also, the Issuer is not required to transfer or exchangeany Note for a period of 15 days before a selection of Notes to be redeemed.

Principal, Maturity and Interest

The Issuer will issue $ million in aggregate principal amount of Senior Secured Notes due 2017(the “2017 Notes”) and $ million in aggregate principal amount of Senior Secured Notes due 2020 (the“2020 Notes” and, together with the 2017 Notes, the “Notes”) in this offering. The 2017 Notes will mature on

, 2017 and the 2020 Notes will mature on , 2020. Subject to compliance with thecovenants described below under the caption “Certain Covenants—Limitation on Incurrence of Indebtednessand Issuance of Disqualified Stock and Preferred Stock” and “Certain Covenants—Liens” the Issuer may issueadditional Notes from time to time after this offering under the Indenture (“Additional Notes”). The Notesissued by the Issuer on the Issue Date and any Additional Notes subsequently issued under the Indenture willbe treated as a single class for all purposes under the Indenture, including waivers, amendments, redemptionsand offers to purchase. Unless the context requires otherwise, references to “Notes” for all purposes of theIndenture and this “Description of the Notes” include any Additional Notes that are actually issued.

Interest will accrue on the Notes from the Issue Date, or from the most recent date to which interesthas been paid or provided for. Interest will be payable semiannually using a 360-day year comprised of twelve30-day months to Holders of record at the close of business on the or immediatelypreceding the interest payment date, on and of each year, commencing , 2010. Ifa payment date is not on a Business Day at the place of payment, payment may be made at the place on thenext succeeding Business Day and no interest will accrue for the intervening period.

Interest on the 2017 Notes will accrue at a rate of % per annum and be payable in cash. Intereston the 2020 Notes will accrue at a rate of % per annum and be payable in cash.

Principal of, premium, if any, and interest on the Notes will be payable at the office or agency of theIssuer maintained for such purpose or, at the option of the Issuer, payment of interest may be made by checkmailed to the Holders of the Notes at their respective addresses set forth in the register of Holders; providedthat all payments of principal, premium, if any, and interest with respect to the Notes represented by one ormore global notes registered in the name of or held by The Depository Trust Company or its nominee will bemade by wire transfer of immediately available funds to the accounts specified by the Holder or Holdersthereof. Until otherwise designated by the Issuer, the Issuer’s office or agency will be the office of the Trusteemaintained for such purpose.

Offers to Purchase; Open Market Purchases

The Issuer is not required to make any sinking fund payments with respect to the Notes. However,under certain circumstances, the Issuer may be required to offer to purchase Notes as described under thecaption “Repurchase at the Option of Holders.”

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Optional Redemption

2017 Notes

At any time prior to , 2014, the Notes may be redeemed or purchased (by the Issuer or anyother Person), in whole or in part, at a redemption price equal to 100% of the principal amount of Notesredeemed plus the Applicable Premium as of the date of redemption (the “Redemption Date”), and, withoutduplication, accrued and unpaid interest to the Redemption Date, subject to the rights of Holders on therelevant record date to receive interest due on the relevant interest payment date. Such redemption or purchasemay be made upon notice mailed by first-class mail to each Holder’s registered address and to the Trustee atits corporate trust office, not less than 30 nor more than 60 days prior to the Redemption Date. The Issuermay provide in such notice that payment of the redemption price and performance of the Issuer’s obligationswith respect to such redemption or purchase may be performed by another Person.

On and after , 2014, the Notes may be redeemed, at the Issuer’s option, in whole or in part,at any time and from time to time at the redemption prices set forth below. Such redemption may be madeupon notice mailed by first-class mail to each Holder’s registered address and to the Trustee at its corporatetrust office, not less than 30 nor more than 60 days prior to the Redemption Date. The Issuer may provide insuch notice that the payment of the redemption price and the performance of the Issuer’s obligations withrespect to such redemption may be performed by another Person. The Notes will be redeemable at theapplicable redemption price (expressed as percentages of principal amount of the Notes to be redeemed) plusaccrued and unpaid interest thereon to the applicable Redemption Date, subject to the right of Holders ofrecord on the relevant record date to receive interest due on the relevant interest payment date, if redeemedduring the twelve-month period beginning on of each of the years indicated below:

Year Percentage

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %

2016 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%

In addition, until , 2013, the Issuer may, at its option, redeem up to 35% of the thenoutstanding aggregate principal amount of Notes at a redemption price equal to % of the aggregateprincipal amount thereof, plus accrued and unpaid interest thereon to the applicable Redemption Date, subjectto the right of Holders of record on the relevant record date to receive interest due on the relevant interestpayment date, with the net cash proceeds of one or more Equity Offerings to the extent such net cash proceedsare contributed to the Issuer; provided that at least 65% of the sum of the aggregate principal amount of 2017Notes originally issued under the Indenture and any Additional Notes that are 2017 Notes issued under theIndenture after the Issue Date remains outstanding immediately after the occurrence of each such redemption;provided further that each such redemption occurs within 90 days of the date of closing of each such EquityOffering or sale.

2020 Notes

At any time prior to , 2015, the Notes may be redeemed or purchased (by the Issuer or anyother Person), in whole or in part, at a redemption price equal to 100% of the principal amount of Notesredeemed plus the Applicable Premium as of the Redemption Date, and, without duplication, accrued andunpaid interest to the Redemption Date, subject to the rights of Holders on the relevant record date to receiveinterest due on the relevant interest payment date. Such redemption or purchase may be made upon noticemailed by first-class mail to each Holder’s registered address and to the Trustee at its corporate trust office,not less than 30 nor more than 60 days prior to the Redemption Date. The Issuer may provide in such noticethat payment of the redemption price and performance of the Issuer’s obligations with respect to suchredemption or purchase may be performed by another Person.

On and after , 2015, the Notes may be redeemed, at the Issuer’s option, in whole or in part,at any time and from time to time at the redemption prices set forth below. Such redemption may be madeupon notice mailed by first-class mail to each Holder’s registered address and to the Trustee at its corporate

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trust office, not less than 30 nor more than 60 days prior to the Redemption Date. The Issuer may provide insuch notice that the payment of the redemption price and the performance of the Issuer’s obligations withrespect to such redemption may be performed by another Person. The Notes will be redeemable at theapplicable redemption price (expressed as percentages of principal amount of the Notes to be redeemed) plusaccrued and unpaid interest thereon to the applicable Redemption Date, subject to the right of the Holders ofrecord on the relevant record date to receive interest due on the relevant interest payment date, if redeemedduring the twelve-month period beginning on of each of the years indicated below:

Year Percentage

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %

2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %

2018 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%

In addition, until , 2013, the Issuer may, at its option, redeem up to 35% of the thenoutstanding aggregate principal amount of Notes at a redemption price equal to % of the aggregateprincipal amount thereof, plus accrued and unpaid interest thereon to the applicable Redemption Date, subjectto the right of Holders of record on the relevant record date to receive interest due on the relevant interestpayment date, with the net cash proceeds of one or more Equity Offerings to the extent such net cash proceedsare contributed to the Issuer; provided that at least 65% of the sum of the aggregate principal amount of Notesoriginally issued under the Indenture and any Additional Notes that are 2020 Notes issued under the Indentureafter the Issue Date remains outstanding immediately after the occurrence of each such redemption; providedfurther that each such redemption occurs within 90 days of the date of closing of each such Equity Offering orsale.

Optional Redemption Notices

The Issuer may provide in such notice that payment of the redemption price and performance of theIssuer’s obligations with respect thereto may be performed by another Person. Notice of any redemption uponany Equity Offering may be given prior to the completion of the related Equity Offering, and any suchredemption or notice may, at the Issuer’s discretion, be subject to one or more conditions precedent, including,but not limited to, completion of the related Equity Offering. If the Issuer elects to partially redeem the Notesof a series, the Trustee will select in a fair and appropriate manner the Notes of that series to be redeemed.Unless the Issuer defaults in payment of redemption price, on or after the applicable Redemption Date, interestwill cease to accrue on the Notes or portions thereof called for redemption on and after the redemption date.

The Trustee shall select the Notes to be redeemed in the manner described under “Repurchase at theOption of Holders—Selection and Notice.”

Repurchase at the Option of Holders

Change of Control

The Notes will provide that if a Change of Control occurs, unless the Issuer has previously orconcurrently sent a redemption notice with respect to all the outstanding Notes as described under “OptionalRedemption,” the Issuer will make an offer to purchase all of the Notes pursuant to the offer described below(the “Change of Control Offer”) at a price in cash (the “Change of Control Payment”) equal to 101% of theaggregate principal amount thereof plus accrued and unpaid interest, to the date of purchase, subject to theright of Holders of the Notes of record on the relevant record date to receive interest due on the relevantinterest payment date. Within 30 days following any Change of Control, the Issuer will send notice of suchChange of Control Offer by electronic transmission or by first-class mail, with a copy to the Trustee, to each

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Holder of Notes to the address of such Holder appearing in the note register with a copy to the Trustee orotherwise in accordance with applicable procedures, with the following information:

(1) that a Change of Control Offer is being made pursuant to the covenant entitled“Repurchase at the Option of Holders—Change of Control,” and that all Notes properly tenderedpursuant to such Change of Control Offer will be accepted for payment by the Issuer;

(2) the purchase price and the purchase date, which will be no earlier than 30 days norlater than 60 days from the date such notice is sent (the “Change of Control Payment Date”);

(3) that any Note not properly tendered will remain outstanding and continue to accrueinterest;

(4) that unless the Issuer defaults in the payment of the Change of Control Payment, allNotes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest onthe Change of Control Payment Date;

(5) that Holders electing to have any Notes purchased pursuant to a Change of ControlOffer will be required to surrender such Notes, with such form as is provided therefor by the Issuer,which may be the form entitled “Option of Holder to Elect Purchase” on the reverse of such Notes,completed, to the paying agent specified in the notice at the address specified in the notice prior tothe close of business on the third Business Day preceding the Change of Control Payment Date;

(6) that Holders will be entitled to withdraw their tendered Notes and their election torequire the Issuer to purchase such Notes, provided that the paying agent receives, not later than theclose of business on the fifth Business Day preceding the Change of Control Payment Date, suchcommunication as is specified therefor by the Issuer setting forth the name of the Holder of theNotes, the principal amount of Notes tendered for purchase, and a statement that such Holder iswithdrawing its tendered Notes and its election to have such Notes purchased;

(7) that the Holders whose Notes are being repurchased only in part will be issued newNotes equal in principal amount to the unpurchased portion of the Notes surrendered. Theunpurchased portion of the Notes must be equal to a minimum of $2,000 or an integral multiple of$1,000 in principal amount in excess thereof; and

(8) the other instructions, as determined by the Issuer, consistent with the covenantdescribed hereunder, that a Holder must follow.

The Issuer will comply with the requirements of Rule 14e-1 under the Exchange Act and any othersecurities laws and regulations thereunder to the extent such laws or regulations are applicable in connectionwith the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of anysecurities laws or regulations conflict with the provisions of the Indenture, the Issuer will comply with theapplicable securities laws and regulations and shall not be deemed to have breached its obligations describedin the Indenture by virtue thereof.

On the Change of Control Payment Date, the Issuer will, to the extent permitted by law,

(1) accept for payment all Notes or portions thereof properly tendered pursuant to theChange of Control Offer,

(2) deposit with the paying agent an amount equal to the aggregate Change of ControlPayment in respect of all Notes or portions thereof so tendered, and

(3) deliver, or cause to be delivered, to the Trustee for cancellation the Notes soaccepted together with an Officer’s Certificate to the Trustee stating that such Notes or portionsthereof have been tendered to and purchased by the Issuer.

We will not be required to make a Change of Control Offer following a Change of Control if a thirdparty makes the Change of Control Offer in the manner, at the times and otherwise in compliance with therequirements set forth in the Indenture applicable to a Change of Control Offer made by us and purchases all

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Notes validly tendered and not withdrawn under such Change of Control Offer. Notwithstanding anything tothe contrary herein, a Change of Control Offer may be made in advance of a Change of Control, conditionalupon such Change of Control, if a definitive agreement is in place for the Change of Control at the time ofmaking of the Change of Control Offer.

The definition of “Change of Control” includes a disposition of all or substantially all of the assets ofthe Issuer and its Restricted Subsidiaries to any Person. Although there is a limited body of case lawinterpreting the phrase “substantially all,” there is no precise established definition of the phrase underapplicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether aparticular transaction would involve a disposition of “all or substantially all” of the assets of the Issuer and itsRestricted Subsidiaries. As a result, it may be unclear as to whether a Change of Control has occurred andwhether a Holder of Notes may require the Issuer to make an offer to repurchase the Notes as describedabove. The Trustee shall have no obligation to determine whether or not a change of control has occurred.

Asset Sales

The Indenture will provide that the Issuer will not, and will not permit any of its RestrictedSubsidiaries to, cause, make or suffer to exist an Asset Sale, unless:

(1) the Issuer or such Restricted Subsidiary, as the case may be, receives considerationat the time of such Asset Sale at least equal to the fair market value (as determined in good faith bythe Issuer) of the assets sold or otherwise disposed of;

(2) with respect to sales or other dispositions of assets other than Non-Core Assets, atleast 75% of the consideration therefor received by the Issuer or such Restricted Subsidiary, as thecase may be, is in the form of cash or Cash Equivalents; provided that the amount of:

(a) any liabilities (as shown on the Issuer’s or such Restricted Subsidiary’smost recent balance sheet or in the footnotes thereto) of the Issuer or such RestrictedSubsidiary, other than liabilities that are by their terms subordinated to the Notes or that areowed to the Issuer or a Restricted Subsidiary, that are assumed by the transferee of any suchassets and for which the Issuer and all of its Restricted Subsidiaries have been validlyreleased by all creditors in writing, and

(b) any securities received by the Issuer or such Restricted Subsidiary fromsuch transferee that are converted by the Issuer or such Restricted Subsidiary into cash (tothe extent of the cash received) within 180 days following the closing of such Asset Sale,

shall be deemed to be cash for purposes of this provision and for no other purpose.

Within 365 days after the receipt of any Net Proceeds of any Asset Sale, the Issuer or such RestrictedSubsidiary, at its option, may apply the Net Proceeds from such Asset Sale,

(1) to repay:

(a) Obligations constituting Senior Credit Facilities Obligations or Fixed RateIRB Obligations (or Additional First Priority Lien Obligations which are IRBs) to the extentrequired by the terms thereof;

(b) Obligations constituting First Priority Lien Obligations (other than asdescribed in clause (a) above), provided that if the Issuer or any Guarantor shall so reduceFirst Priority Lien Obligations, the Issuer shall equally and ratably redeem, purchase and/oroffer to purchase Notes as provided under “Optional Redemption,” through open-marketpurchases or by making an offer (in accordance with the procedures set forth below for anAsset Sale Offer (and after making such offer complying with the procedures set forth below,the amount of Collateral Excess Proceeds and Excess Proceeds shall be reduced by theamount of Net Proceeds so offered for purchase of Notes)) to all Holders of Notes to

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purchase a pro rata amount of their Notes at 100% of the principal amount thereof, plusaccrued but unpaid interest);

(c) Indebtedness constituting Pari Passu Indebtedness so long as the Asset Saleproceeds are with respect to non-Collateral (provided that if the Issuer shall so reduce PariPassu Indebtedness, the Issuer shall equally and ratably redeem, purchase and/or offer topurchase Notes as provided under “Optional Redemption,” through open-market purchases orby making an offer (in accordance with the procedures set forth below for an Asset SaleOffer (and after making such offer complying with the procedures set forth below, theamount of Collateral Excess Proceeds and Excess Proceeds shall be reduced by the amountof Net Proceeds so offered for purchase of Notes)) to all Holders of Notes to purchase a prorata amount of their Notes at 100% of the principal amount thereof, plus accrued but unpaidinterest); and

(d) Indebtedness of a Restricted Subsidiary that is not a Guarantor, other thanIndebtedness owed to the Issuer or another Restricted Subsidiary; or

(2) to (a) make an Investment in any Person principally engaged in one or more SimilarBusinesses, provided that such Investment results in such Person becoming a Guarantor, (b) acquireproperties, (c) make capital expenditures or (d) acquire other assets that, in the case of each ofclauses (b), (c) and (d), either (x) are used or useful in a Similar Business or (y) replace thebusinesses, properties and/or assets that are the subject of such Asset Sale.

Pending the final application of any Net Proceeds pursuant to this covenant, the holder of such NetProceeds may apply such Net Proceeds temporarily to reduce Indebtedness outstanding under a revolvingcredit facility or otherwise invest such Net Proceeds in any manner not prohibited by the Indenture.

The Issuer (or the applicable Restricted Subsidiary) will be deemed to have complied with theprovisions set forth in clause (2) of the preceding sentence if, within 365 days after the Asset Sale thatgenerated the Net Proceeds, the Issuer or any of its Restricted Subsidiaries has entered into and not abandonedor rejected a binding agreement that upon consummation would satisfy such provisions and such agreement isthereafter consummated within 180 days after the end of such 365 day period.

Any Net Proceeds from Asset Sales of Collateral, together with all Net Proceeds previously realized,whether from Asset Sales of Collateral or of non-Collateral, that exceed the Net Proceeds received from thesale or other disposition of Non-Core Assets and which are not invested or applied as provided and within thetime period set forth in the preceding paragraph will be deemed to constitute “Collateral Excess Proceeds.”When the aggregate amount of Collateral Excess Proceeds exceeds $100.0 million, the Issuer shall make anoffer to all Holders of the Notes and, if required by the terms of any First Priority Lien Obligations, to theholders of such other First Priority Lien Obligations (a “Collateral Asset Sale Offer”), to purchase themaximum aggregate principal amount of the Notes and such First Priority Lien Obligations that is a minimumof $2,000 or any integral multiple of $1,000 (in each case in aggregate principal amount) that may bepurchased out of the Collateral Excess Proceeds at an offer price in cash in an amount equal to 100% of theprincipal amount thereof (or, in the event such First Priority Lien Obligations provide for the accretion oforiginal issue discount, 100% of the accreted value thereof) plus accrued and unpaid interest (or, in respect ofsuch First Priority Lien Obligations, such lesser price, if any, as may be provided for by the terms of such FirstPriority Lien Obligations) to the date fixed for the closing of such offer, in accordance with the procedures setforth in the Indenture. The Issuer will commence a Collateral Asset Sale Offer with respect to CollateralExcess Proceeds within 30 days after the date that Collateral Excess Proceeds exceed $100.0 million bymailing the notice required pursuant to the terms of the Indenture, with a copy to the Trustee.

To the extent that the aggregate principal amount of Notes and such other First Priority LienObligations tendered pursuant to a Collateral Asset Sale Offer is less than the Collateral Excess Proceeds, theIssuer may use any remaining Collateral Excess Proceeds for any purpose, subject to the other covenantscontained in the Indenture. If the aggregate principal amount of Notes and such other First Priority LienObligations surrendered in a Collateral Asset Sale Offer exceeds the amount of Collateral Excess Proceeds, the

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Trustee shall select the Notes (in the manner described herein) and the Issuer or the agent for such other FirstPriority Lien Obligations will select such other First Priority Lien Obligations to be purchased on a pro ratabasis with such adjustments as needed so that no Notes or First Priority Lien Obligations in an unauthorizeddenomination is purchased in part based on the principal amount of the Notes and such other First PriorityLien Obligations tendered. Upon completion of any such Collateral Asset Sale Offer, the amount of CollateralExcess Proceeds shall be reset at zero.

Any Net Proceeds from Asset Sales of non-Collateral, together with all Net Proceeds previouslyrealized, whether from Asset Sales of Collateral or of non-Collateral, that exceed the Net Proceeds receivedfrom the sale or other disposition of Non-Core Assets and which are not invested or applied as provided andwithin the time period set forth in the first sentence of the third preceding paragraph will be deemed toconstitute “Excess Proceeds.” When the aggregate amount of Excess Proceeds exceeds $100.0 million, theIssuer shall make an offer to all Holders of the Notes and, if required by the terms of any Indebtedness that ispari passu in right of payment with the Notes (“Pari Passu Indebtedness”), to the holders of such Pari PassuIndebtedness (an “Asset Sale Offer”), to purchase the maximum aggregate principal amount of the Notes andsuch Pari Passu Indebtedness that is a minimum of $2,000 or an integral multiple of $1,000 in excess thereofthat may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of theprincipal amount thereof (or, in the event such Pari Passu Indebtedness provided for the accretion of originalissue discount, 100% of the accreted value thereof) plus accrued and unpaid interest (or, in respect of suchPari Passu Indebtedness, such lesser price, if any, as may be provided for by the terms of such Pari PassuIndebtedness) to the date fixed for the closing of such offer, in accordance with the procedures set forth in theIndenture. The Issuer will commence an Asset Sale Offer with respect to Excess Proceeds within 30 days afterthe date that Excess Proceeds exceed $100.0 million by sending the notice to the Holders of the Notesrequired pursuant to the terms of the Indenture, with a copy to the Trustee.

To the extent that the aggregate principal amount of Notes and such Pari Passu Indebtedness tenderedpursuant to an Asset Sale Offer is less than the Excess Proceeds, the Issuer may use any remaining ExcessProceeds for any purpose, subject to the other covenants contained in the Indenture. If the aggregate principalamount of Notes and the Pari Passu Indebtedness surrendered in an Asset Sale Offer exceeds the amount ofExcess Proceeds, the Trustee shall select the Notes (in the manner described herein) and the Issuer or theagent for such Pari Passu Indebtedness will select such other Pari Passu Indebtedness to be purchased on a prorata basis with such adjustments as needed so that no Notes or Pari Passu Indebtedness in an unauthorizeddenomination is purchased in part based on the principal amount of the Notes and such Pari PassuIndebtedness tendered. Upon completion of any such Asset Sale Offer, the amount of Excess Proceeds shall bereset at zero.

The Issuer will comply with the requirements of Rule 14e-1 under the Exchange Act and any othersecurities laws and regulations thereunder to the extent such laws or regulations are applicable in connectionwith the repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions of anysecurities laws or regulations conflict with the provisions of the Indenture, the Issuer will comply with theapplicable securities laws and regulations and shall not be deemed to have breached its obligations describedin the Indenture by virtue thereof.

Selection and Notice

If the Issuer is redeeming less than all of the Notes at any time, the Trustee will select the Notes ofsuch series to be redeemed (a) if the Notes are listed on any national securities exchange, in compliance withthe requirements of the principal national securities exchange on which the Notes are listed or (b) on a prorata basis to the extent practicable, or, if the pro rata basis is not practicable for any reason, by lot or by suchother method as the Trustee shall deem appropriate.

Notices of purchase or redemption shall be mailed by first-class mail, postage prepaid, at least 30 butnot more than 60 days before the purchase or redemption date to each Holder of Notes at such Holder’sregistered address, except that redemption notices may be mailed more than 60 days prior to a redemption dateif the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of the

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Indenture. If any Note is to be purchased or redeemed in part only, any notice of purchase or redemption thatrelates to such Note shall state the portion of the principal amount thereof that has been or is to be purchasedor redeemed.

The Issuer will issue a new Note in a principal amount equal to the unredeemed portion of theoriginal Note in the name of the Holder upon cancellation of the original Note. Notes called for redemptionbecome due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue onNotes or portions of them called for redemption.

Certain Covenants

Suspended Covenants

During any period when the Issuer has an Investment Grade Rating and no Default has occurred andis continuing under the Indenture (the “Covenant Suspension Period”), the Issuer and its RestrictedSubsidiaries will not be subject to the provisions of the Indenture described above under the caption“Repurchase at the Option of Holders—Asset Sales” and under the following headings:

k “—Limitation on Restricted Payments,”

k “—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and PreferredStock,”

k clause (4) of the covenant under “—Merger, Consolidation or Sale of All or Substantially AllAssets,”

k “—Transactions with Affiliates,” and

k “—Dividend and other Payment Restrictions Affecting Restricted Subsidiaries”

(collectively, the “Suspended Covenants”); provided that if the Issuer and the Restricted Subsidiariesare not subject to the Suspended Covenants for any period of time as a result of the preceding portion of thissentence and, subsequently, either of the Rating Agencies withdraws its ratings or downgrades the ratingsbelow the Investment Grade Ratings, or a Default (other than with respect to the Suspended Covenants) occursand is continuing, the Issuer and the Restricted Subsidiaries will thereafter again be subject to the SuspendedCovenants, subject to the terms, conditions and obligations set forth in the Indenture (each such date ofreinstatement being the “Reinstatement Date”). As a result, during any Covenant Suspension Period, the Noteswill be entitled to substantially reduced covenant protection. Compliance with the Suspended Covenants withrespect to Restricted Payments made after the Reinstatement Date will be calculated in accordance with theterms of the covenant described under “—Limitation on Restricted Payments” as though such covenant hadbeen in effect during the entire period of time from which the Notes are issued. However, all RestrictedPayments made, Indebtedness incurred and other actions effected during any period in which covenants aresuspended will not cause a default under the Indenture on or after any Reinstatement Date.

The Issuer will provide the Trustee with prompt written notice upon the commencement of aCovenant Suspension Period and of the occurrence of a Reinstatement Date. In addition, during any periodwhen the Suspended Covenants are suspended the Issuer will not be permitted to designate or redesignate anyof its Subsidiaries pursuant to the definition of “Unrestricted Subsidiary.”

Set forth below are summaries of certain covenants that will be contained in the Indenture.

Limitation on Restricted Payments

The Issuer will not, and will not permit any Restricted Subsidiary to, directly or indirectly:

(1) declare or pay any dividend or make any payment or distribution on account of theIssuer’s or any Restricted Subsidiary’s Equity Interests, including any dividend or distribution payablein connection with any merger or consolidation other than dividends or distributions payable solely inEquity Interests (other than Disqualified Stock) of the Issuer;

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(2) purchase, redeem, defease or otherwise acquire or retire for value any EquityInterests of the Issuer or any direct or indirect parent of the Issuer, including in connection with anymerger or consolidation;

(3) make any principal payment on, or redeem, repurchase, defease or otherwise acquireor retire for value in each case, prior to any scheduled repayment, sinking fund payment or maturity,any Subordinated Indebtedness other than:

(a) Indebtedness permitted under clause (7) of the covenant described under“—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock andPreferred Stock”; or

(b) the purchase, repurchase or other acquisition of Subordinated Indebtednessof the Issuer and its Restricted Subsidiaries purchased in anticipation of satisfying a sinkingfund obligation, principal installment or final maturity, in each case due within one year ofthe date of purchase, repurchase or acquisition; or

(4) make any Restricted Investment

(all such payments and other actions set forth in clauses (1) through (4) above being collectively referred to as“Restricted Payments”), unless, at the time of such Restricted Payment:

(1) no Default shall have occurred and be continuing or would occur as a consequencethereof;

(2) immediately after giving effect to such transaction on a pro forma basis, the Issuer’sFixed Charge Coverage Ratio for the Issuer’s most recently ended four full fiscal quarters for whichinternal financial statements are available immediately preceding the date on which such RestrictedPayment is to be made would have been at least 2.50 to 1.0;

(3) such Restricted Payment, together with the aggregate amount of all other RestrictedPayments made by the Issuer and its Restricted Subsidiaries after the Issue Date (including RestrictedPayments permitted by clauses (1) and (4) of the next succeeding paragraph, but excluding all otherRestricted Payments permitted by the next succeeding paragraph), is less than the sum of (withoutduplication):

(a) an amount equal to (i) 100% of cumulative Consolidated Net Income of theIssuer for the period (taken as one accounting period) from April 1, 2010 to the end of themost recently ended fiscal quarter for which internal financial statements are available at thetime of such Restricted Payment (or if such Consolidated Net Income for such period is aloss, 100% of such loss) less (ii) $325.0 million; plus

(b) 100% of the aggregate net cash proceeds and the fair market value, asdetermined in good faith by the Issuer, of marketable securities or other property received bythe Issuer or a Restricted Subsidiary (without the issuance of additional Equity Interests insuch Restricted Subsidiary) since immediately after the Issue Date from the issue or sale of:

(i) Equity Interests of the Issuer, including Treasury Capital Stock (asdefined below); and

(ii) debt of the Issuer or any Restricted Subsidiary that has beenconverted into or exchanged for such Equity Interests of the Issuer;

provided, however, that this clause (b) shall not include the proceeds from(x) Refunding Capital Stock (as defined below), (y) Equity Interests or convertible debtsecurities sold to the Issuer or a Restricted Subsidiary, as the case may be, or(z) Disqualified Stock or debt securities that have been converted into Disqualified Stock;plus

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(c) 100% of the aggregate amount of cash and the fair market value, asdetermined in good faith by the Issuer, of marketable securities or other property contributedto the capital of the Issuer following the Issue Date (other than by a Restricted Subsidiary);plus

(d) 100% of the aggregate amount received in cash and the fair market value,as determined in good faith by the Issuer, of marketable securities or other property receivedby the Issuer or a Restricted Subsidiary from or by means of:

(i) the sale or other disposition (other than to the Issuer or aRestricted Subsidiary) of Restricted Investments made by the Issuer or its RestrictedSubsidiaries and repurchases and redemptions of such Restricted Investments fromthe Issuer or its Restricted Subsidiaries and repayments of loans or advances, andreleases of guarantees, which constitute Restricted Investments by the Issuer or itsRestricted Subsidiaries, in each case after the Issue Date; or

(ii) the sale or other disposition (other than to the Issuer or aRestricted Subsidiary) of the stock of an Unrestricted Subsidiary (other than to theextent the Investment in such Unrestricted Subsidiary constituted a PermittedInvestment) or a dividend or distribution from an Unrestricted Subsidiary after theIssue Date; plus

(e) in the case of the redesignation of an Unrestricted Subsidiary as aRestricted Subsidiary after the Issue Date, the fair market value of the Investment in suchUnrestricted Subsidiary, as determined by the Issuer in good faith at the time of theredesignation of such Unrestricted Subsidiary as a Restricted Subsidiary, other than anUnrestricted Subsidiary to the extent the Investment in such Unrestricted Subsidiaryconstituted a Permitted Investment, provided that the amount included pursuant to thisclause (e) shall not exceed $100.0 million unless the-then fair market value thereof isdetermined in writing by an Independent Financial Advisor; and

(f) 100% of the aggregate amount of the Net Proceeds from the sale or otherdisposition of Non-Core Assets;

(4) the Issuer shall have cash and/or Cash Equivalents and/or available borrowingcapacity under a revolving credit facility under one or more Credit Facilities in an aggregate amountof not less than $500.0 million; and

(5) the Issuer shall have a Capitalization Ratio greater than 0.55 to 1.00.

The foregoing provisions will not prohibit:

(1) the payment of any dividend or similar distribution within 60 days after the date ofdeclaration thereof, if at the date of declaration such payment would have complied with theprovisions of the Indenture;

(2) (a) the redemption, repurchase, retirement or other acquisition of any EquityInterests (“Treasury Capital Stock”) of the Issuer or any Restricted Subsidiary or SubordinatedIndebtedness of the Issuer or any Guarantor, in exchange for, or out of the proceeds of thesubstantially concurrent sale (other than to the Issuer or a Restricted Subsidiary) of, Equity Interest ofthe Issuer (other than any Disqualified Stock) (“Refunding Capital Stock”) and (b) the declaration andpayment of dividends or similar distributions on the Treasury Capital Stock out of the proceeds of thesubstantially concurrent sale (other than to the Issuer or a Restricted Subsidiary) of the RefundingCapital Stock;

(3) the redemption, repurchase or other acquisition or retirement of SubordinatedIndebtedness of the Issuer or a Guarantor in exchange for, or with the proceeds of the substantiallyconcurrent sale of, new Indebtedness of the Issuer or a Guarantor, as the case may be, which is

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incurred in compliance with “—Limitation on Incurrence of Indebtedness and Issuance ofDisqualified Stock and Preferred Stock” so long as:

(a) the principal amount (or accreted value, if applicable) of such newIndebtedness does not exceed the principal amount of (or accreted value, if applicable), plusany accrued and unpaid interest on, the Subordinated Indebtedness being so redeemed,repurchased, acquired or retired for value, plus the amount of any premium required to bepaid under the terms of the instrument governing the Subordinated Indebtedness being soredeemed, repurchased, acquired or retired and any fees and expenses incurred in connectionwith the issuance of such new Indebtedness;

(b) such new Indebtedness is subordinated to the Notes or the applicableGuarantee at least to the same extent as such Subordinated Indebtedness so purchased,exchanged, redeemed, repurchased, acquired or retired for value;

(c) such new Indebtedness has a final scheduled maturity date equal to or laterthan the final scheduled maturity date of the Subordinated Indebtedness being so redeemed,repurchased, acquired or retired; and

(d) such new Indebtedness has a Weighted Average Life to Maturity equal toor greater than the remaining Weighted Average Life to Maturity of the SubordinatedIndebtedness being so redeemed, repurchased, acquired or retired;

(4) a Restricted Payment to pay for the repurchase, retirement or other acquisition orretirement for value of Equity Interests (other than Disqualified Stock) of the Issuer held by anyfuture, present or former employee, director or consultant of the Issuer, or any of its Subsidiariespursuant to any management equity plan or stock option plan or any other management or employeebenefit plan or agreement; provided, however, that the aggregate Restricted Payments made pursuantto the foregoing do not exceed $5.0 million in each calendar year, with unused amounts carried overto subsequent years; provided that aggregate Restricted Payments, including such amounts carriedover, made pursuant to this clause (4) shall not exceed $15.0 million in each calendar year;

(5) the declaration and payment of dividends or similar distributions to holders of anyclass or series of Disqualified Stock of the Issuer or any of its Restricted Subsidiaries issued inaccordance with the covenant described under “—Limitation on Incurrence of Indebtedness andIssuance of Disqualified Stock and Preferred Stock”;

(6) repurchases of Equity Interests deemed to occur upon exercise of stock options orwarrants if such Equity Interests represent a portion of the exercise price of such options or warrants;

(7) the repurchase, redemption or other acquisition or retirement for value of anySubordinated Indebtedness pursuant to the provisions similar to those described under the captions“Repurchase at the Option of Holders—Change of Control” and “Repurchase at the Option ofHolders—Asset Sales”; provided that all Notes tendered by Holders in connection with a Change ofControl Offer or Asset Sale Offer, as applicable, have been repurchased, redeemed or acquired forvalue;

(8) the payment of any dividend or similar distribution by a Restricted Subsidiary of theIssuer to the holders of such Restricted Subsidiary’s Equity Interests on a pro rata basis;

(9) payments under key man life insurance policies; and

(10) distributions or payments of Receivables Fees.

For purposes of determining compliance with this “Restricted Payments” covenant, in the event that aRestricted Payment meets the criteria of more than one of the categories of Restricted Payments described inthe immediately preceding paragraph, or is entitled to be incurred pursuant to the first paragraph of thiscovenant, the Issuer will be entitled to classify such Restricted Payment (or portion thereof) on the date of its

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payment or later reclassify such Restricted Payment (or portion thereof) in any manner that complies with thiscovenant at any time.

As of the Issue Date, all of the Subsidiaries of the Issuer will be Restricted Subsidiaries. The Issuerwill not permit any Unrestricted Subsidiary to become a Restricted Subsidiary except pursuant to thedefinition of “Unrestricted Subsidiary.” For purposes of designating any Restricted Subsidiary as anUnrestricted Subsidiary, all outstanding Investments by the Issuer and its Restricted Subsidiaries (except to theextent repaid) in the Subsidiary so designated will be deemed to be Restricted Payments in an amountdetermined as set forth in the last sentence of the definition of “Investments.” Such designation will bepermitted only if a Restricted Payment in such amount would be permitted at such time and if such Subsidiaryotherwise meets the definition of an Unrestricted Subsidiary. Unrestricted Subsidiaries will not be subject toany of the restrictive covenants set forth in the Indenture.

Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock

The Issuer will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly,create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently orotherwise (collectively, “incur” and collectively, an “incurrence”) with respect to any Indebtedness (includingAcquired Indebtedness) and the Issuer and the Guarantors will not issue any shares of Disqualified Stock andwill not permit any Restricted Subsidiary that is not a Guarantor to issue any shares of Disqualified Stock orPreferred Stock; provided, however, that the Issuer and the Guarantors may incur Indebtedness (includingAcquired Indebtedness) or issue shares of Disqualified Stock, if the Issuer’s Fixed Charge Coverage Ratio forthe Issuer’s most recently ended four full fiscal quarters for which internal financial statements are availableimmediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stockor Preferred Stock is issued would have been at least 2.25 to 1.0, determined on a pro forma basis (including apro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, orthe Disqualified Stock or Preferred Stock had been issued, as the case may be, and the application of proceedstherefrom had occurred at the beginning of such four fiscal quarter period.

The foregoing limitations will not apply to:

(1) the incurrence of Indebtedness under Credit Facilities by the Issuer or any of itsRestricted Subsidiaries and the issuance and creation of letters of credit and bankers’ acceptancesthereunder (with letters of credit and bankers’ acceptances being deemed to have a principal amountequal to the face amount thereof), up to an aggregate principal amount of $1,200.0 millionoutstanding at any one time;

(2) the incurrence by the Issuer and any Guarantor of Indebtedness represented by theNotes (including any Guarantee, but excluding any Additional Notes);

(3) Indebtedness of the Issuer and its Restricted Subsidiaries in existence on the IssueDate (other than Indebtedness described in clauses (1) and (2));

(4) Indebtedness (including Capitalized Lease Obligations), Disqualified Stock andPreferred Stock incurred by the Issuer or any of its Restricted Subsidiaries, to finance the purchase,lease or improvement of property (real or personal) or equipment that is used or useful in a SimilarBusiness, whether through the direct purchase of assets or the Capital Stock of any Person owningsuch assets in an aggregate principal amount, together with any Refinancing Indebtedness in respectthereof and all other Indebtedness, Disqualified Stock and/or Preferred Stock incurred andoutstanding under this clause (4), not to exceed $100.0 million at any time outstanding;

(5) Indebtedness incurred by the Issuer or any Restricted Subsidiary constitutingreimbursement obligations with respect to bankers’ acceptances and letters of credit issued in theordinary course of business, including letters of credit in respect of workers’ compensation claims, orother Indebtedness with respect to reimbursement type obligations regarding workers’ compensationclaims; provided, however, that upon the drawing of such bankers’ acceptances and letters of credit or

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the incurrence of such Indebtedness, such obligations are reimbursed within 30 days following suchdrawing or incurrence;

(6) Indebtedness arising from agreements of the Issuer or a Restricted Subsidiaryproviding for indemnification, adjustment of purchase price or similar obligations, in each case,incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, otherthan guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business,assets or a Subsidiary for the purpose of financing such acquisition; provided, however, that suchIndebtedness is not reflected on the balance sheet (other than by application of FIN 45 as a result ofan amendment to an obligation in existence on the Issue Date) of the Issuer or any RestrictedSubsidiary (contingent obligations referred to in a footnote to financial statements and not otherwisereflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposesof this clause (6));

(7) Indebtedness of the Issuer to a Restricted Subsidiary or a Restricted Subsidiary tothe Issuer or another Restricted Subsidiary; provided that any such Indebtedness (other than pursuantto intercompany cash management activities) owing by the Issuer or a Guarantor to a RestrictedSubsidiary that is not a Guarantor is expressly subordinated in right of payment to the Notes or theGuarantee of the Notes, as the case may be; provided further that any subsequent issuance or transferof any Capital Stock or any other event which results in any Restricted Subsidiary ceasing to be aRestricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to the Issueror another Restricted Subsidiary or any pledge of such Indebtedness constituting a Permitted Lien)shall be deemed, in each case, to be an incurrence of such Indebtedness not permitted by this clause(7);

(8) shares of Preferred Stock of a Restricted Subsidiary issued to the Issuer or anotherRestricted Subsidiary; provided that any subsequent issuance or transfer of any Capital Stock or anyother event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary orany other subsequent transfer of any such shares of Preferred Stock (except to the Issuer or aRestricted Subsidiary) shall be deemed in each case to be an issuance of such shares of PreferredStock not permitted by this clause (8);

(9) Hedging Obligations (excluding Hedging Obligations entered into for speculativepurposes) for the purpose of limiting interest rate risk with respect to any Indebtedness permitted tobe incurred pursuant to this covenant, exchange rate risk or commodity pricing risk;

(10) obligations in respect of customs, stay, performance, bid, appeal and surety bondsand completion guarantees and other obligations of a like nature provided by the Issuer or any of itsRestricted Subsidiaries in the ordinary course of business;

(11) the incurrence by the Issuer or any Restricted Subsidiary of Indebtedness,Disqualified Stock or Preferred Stock which serves to refund or refinance:

(a) any Indebtedness, Disqualified Stock or Preferred Stock incurred aspermitted under the first paragraph of this covenant and clauses (2), (3) and (4), or

(b) any Indebtedness, Disqualified Stock or Preferred Stock issued to so refundor refinance the Indebtedness, Disqualified Stock or Preferred Stock described in clause (a)above,

including, in each case, additional Indebtedness, Disqualified Stock or Preferred Stockincurred to pay premiums (including tender premiums), defeasance costs and fees and expenses inconnection therewith (collectively, the “Refinancing Indebtedness”) prior to its respective maturity;provided, however, that such Refinancing Indebtedness:

(A) has a Weighted Average Life to Maturity at the time such RefinancingIndebtedness is incurred which is not less than the remaining Weighted Average Life to

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Maturity of the Indebtedness, Disqualified Stock or Preferred Stock being refunded orrefinanced,

(B) to the extent such Refinancing Indebtedness refinances (i) Indebtednesssubordinated or pari passu to the Notes or any Guarantee thereof, such RefinancingIndebtedness is subordinated or pari passu to the Notes or the Guarantee at least to the sameextent as the Indebtedness being refinanced or refunded or (ii) Disqualified Stock orPreferred Stock, such Refinancing Indebtedness must be Disqualified Stock or PreferredStock, respectively, and

(C) shall not include:

(i) Indebtedness, Disqualified Stock or Preferred Stock of a RestrictedSubsidiary that is not a Guarantor that refinances Indebtedness, Disqualified Stockor Preferred Stock of the Issuer; or

(ii) Indebtedness, Disqualified Stock or Preferred Stock of aRestricted Subsidiary that is not a Guarantor that refinances Indebtedness,Disqualified Stock or Preferred Stock of a Guarantor;

(12) Indebtedness arising from the honoring by a bank or other financial institution of acheck, draft or similar instrument drawn against insufficient funds in the ordinary course of business,provided that such Indebtedness is extinguished within two Business Days of its incurrence;

(13) Indebtedness of the Issuer or any of its Restricted Subsidiaries supported by aletter of credit issued pursuant to the Credit Facilities, in a principal amount not in excess of thestated amount of such letter of credit;

(14) (a) any guarantee by the Issuer or a Restricted Subsidiary of Indebtedness or otherobligations of any Restricted Subsidiary so long as the incurrence of such Indebtedness incurred bysuch Restricted Subsidiary is permitted under the terms of the Indenture, or

(b) any guarantee by a Restricted Subsidiary of Indebtedness of the Issuer;

provided that such Restricted Subsidiary shall comply with the covenant described belowunder “—Limitation on Guarantees of Indebtedness by Restricted Subsidiaries”;

(15) Indebtedness created due to a change in generally accepted accounting principlesof the United States, as applied to the Issuer and the Restricted Subsidiaries, or international financialreporting standards, should such standards become applicable to the Issuer and the RestrictedSubsidiaries;

(16) Indebtedness of the Issuer or any of its Restricted Subsidiaries incurred inconnection with pollution control or industrial revenue bond financings (such Indebtedness, “IRBs”)in an aggregate principal amount at any time outstanding not to exceed $400.0 million;

(17) Indebtedness of the Issuer or any of its Restricted Subsidiaries incurred inconnection with any Inventory Financing in an aggregate principal amount not to exceed$200.0 million at any one time outstanding;

(18) Indebtedness under one or more letter of credit facilities with letters of credit notto exceed an aggregate face amount of $300 million at any one time; and

(19) other Indebtedness in an aggregate principal amount not to exceed $300.0 millionat any one time outstanding.

For purposes of determining compliance with this covenant:

(1) in the event that an item of Indebtedness, Disqualified Stock or Preferred Stock (orany portion thereof) meets the criteria of more than one of the categories of permitted Indebtedness,Disqualified Stock or Preferred Stock described in clauses (1) through (19) above or is entitled to be

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incurred pursuant to the first paragraph of this covenant, the Issuer, in its sole discretion, may classifyor reclassify such item of Indebtedness, Disqualified Stock or Preferred Stock (or any portion thereof)and will only be required to include the amount and type of such Indebtedness, Disqualified Stock orPreferred Stock in one of the above clauses; provided that all Indebtedness outstanding under theSenior Credit Facilities on the Issue Date will be treated as incurred on the Issue Date underclause (1) of the preceding paragraph; and

(2) at the time of incurrence or reclassification, the Issuer will be entitled to divide andclassify an item of Indebtedness in more than one of the types of Indebtedness described in the firstand second paragraphs above.

Accrual of interest and dividends, the accretion of accreted value, changes in Hedging Obligations asa result of changes in mark-to-market values and the payment of interest or dividends in the form ofadditional Indebtedness, Disqualified Stock or Preferred Stock, as applicable, will not be deemed to be anincurrence of Indebtedness, Disqualified Stock or Preferred Stock for purposes of this covenant.

The Indenture will provide that the Issuer will not, and will not permit any Guarantor to, directly orindirectly, incur any Indebtedness (including Acquired Indebtedness) that is subordinated or junior in right ofpayment to any Indebtedness of the Issuer or such Guarantor, as the case may be, unless such Indebtedness isexpressly subordinated in right of payment to the Notes or such Guarantor’s Guarantee to the extent and in thesame manner as such Indebtedness is subordinated to other Indebtedness of the Issuer or such Guarantor, asthe case may be. The Indenture will not treat (1) unsecured Indebtedness as subordinated or junior to SecuredIndebtedness merely because it is unsecured or (2) senior Indebtedness as subordinated or junior to any othersenior Indebtedness merely because it has a junior priority with respect to the same collateral.

Liens

The Issuer will not, and will not permit any Guarantor to, directly or indirectly, create, incur, assumeor suffer to exist any Lien (except Permitted Liens) that secures obligations under any Indebtedness or anyrelated guarantee, on any asset or property of the Issuer or any Guarantor, or any income or profits therefrom,or assign or convey any right to receive income therefrom.

The foregoing shall not apply to (a) Liens securing Indebtedness permitted to be incurred under(i) Credit Facilities, including any letter of credit facility relating thereto, that was permitted by the terms ofthe Indenture to be incurred pursuant to clause (1) of the second paragraph under “—Limitation on Incurrenceof Indebtedness and Issuance of Disqualified Stock and Preferred Stock,” (ii) IRBs, (iii) Hedging Obligations,up to a maximum mark-to-market value of $200 million and (iv) the Issuer’s and its Subsidiaries’ cashmanagement facilities, and (b) Liens incurred to secure Obligations in respect of any Indebtedness permittedto be incurred pursuant to the covenant described above under “—Limitation on Incurrence of Indebtednessand Issuance of Disqualified Stock and Preferred Stock”; provided that, with respect to Liens securingObligations permitted under this subclause (b), at the time of incurrence of such Obligations and after givingpro forma effect thereto, the Consolidated Secured Debt Ratio would be no greater than 2.0 to 1.0; providedthat (i) with respect to Liens securing First Priority Lien Obligations incurred pursuant to subclause (a) aboveor this subclause (b), the Notes are also secured by the assets subject to such Liens with the priority andsubject to intercreditor arrangements, in each case, no less favorable to the Holders of the Notes than those setforth in the Intercreditor Agreement and (ii) with respect to Liens securing Obligations incurred pursuant tosubclause (a) above or this subclause (b) that are junior to the Liens securing the Notes, the Notes are securedby the assets subject to such Liens on a first-priority basis and subject to an intercreditor agreement customaryfor intercreditor arrangements between first-priority and second-priority lenders.

Merger, Consolidation or Sale of All or Substantially All Assets

The Issuer may not consolidate or merge with or into or wind up into (whether or not the Issuer is thesurviving corporation), and may not sell, assign, transfer, lease, convey or otherwise dispose of all or

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substantially all of the properties or assets of the Issuer and its Restricted Subsidiaries, taken as a whole, inone or more related transactions, to any Person unless:

(1) the Issuer is the surviving corporation or the Person formed by or surviving anysuch consolidation or merger (if other than the Issuer) or the Person to whom such sale, assignment,transfer, lease, conveyance or other disposition will have been made is organized or existing under thelaws of the United States, any state thereof, the District of Columbia, or any territory thereof (suchPerson, as the case may be, being herein called the “Successor Company”); provided that in the casewhere the Successor Company is not a corporation, a co-obligor of the Notes is a corporation;

(2) the Successor Company, if other than the Issuer, expressly assumes all theobligations of the Issuer under the Indenture, Notes and the Security Documents pursuant to asupplemental indenture or other documents or instruments as set forth in the Indenture;

(3) immediately after such transaction, no Default exists;

(4) if the Issuer is not the Successor Company, immediately after giving pro formaeffect to such transaction and any related financing transactions, as if such transactions had occurredat the beginning of the applicable four-quarter period,

(a) the Successor Company would be permitted to incur at least $1.00 ofadditional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in thefirst paragraph of the covenant described under “—Limitation on Incurrence of Indebtednessand Issuance of Disqualified Stock and Preferred Stock,” or

(b) the Fixed Charge Coverage Ratio would be equal to or greater than suchratio immediately prior to such transaction;

(5) each Guarantor, unless it is the other party to the transactions described above, inwhich case clause (2) of the second succeeding paragraph shall apply, shall have by supplementalindenture confirmed that its Guarantee shall apply to such Person’s obligations under the Indenture,the Notes and the Security Documents; and

(6) the Issuer shall have delivered to the Trustee an Officer’s Certificate and an Opinionof Counsel, each stating that such consolidation, merger or transfer and such supplemental indentures,if any, comply with the Indenture, the Notes and the Security Documents.

The Successor Company will succeed to, and be substituted for the Issuer under the Indenture and theNotes. Notwithstanding the foregoing clauses (3) and (4),

(1) the Issuer or a Restricted Subsidiary may consolidate with or merge into or transferall or part of its properties and assets to the Issuer or a Restricted Subsidiary; and

(2) the Issuer may merge with an Affiliate of the Issuer solely for the purpose ofreorganizing the Issuer in a State of the United States so long as the amount of Indebtedness of theIssuer and its Restricted Subsidiaries is not increased thereby.

Subject to certain limitations described in the Indenture governing release of a Guarantee upon thesale, disposition or transfer of a Guarantor, no Guarantor will, and the Issuer will not permit any Guarantor to,consolidate or merge with or into or wind up into (whether or not the Issuer or Guarantor is the survivingcorporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of itsproperties or assets, in one or more related transactions, to any Person unless:

(1) such Guarantor is the surviving corporation or the Person formed by or survivingany such consolidation or merger (if other than such Guarantor) or to which such sale, assignment,transfer, lease, conveyance or other disposition will have been made is organized or existing under thelaws of the jurisdiction of organization of such Guarantor, as the case may be, or the laws of theUnited States, any state thereof, the District of Columbia, or any territory thereof (such Guarantor orsuch Person, as the case may be, being herein called the “Successor Person”);

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(2) the Successor Person, if other than such Guarantor, expressly assumes all theobligations of such Guarantor under the Indenture, such Guarantor’s related Guarantee and theSecurity Documents pursuant to supplemental indentures or other documents or instruments in formas set forth in the Indenture;

(3) immediately after such transaction, no Default exists; and

(4) the Issuer shall have delivered to the Trustee an Officer’s Certificate and an Opinionof Counsel, each stating that such consolidation, merger or transfer and such supplemental indentures,if any, comply with the Indenture.

The Successor Person will succeed to, and be substituted for, such Guarantor under the Indenture,such Guarantor’s Guarantee and the Security Documents. Notwithstanding the foregoing, any Guarantor maymerge into or transfer all or part of its properties and assets to another Guarantor or the Issuer.

Transactions with Affiliates

The Issuer will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, orsell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assetsfrom, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance orguarantee with, or for the benefit of, any Affiliate of the Issuer (each of the foregoing, an “AffiliateTransaction”), unless:

(1) such Affiliate Transaction is on terms that are not materially less favorable to theIssuer or the relevant Restricted Subsidiary than those that would have been obtained in a comparabletransaction by the Issuer or such Restricted Subsidiary with an unrelated Person on an arm’s-lengthbasis;

(2) the Issuer delivers to the Trustee with respect to any Affiliate Transaction or seriesof related Affiliate Transactions involving aggregate payments or consideration in excess of$50.0 million, a resolution adopted by the majority of the members of the board of directors of theIssuer approving such Affiliate Transaction and set forth in an Officer’s Certificate certifying thatsuch Affiliate Transaction complies with clause (1) above; and

(3) with respect to any Affiliate Transaction or series of related Affiliate Transactionsinvolving aggregate consideration in excess of $100.0 million, an opinion as to the fairness to theIssuer of such Affiliate Transaction from a financial point of view issued by an Independent FinancialAdvisor.

The foregoing provisions will not apply to the following:

(1) transactions between or among the Issuer and any of its Restricted Subsidiaries;

(2) Restricted Payments permitted by the provisions of the Indenture described aboveunder the covenant “—Limitation on Restricted Payments” and Permitted Investments;

(3) directors, officers or employees’ compensation, or the payment of reasonable andcustomary fees paid to, and indemnities provided on behalf of, officers, directors, employees orconsultants of the Issuer or any of its Restricted Subsidiaries;

(4) transactions in which the Issuer or any of its Restricted Subsidiaries, as the casemay be, delivers to the Trustee a letter from an Independent Financial Advisor stating that suchtransaction is fair to the Issuer or such Restricted Subsidiary from a financial point of view or statingthat the terms are not materially less favorable to the Issuer or the relevant Restricted Subsidiary thanthose that would have been obtained in a comparable transaction by the Issuer or such RestrictedSubsidiary with an unrelated Person on an arm’s-length basis;

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(5) any agreement as in effect as of the Issue Date, or any amendment thereto (so longas any such amendment is not disadvantageous to the Holders when taken as a whole as compared tothe applicable agreement as in effect on the Issue Date);

(6) transactions with customers, clients, suppliers, or purchasers or sellers of goods orservices, in each case in the ordinary course of business as would be conducted with a non-Affiliateand otherwise in compliance with the terms of the Indenture, which are fair to the Issuer and itsRestricted Subsidiaries, in the reasonable determination of the board of directors of the Issuer or thesenior management thereof, or are on terms at least as favorable as might reasonably have beenobtained at such time from an unaffiliated party;

(7) the issuance of Equity Interests (other than Disqualified Stock) by the Issuer or aRestricted Subsidiary;

(8) payments or loans (or cancellation of loans) to employees or consultants of theIssuer or any of its Restricted Subsidiaries and employment agreements, severance arrangements,stock option plans and other similar arrangements with such employees or consultants which, in eachcase, are approved by a majority of the board of directors of the Issuer or a committee charged withsuch matters in good faith if made or implemented other than in the ordinary course of business;

(9) Affiliate Transactions involving the purchase, sale, storage, terminalling ortransportation of crude oil, natural gas and other hydrocarbons, and refined products therefrom, in theordinary course of business as would be conducted with a non-Affiliate, so long as such transactionsare priced in line with industry accepted benchmark prices and the pricing of such transactions isequivalent to the pricing of comparable transactions with unrelated third parties or are no lessfavorable to the Issuer and its Restricted Subsidiaries than if so priced;

(10) the performance of any written agreement in effect on the Issue Date, as suchagreement may be amended, modified or supplemented from time to time; provided, however, thatany amendment, modification or supplement entered into after the Issue Date will be permitted onlyto the extent that its terms do not adversely affect the rights of any Holders of the Notes (asdetermined in good faith by an officer of the Issuer, and if such Affiliate Transaction, or relatedseries thereof, involves aggregate consideration in excess of $50.0 million, as determined in goodfaith by the board of directors of the Issuer) as compared to the terms of the agreement in effect onthe Issue Date;

(11) any PDVSA Agreement and any Tax Sharing Agreement; and

(12) sales of accounts receivable, or participations therein, in connection with anyReceivables Facility.

Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries

The Issuer will not, and will not permit any of its Restricted Subsidiaries that are not Guarantors to,directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensualencumbrance or consensual restriction on the ability of any such Restricted Subsidiary to:

(1) (a) pay dividends or make any other distributions to the Issuer or any of itsRestricted Subsidiaries on its Capital Stock or with respect to any other interest or participation in, ormeasured by, its profits, or

(b) pay any Indebtedness owed to the Issuer or any of its Restricted Subsidiaries;

(2) make loans or advances to the Issuer or any of its Restricted Subsidiaries; or

(3) sell, lease or transfer any of its properties or assets to the Issuer or any of itsRestricted Subsidiaries,

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except (in each case) for such encumbrances or restrictions existing under or by reason of:

(a) contractual encumbrances or restrictions pursuant to the Senior Credit Facilities andthe related documentation and contractual encumbrances or restrictions in effect on the Issue Date;

(b) the Indenture and the Notes;

(c) purchase money obligations for property acquired in the ordinary course of businessthat impose restrictions of the nature discussed in clause (3) above on the property so acquired;

(d) applicable law or any applicable rule, regulation or order;

(e) any agreement or other instrument of a Person acquired by the Issuer or any of itsRestricted Subsidiaries in existence at the time of such acquisition (but not created in contemplationthereof), which encumbrance or restriction is not applicable to any Person, or the properties or assetsof any Person, other than the Person and its Subsidiaries, or the property or assets of the Person andits Subsidiaries, so acquired;

(f) contracts for the sale of assets, including customary restrictions with respect to aSubsidiary of (i) the Issuer or (ii) a Restricted Subsidiary, pursuant to an agreement that has beenentered into for the sale or disposition of all or substantially all of the Capital Stock or assets of suchSubsidiary that impose restrictions on or with respect to the assets to be sold;

(g) Secured Indebtedness otherwise permitted to be incurred pursuant to the covenantsdescribed under “—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock andPreferred Stock” and “—Liens” that limit the right of the debtor to dispose of the assets securingsuch Indebtedness;

(h) restrictions on cash or other deposits or net worth imposed by customers orsuppliers under contracts entered into in the ordinary course of business;

(i) customary provisions in joint venture agreements and other similar agreementsrelating solely to such joint venture;

(j) customary provisions contained in leases or licenses of intellectual property andother agreements, in each case, entered into in the ordinary course of business;

(k) any encumbrances or restrictions of the type referred to in clauses (1), (2) and(3) above imposed by any amendments, modifications, restatements, renewals, increases, supplements,refundings, replacements or refinancings of the contracts, instruments or obligations referred to inclauses (a) through (j) above; provided that such amendments, modifications, restatements, renewals,increases, supplements, refundings, replacements or refinancings are, in the good faith judgment ofthe Issuer, no more restrictive with respect to such encumbrance and other restrictions taken as awhole than those prior to such amendment, modification, restatement, renewal, increase, supplement,refunding, replacement or refinancing or in the case of clauses (f), (i) or (j), are customary at thetime of such amendment, modification, restatement, renewal, increase, supplement, refunding,replacement or refinancing; and

(l) restrictions created in connection with any Receivables Facility that, in the goodfaith determination of the Issuer, are necessary or advisable to effect such Receivables Facility.

Limitation on Guarantees of Indebtedness by Restricted Subsidiaries

The Issuer will not permit (1) any Restricted Subsidiary that is a Wholly-Owned Subsidiary of theIssuer to guarantee the payment of any Indebtedness of the Issuer or any Guarantor or (2) any RestrictedSubsidiary, other than a Guarantor, to guarantee the payment of any Indebtedness represented by securities ofthe Issuer or any Guarantor unless in the case of either (1) or (2):

(a) such Restricted Subsidiary within 30 days executes and delivers a supplementalindenture to the Indenture providing for a Guarantee by such Restricted Subsidiary and a joinder to

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the Security Documents or new Security Documents and takes all actions required by the SecurityDocuments to perfect the Liens created thereunder, except that with respect to a guarantee ofIndebtedness of the Issuer or any Guarantor, if such Indebtedness is by its express terms subordinatedin right of payment to the Notes or such Guarantor’s Guarantee, any such guarantee by suchRestricted Subsidiary with respect to such Indebtedness shall be subordinated in right of payment tosuch Guarantee substantially to the same extent as such Indebtedness is subordinated to the Notes orsuch Guarantor’s Guarantee; and

(b) such Restricted Subsidiary shall within 30 days deliver to the Trustee an Officer’sCertificate and an Opinion of Counsel in the form set forth in the Indenture;

provided that this covenant shall not be applicable to any guarantee of any Restricted Subsidiary that existed atthe time such Person became a Restricted Subsidiary and was not incurred in connection with, or incontemplation of, such Person becoming a Restricted Subsidiary.

Delivery of Collateral after the Issue Date

(a) Issuer shall (or shall cause CRCCLP to) promptly exercise the Corpus ChristiRefinery Purchase Option.

(b) Promptly upon the exercise (it being understood that the term “exercise” as used inrelation to the Corpus Christi Refinery Purchase Option shall mean the date of closing of theacquisition by CRCCLP of fee title to that portion of the Corpus Christi Refinery subject to the WestPlant Lease and West Plant Sublease) of the Corpus Christi Refinery Purchase Option (and, in anyevent, not later than 120 days after the date thereof), the Issuer shall deliver (or cause CRCCLP todeliver) to the Collateral Agent (or such later date as the Administrative Agent may agree in writing):

(i) executed counterparts of a Mortgage on the Corpus Christi Refinery, inform and substance reasonably acceptable to the Collateral Agent and the AdministrativeAgent;

(ii) proper financing statements, duly prepared for filing under the UniformCommercial Code of all jurisdictions that the Collateral Agent may deem necessary ordesirable in order to perfect the priority (except for any Liens permitted by the Mortgage orby the West Plan Sublease) of the liens and security interests created under the Mortgage onthe Corpus Christi Refinery;

(iii) a mortgagee policy of title insurance with respect to the Mortgage on theCorpus Christi Refinery insuring such Mortgage as a first priority Lien on the Corpus ChristiRefinery in favor of the Collateral Agent, free of all Liens (other than any Liens permittedby the Mortgage or by the West Plan Sublease, which includes the Permitted Encumbrancesas shall be defined in the Mortgage), which policy of title insurance shall be issued by a titleinsurance company of recognized national standing which is acceptable to the CollateralAgent in its sole discretion reflecting a coverage amount of $600 million, with suchendorsements and affirmative insurance, and in form and substance reasonably satisfactory tothe Collateral Agent, and which shall contain no exceptions to coverage other than mattersreasonably satisfactory to the Collateral Agent in its judgment reasonably exercised andwhich title policy shall have been fully paid for by the Issuer and such affidavits andindemnities that are required by such title company in order to issue the title policy;

(iv) all affidavits, transfer and mortgage tax returns, if any, and certificatesrequired in connection with the recording of the Mortgage and the documents referenced inthis covenant;

(v) a favorable opinion of Texas counsel to the Issuer, addressed to theCollateral Agent for its benefit and the benefit of the Trustee and the Holders of the Notes,

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in form and substance reasonably satisfactory to the Collateral Agent and the AdministrativeAgent; and

(vi) certificates of insurance demonstrating that the Issuer or CRCCLP hasprocured with responsible insurance companies insurance with respect to the Corpus ChristiRefinery (including business interruption insurance) against such casualties andcontingencies and of such types, in such amounts and with such deductibles as is required bythe Credit Agreement, each of which shall be endorsed or otherwise amended to include acustomary lender’s loss payable endorsement and to name the Collateral Agent as additionalinsured to the extent required by the Credit Agreement.

Reports and Other Information

So long as any Notes are outstanding, the Issuer will furnish or cause to be furnished to the Holdersof Notes:

(1) within 90 days after the end of each fiscal year (A) audited year-end consolidatedfinancial statements of the Issuer and its Subsidiaries (including balance sheets, statements of incomeand statements of cash flow) prepared in accordance with generally accepted accounting principles inthe United States (or if the Issuer elects to apply IFRS to its financial statements as contemplated bythe definition of GAAP, IFRS) as in effect from time to time, (B) the information described inItem 101 (Description of Business), Item 102 (Description of Property) and Item 103 (LegalProceedings) of Regulation S-K, each as in effect on the Issue Date, with respect to such period, tothe extent such information would be required to be filed in an Annual Report on Form 10-K (C) theinformation described in Item 303 (Management’s Discussion and Analysis of Financial Conditionand Results of Operations) of Regulation S-K as in effect on the Issue Date with respect to suchperiod (and any applicable prior period), to the extent such information would be required to be filedin an Annual Report on Form 10-K and (D) pro forma and historical financial information that wouldbe required in respect of any significant business combination or disposition (as determined inaccordance with Rule 11-01(b) of Regulation S-X as in effect on the Issue Date) consummated morethan 75 days prior to the date such information is furnished for the time periods, for which suchin formation would be required (if the Issuer were subject to the filing requirements of the ExchangeAct) in a filing on Form 8-K with the SEC at such time;

(2) within 45 days after the end of each of the first three fiscal quarters of each fiscalyear (A) unaudited quarterly consolidated financial statements of the Issuer and its Subsidiaries(including balance sheets, statements of income and statements of cash flow) prepared in accordancewith generally accepted accounting principles in the United States (or if the Issuer elects to applyIFRS to its financial statements as contemplated by the definition of GAAP, IFRS) as in effect fromtime to time, subject to normal year-end adjustments, (B) the information described in Item 303 ofRegulation S-K as in effect on the Issue Date (Management’s Discussion and Analysis of FinancialCondition and Results of Operations) with respect to such period, to the extent such informationwould be required to be filed in a Quarterly Report on Form 10-Q, (C) pro forma and historicalfinancial information that would be required in respect of any significant business combination ordisposition (as determined in accordance with Rule 11-01(b) of Regulation S-X as in effect on theIssue Date) consummated more than 75 days prior to the date such information is furnished, for thetime periods for which such information would be required (if the Issuer were subject to the filingrequirements of the Exchange Act) in a filing on Form 8-K with the SEC as in effect on the IssueDate; and

(3) within 5 Business Days following the occurrence of any of the following events, adescription in reasonable detail of such event: (i) any change in the executive officers (or the Issuerbecoming aware of any change in the directors) of the Issuer, (ii) any incurrence of any on-balancesheet or off-balance sheet long-term debt obligation or capital lease obligations (each as defined inItem 303 of Regulation S-K as in effect on the Issue Date) of or relating to the Issuer or any

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Restricted Subsidiary, in either case exceeding $50.0 million, (iii) the acceleration of anyIndebtedness of the Issuer or any Restricted Subsidiary exceeding $50.0 million, (iv) any issuance orsale by the Issuer of equity interests of the Issuer pursuant to a registered public offering, (v) theentry into any agreement by the Issuer or any Subsidiary relating to a transaction that if consummatedwould result in a Change of Control, (vi) any resignation or termination of the independentaccountants of the Issuer or any engagement of any new independent accountants of the Issuer,(vii) any determination by the Issuer or the receipt of advice or notice by the Issuer from itsindependent accountants, in either case, relating to non-reliance on previously issued financialstatements, a related audit opinion or a completed interim review, (viii) the completion by the Issueror any Restricted Subsidiary of the acquisition or disposition of a significant amount of assets,otherwise than in the ordinary course of business, in each case, to the extent such information wouldbe required in a Form 8-K as in effect on the Issue Date, and (ix) certain events of bankruptcy orinsolvency that constitute an Event of Default as described under “Events of Default.”

The Issuer will make all the information referred to above available Holders of the Notes, potentialinvestors in the Notes and securities analysts on a password protected website.

Within a reasonable period of time following the distribution of the financial information under thesecond preceding paragraph above (but in any event within 10 Business Days thereof), the Issuer will makemembers of its management available to discuss such financial information with Holders of the Notes andsecurities analysts, and may satisfy this requirement by holding a conference call.

If the Issuer has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly andannual financial information required by the preceding paragraphs will include or be accompanied by areasonably detailed presentation of the financial condition and results of operations of the Issuer and itsRestricted Subsidiaries separate from the financial condition and results of operations of the UnrestrictedSubsidiaries of the Issuer; provided that this requirement shall not apply if the Unrestricted Subsidiaries, takenas a whole, are inactive or otherwise immaterial to the business of the Issuer and its Subsidiaries, taken as awhole.

The Issuer will also furnish or cause to be furnished to the Holders, securities analysts andprospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4)under the Securities Act so long as the Notes are not freely transferable under the Securities Act.

Delivery of such reports, information and documents to the Trustee is for informational purposes onlyand its receipt of such reports shall not constitute constructive notice of any information contained therein ordeterminable from information contained therein, including the Issuer’s or any other Person’s compliance withany of its covenants under the Indenture or the Notes (as to which the Trustee is entitled to rely exclusively onOfficer’s Certificates).

The Trustee shall have no obligation to monitor or confirm, on a continuing basis or otherwise, theIssuer’s or any other Person’s compliance with the covenants described above or with respect to any reports orother documents delivered to it or filed under the Indenture provided, however, to the extent the Trusteereceives written notice from the Issuer of any events which would constitute certain Defaults, their status andwhat action the Issuer is taking or proposing to take in respect thereof, the Trustee shall be obligated toperform its obligations with respect thereto in accordance with the terms and conditions of the Indenture.

Events of Default and Remedies

The Indenture will provide that each of the following is an “Event of Default”:

(1) default in payment when due and payable, upon redemption, acceleration orotherwise, of principal of, or premium, if any, on the Notes;

(2) default for 30 days or more in the payment when due of interest on or with respectto the Notes;

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(3) failure by the Issuer or any Guarantor for 30 days after receipt of written noticegiven by the Trustee or the Holders of not less than 25% in principal amount of the Notes to complywith any of its obligations, covenants or agreements (other than a default referred to in clauses (1)and (2) above) contained in the Indenture, the Security Documents or the Notes;

(4) default under any mortgage, indenture or instrument under which there is issued orby which there is secured or evidenced any Indebtedness for money borrowed by the Issuer or any ofits Restricted Subsidiaries or the payment of which is guaranteed by the Issuer or any of its RestrictedSubsidiaries, other than Indebtedness owed to the Issuer or a Restricted Subsidiary, whether suchIndebtedness or guarantee now exists or is created after the issuance of the Notes, if both:

(a) such default either results from the failure to pay any principal of suchIndebtedness at its stated final maturity (after giving effect to any applicable grace periods)or relates to an obligation other than the obligation to pay principal of any such Indebtednessat its stated final maturity and results in the holder or holders of such Indebtedness causingsuch Indebtedness to become due prior to its stated maturity; and

(b) the principal amount of such Indebtedness, together with the principalamount of any other such Indebtedness in default for failure to pay principal at stated finalmaturity (after giving effect to any applicable grace periods), or the maturity of which hasbeen so accelerated, aggregate $50.0 million or more at any one time outstanding;

(5) failure by the Issuer or any Significant Party to pay final non-appealable judgmentsaggregating in excess of $50.0 million, which final judgments remain unpaid, undischarged andunstayed for a period of more than 60 days after such judgment becomes final, and in the event suchjudgment is covered by insurance, an enforcement proceeding have been commenced by any creditorupon such judgment or decree which is not promptly stayed;

(6) a court having jurisdiction in the premises enters a decree or order for:

(A) relief in respect of the Issuer or any Significant Party in an involuntarycase under any applicable bankruptcy, insolvency or other similar law now or hereafter ineffect;

(B) appointment of a receiver, liquidator, assignee, custodian, trustee,sequestrator or similar official of the Issuer or any Significant Party or for all or substantiallyall of the property and assets of the Issuer or any Significant Party; or

(C) the winding up or liquidation of the affairs of the Issuer or any SignificantParty;

and, in each case, such decree or order shall remain unstayed and in effect for a period of 60consecutive days;

(7) the Issuer or any Significant Party

(A) commences a voluntary case under any applicable bankruptcy, insolvencyor other similar law now or hereafter in effect, or consents to the entry of an order for reliefin an involuntary case under any such law;

(B) consents to the appointment of or taking possession by a receiver,liquidator, assignee, custodian, trustee, sequestrator or similar official of the Issuer or anySignificant Party or for all or substantially all of the property and assets of the Issuer or anySignificant Party; or

(C) effects any general assignment for the benefit of creditors;

(8) the Guarantee of any Significant Party shall for any reason cease to be in full forceand effect or be declared null and void or any responsible officer of any Guarantor that is aSignificant Party, as the case may be, denies that it has any further liability under its Guarantee or

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gives notice to such effect, other than by reason of the termination of the Indenture or the release ofany such Guarantee in accordance with the Indenture; or

(9) with respect to any Collateral having a fair market value in excess of $50.0 million,individually or in the aggregate, (a) the security interest granted pursuant to the Security Documents,at any time, ceases to be in full force and effect for any reason other than in accordance with theterms of the Indenture, the Security Documents and the Intercreditor Agreement, except to the extentthat any lack of perfection or priority results from any act or omission by the Collateral Agent (solong as such act or omission does not result from the breach or non-compliance by the Issuer or anyGuarantor with the Indenture or the Security Documents), (b) any security interest created thereunderor under the Indenture is declared invalid or unenforceable by a court of competent jurisdiction or(c) the Issuer or any Guarantor asserts, in any pleading in any court of competent jurisdiction, thatany such security interest is invalid or unenforceable.

If any Event of Default (other than of a type specified in clauses (6) or (7) above) occurs and iscontinuing under the Indenture, the Trustee or the Holders of at least 25% in principal amount of the thentotal outstanding Notes may declare the principal, premium, if any, interest and any other monetary obligationson all the then outstanding Notes to be due and payable immediately. Upon the effectiveness of suchdeclaration, such principal and interest will be due and payable immediately. Notwithstanding the foregoing, inthe case of an Event of Default arising under clauses (6) or (7) of the first paragraph of this section, alloutstanding Notes will become due and payable without further action or notice. The Indenture will providethat the Trustee may withhold from the Holders notice of any continuing Default, except a Default relating tothe payment of principal, premium, if any, or interest, if it determines that withholding notice is in theirinterest.

The Indenture will provide that the Holders of a majority in aggregate principal amount of the thenoutstanding Notes by written notice to the Trustee may on behalf of the Holders of all of the Notes waive anyexisting Default and its consequences under the Indenture except a continuing Default in the payment ofinterest on, premium, if any, or the principal of any Note held by a non-consenting Holder. In the event of anyEvent of Default specified in clause (4) above, such Event of Default and all consequences thereof (excludingany resulting payment default, other than as a result of acceleration of the Notes) shall be annulled, waivedand rescinded, automatically and without any action by the Trustee or the Holders, if within 30 days after suchEvent of Default arose:

(1) the Indebtedness or guarantee that is the basis for such Event of Default has beendischarged; or

(2) holders thereof have rescinded or waived the acceleration, notice or action (as thecase may be) giving rise to such Event of Default; or

(3) the default that is the basis for such Event of Default has been cured.

Subject to the provisions of the Indenture relating to the duties of the Trustee thereunder, in case anEvent of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rightsor powers under the Indenture at the request or direction of any of the Holders of the Notes unless the Holdershave offered to the Trustee indemnity or security satisfactory to it against any loss, liability or expense. Exceptto enforce the right to receive payment of principal, premium (if any) or interest when due, no Holder of aNote may pursue any remedy with respect to the Indenture or the Notes unless:

(1) such Holder has previously given the Trustee notice that an Event of Default iscontinuing;

(2) Holders of at least 25% in principal amount of the total outstanding Notes haverequested the Trustee to pursue the remedy;

(3) Holders of the Notes have offered the Trustee security or indemnity satisfactory to itagainst any loss, liability or expense;

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(4) the Trustee has not complied with such request within 60 days after the receiptthereof and the offer of security or indemnity; and

(5) Holders of a majority in principal amount at maturity of the total outstanding Noteshave not given the Trustee a direction inconsistent with such request within such 60-day period.

Subject to certain restrictions, under the Indenture the Holders of a majority in principal amount ofthe total outstanding Notes are given the right to direct the time, method and place of conducting anyproceeding for any remedy available to the Trustee or of exercising any trust or power conferred on theTrustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture orthat the Trustee determines is unduly prejudicial to the rights of any other Holder of a Note or that wouldinvolve the Trustee in personal liability.

The Indenture will provide that the Issuer is required to deliver to the Trustee annually a statementregarding compliance with the Indenture, and the Issuer is required, within five Business Days after becomingaware of any Default, to deliver to the Trustee a statement specifying such Default and what action the Issueris taking or proposes to take with respect thereto. In the absence of any such notice of Default from the Issuer,the Trustee shall not be deemed to have notice or be charged with any knowledge of Default.

No Personal Liability of Directors, Officers, Employees and Stockholders

No director, officer, employee, incorporator or stockholder of the Issuer or any Guarantor shall haveany liability for any obligations of the Issuer or the Guarantors under the Notes, the Guarantees or theIndenture or for any claim based on, in respect of, or by reason of such obligations or their creation. EachHolder by accepting Notes waives and releases all such liability. The waiver and release are part of theconsideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federalsecurities laws and it is the view of the SEC that such a waiver is against public policy.

Legal Defeasance and Covenant Defeasance

The obligations of the Issuer and the Guarantors under the Indenture will terminate (other than certainobligations) and will be released upon payment in full of all of the Notes. The Issuer may, at its option and atany time, elect to have all of its obligations discharged with respect to the Notes and have the Issuer’s andeach Guarantor’s obligations discharged with respect to its Guarantee (“Legal Defeasance”) and cure all thenexisting Events of Default except for:

(1) the rights of Holders of Notes to receive payments in respect of the principal of,premium, if any, and interest on the Notes when such payments are due solely out of the trust createdpursuant to the Indenture;

(2) the Issuer’s obligations with respect to Notes concerning issuing temporary Notes,registration of such Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an officeor agency for payment and money for security payments held in trust;

(3) the rights, powers, trusts, duties and immunities of the Trustee, and the Issuer’sobligations in connection therewith; and

(4) the Legal Defeasance provisions of the Indenture.

In addition, the Issuer may, at its option and at any time, elect to have its obligations and those ofeach Guarantor released with respect to substantially all of the restrictive covenants in the Indenture(“Covenant Defeasance”) and thereafter any omission to comply with such obligations shall not constitute aDefault with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not includingbankruptcy, receivership, rehabilitation and insolvency events pertaining to the Issuer) described under “Eventsof Default and Remedies” will no longer constitute an Event of Default with respect to the Notes.

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In order to exercise either Legal Defeasance or Covenant Defeasance with respect to the Notes:

(1) the Issuer must irrevocably deposit with the Trustee, in trust, for the benefit of theHolders of the Notes cash in U.S. dollars, Government Securities, or a combination thereof, in suchamounts as will be sufficient, in the opinion of a nationally recognized firm of independent publicaccountants, to pay the principal amount of, premium, if any, and interest due on the Notes on thestated maturity dates or on the redemption dates, as the case may be, of such principal amount,premium, if any, or interest on such Notes and the Issuer must specify whether such Notes are beingdefeased to maturity or to a particular redemption date;

(2) in the case of Legal Defeasance, the Issuer shall have delivered to the Trustee anOpinion of Counsel as set forth in The Indenture confirming that, subject to customary assumptionsand exclusions,

(a) the Issuer has received from, or there has been published by, the UnitedStates Internal Revenue Service a ruling, or

(b) since the issuance of the Notes, there has been a change in the applicableU.S. federal income tax law,

in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, subjectto customary assumptions and exclusions, the Holders of the Notes will not recognize income, gain orloss for U.S. federal income tax purposes, as applicable, as a result of such Legal Defeasance and willbe subject to U.S. federal income tax on the same amounts, in the same manner and at the sametimes as would have been the case if such Legal Defeasance had not occurred;

(3) in the case of Covenant Defeasance, the Issuer shall have delivered to the Trusteean Opinion of Counsel confirming that, subject to customary assumptions and exclusions, the Holdersof the Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a resultof such Covenant Defeasance and will be subject to such tax on the same amounts, in the samemanner and at the same times as would have been the case if such Covenant Defeasance had notoccurred;

(4) no Default (other than that resulting from borrowing funds to be applied to makesuch deposit and the granting of Liens in connection therewith) shall have occurred and be continuingon the date of such deposit;

(5) such Legal Defeasance or Covenant Defeasance shall not result in a breach orviolation of, or constitute a default under the Senior Credit Facilities, or any other material agreementor instrument (other than the Indenture) to which, the Issuer or any Guarantor is a party or by whichthe Issuer or any Guarantor is bound;

(6) the Issuer shall have delivered to the Trustee an Officer’s Certificate stating that thedeposit was not made by the Issuer with the intent of defeating, hindering, delaying or defrauding anycreditors of the Issuer or any Guarantor or others; and

(7) the Issuer shall have delivered to the Trustee an Officer’s Certificate and an Opinionof Counsel (which Opinion of Counsel may be subject to customary assumptions and exclusions)each stating that all conditions precedent provided for or relating to the Legal Defeasance or theCovenant Defeasance, as the case may be, have been complied with.

Satisfaction and Discharge

The Indenture will be discharged and will cease to be of further effect as to all Notes, when either:

(1) all Notes theretofore authenticated and delivered, except lost, stolen or destroyedNotes which have been replaced or paid and Notes for whose payment money has theretofore beendeposited in trust, have been delivered to the Trustee for cancellation; or

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(2) (a) all Notes not theretofore delivered to the Trustee for cancellation have becomedue and payable by reason of the making of a notice of redemption or otherwise, will become dueand payable within one year or are to be called for redemption and redeemed within one year underarrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in thename, and at the expense, of the Issuer, and the Issuer or any Guarantor has irrevocably deposited orcaused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders ofthe Notes cash in U.S. dollars, Government Securities, or a combination thereof in such amounts aswill be sufficient without consideration of any reinvestment of interest to pay and discharge the entireindebtedness on the Notes not theretofore delivered to the Trustee for cancellation for principal,premium, if any, and accrued interest at such redemption date;

(b) no default (other than that resulting from borrowing funds to be applied tomake such deposit) with respect to the Indenture or the Notes shall have occurred and becontinuing on the date of such deposit or shall occur as a result of such deposit and suchdeposit will not result in a breach or violation of, or constitute a default under the SeniorCredit Facilities or any other material agreement or instrument governing Indebtedness (otherthan the Indenture) to which the Issuer or any Guarantor is a party or by which the Issuer orany Guarantor is bound;

(c) the Issuer has paid or caused to be paid all sums payable by it under theIndenture; and

(d) the Issuer has delivered irrevocable instructions to the Trustee to apply thedeposited money toward the payment of the Notes at maturity or the redemption date, as thecase may be.

In addition, the Issuer must deliver an Officer’s Certificate and an Opinion of Counsel to the Trusteestating that all conditions precedent to satisfaction and discharge have been satisfied.

Amendment, Supplement and Waiver

Except as provided in the next two succeeding paragraphs, the Indenture, any Guarantee, the Notes,the Intercreditor Agreement or any Security Document may be amended or supplemented with the consent ofthe Holders of at least a majority in principal amount of the Notes then outstanding voting as a single class,including consents obtained in connection with a purchase of, or tender offer or exchange offer for Notes, andany existing Default or compliance with any provision of the Indenture or the Notes issued thereunder may bewaived with the consent of the Holders of a majority in principal amount of the then outstanding Notes votingas a single class, other than Notes beneficially owned by the Issuer or its Affiliates (including consentsobtained in connection with a purchase of or tender offer or exchange offer for the Notes); provided, however,that if any such amendment or waiver, by its terms, directly and disproportionately affects one series of Notesthen outstanding, such amendment or waiver shall require the consent (which may include consents obtainedin connection with a tender offer or exchange offer for Notes) of the holders of a majority in principal amountof such series of Notes then outstanding, and if any such amendment or waiver only affects one series ofNotes, the holders of the other series of Notes shall not be required to consent thereto.

The Indenture will provide that, without the consent of each affected Holder of Notes, an amendmentor waiver may not, with respect to any Notes held by a non-consenting Holder:

(1) reduce the principal amount of such Notes whose Holders must consent to anamendment, supplement or waiver;

(2) reduce the principal amount of or change the fixed final maturity of any such Noteor alter or waive the provisions with respect to the redemption of such Notes (other than provisionsrelating to the covenants described above under the caption “Repurchase at the Option of Holders”);

(3) reduce the rate of or change the time for payment of interest on any Note;

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(4) waive a Default in the payment of principal of or premium, if any, or interest on theNotes (except a rescission of acceleration of the Notes by the Holders of at least a majority inaggregate principal amount of the Notes and a waiver of the payment default that resulted from suchacceleration) or in respect of a covenant or provision contained in the Indenture or any Guaranteewhich cannot be amended or modified without the consent of all Holders;

(5) make any Note payable in money other than that stated therein;

(6) make any change in the provisions of the Indenture relating to waivers of pastDefaults or the rights of Holders to receive payments of principal of or premium, if any, or interest onthe Notes;

(7) make any change in these amendment and waiver provisions;

(8) impair the right of any Holder to receive payment of principal of, or interest onsuch Holder’s Notes on or after the due dates therefor or to institute suit for the enforcement of anypayment on or with respect to such Holder’s Notes;

(9) make any change to the ranking in right of payment of the Notes that wouldadversely affect the Holders; or

(10) except as expressly permitted by the Indenture, modify the Guarantees of anySignificant Party in any manner adverse to the Holders of the Notes.

In addition, without the consent of at least two-thirds in aggregate principal amount of Notes thenoutstanding, an amendment, supplement or waiver may not modify any Security Document or the provisionsof the Indenture dealing with the Security Documents or application of trust moneys in any manner, in eachcase, that would subordinate the Lien of the Collateral Agent to the Liens securing any other Obligations(other than as contemplated under clause (12) of the immediately succeeding paragraph) or otherwise releaseall or substantially all of the Collateral, in each case other than in accordance with the Indenture, the SecurityDocuments and the Intercreditor Agreement.

Notwithstanding the foregoing, the Issuer, any Guarantor (with respect to a Guarantee, the Indenture,the Intercreditor Agreement or the Security Documents to which it is a party) and the Trustee or CollateralAgent may amend or supplement the Indenture or any Guarantee, Note, Security Document or theIntercreditor Agreement without the consent of any Holder;

(1) to cure any ambiguity, omission, mistake, defect or inconsistency;

(2) to provide for uncertificated Notes of such series in addition to or in place ofcertificated Notes;

(3) to comply with the covenant relating to mergers, consolidations and sales of assets;

(4) to provide for the assumption of the Issuer’s or any Guarantor’s obligations to theHolders;

(5) to make any change that would provide any additional rights or benefits to theHolders or that does not adversely affect the legal rights under the Indenture, the Notes, theGuarantee, the Security Documents or the Intercreditor Agreement of any such Holder;

(6) to add covenants for the benefit of the Holders or to surrender any right or powerconferred upon the Issuer or any Guarantor;

(7) to comply with requirements of the SEC in order to effect or maintain thequalification of the Indenture under the Trust Indenture Act;

(8) to evidence and provide for the acceptance and appointment under the Indenture ofa successor Trustee thereunder pursuant to the requirements thereof;

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(9) to add a Guarantor under the Indenture, the Security Documents or the IntercreditorAgreement;

(10) to conform the text of the Indenture, Guarantees or the Notes to any provision ofthis “Description of the Notes” to the extent that such provision in this “Description of the Notes”was intended to be a verbatim recitation of a provision of the Indenture, Guarantee or Notes;

(11) to make any amendment to the provisions of the Indenture relating to the transferand legending of Notes as permitted by the Indenture, including, without limitation to facilitate theissuance and administration of the Notes; provided, however, that (i) compliance with the Indenture asso amended would not result in Notes being transferred in violation of the Securities Act or anyapplicable securities law and (ii) such amendment does not materially and adversely affect the rightsof Holders to transfer Notes;

(12) to add or release Collateral from, or subordinate, the Lien of the Indenture and theSecurity Documents when permitted or required by the Security Documents, the Indenture or theIntercreditor Agreement;

(13) to mortgage, pledge, hypothecate or grant any other Lien in favor of the Trustee orthe Collateral Agent for the benefit of the Holders of the Notes, as additional security for thepayment and performance of all or any portion of the Obligations, on any property or assets,including any which are required to be mortgaged, pledged or hypothecated, or on which a Lien isrequired to be granted to or for the benefit of the Trustee or the Collateral Agent pursuant to theIndenture, any of the Security Documents or otherwise; and

(14) to add Additional First Lien Secured Parties to any Security Documents or theIntercreditor Agreement.

The consent of the Holders is not necessary under the Indenture to approve the particular form of anyproposed amendment. It is sufficient if such consent approves the substance of the proposed amendment.

Notices

Notices given by publication will be deemed given on the first date on which publication is made andnotices given by first-class mail, postage prepaid, will be deemed given five calendar days after mailing.

Concerning the Trustee

The Indenture will contain certain limitations on the rights of the Trustee thereunder, should itbecome a creditor of the Issuer, to obtain payment of claims in certain cases, or to realize on certain propertyreceived in respect of any such claim as security or otherwise. The Trustee will be permitted to engage inother transactions; however, if it acquires any conflicting interest it must eliminate such conflict within90 days, apply to the SEC for permission to continue or resign. The Trustee and its affiliates may become acreditor of the Issuer or its Subsidiaries and, in such case, the Indenture limits the Trustee’s right to obtainpayment of claims in certain cases, or to realize on certain property received in respect of any such claim assecurity or otherwise.

The Indenture will provide that the Holders of a majority in principal amount of the outstandingNotes will have the right to direct the time, method and place of conducting any proceeding for exercising anyremedy available to the Trustee, subject to certain exceptions. The Indenture will provide that in case an Eventof Default of which a Responsible Officer of the Trustee shall have actual knowledge shall occur (which shallnot be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudentperson in the conduct of such person’s own affairs. Subject to such provisions and the provisions set forth inthe Indenture, the Trustee will be under no obligation to exercise any of its rights or powers under theIndenture at the request of any Holder of the Notes, unless such Holder shall have offered to the Trusteesecurity and indemnity satisfactory to it against any loss, liability or expense.

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The Trustee or its Affiliates are each permitted to receive additional compensation that could bedeemed to be in the Trustee’s economic self-interest for (i) serving as investment adviser, administrator,shareholder, servicing agent, custodian or subcustodian with respect to certain of the Permitted Investments,(ii) using Affiliates to effect transactions in certain Permitted Investments and (iii) effecting transactions incertain Permitted Investments.

Governing Law

The Indenture, the Notes and any Guarantee will be governed by and construed in accordance withthe laws of the State of New York.

Certain Definitions

Set forth below are certain defined terms used in the Indenture. For purposes of the Indenture, unlessotherwise specifically indicated, the term “consolidated” with respect to any Person refers to such Personconsolidated with the Issuer and its Restricted Subsidiaries, and excludes from such consolidation anyUnrestricted Subsidiary as if such Unrestricted Subsidiary were not an Affiliate of such Person.

“Acquired Indebtedness” means, with respect to any specified Person,

(1) Indebtedness of any other Person existing at the time such other Person is mergedwith or into or became a Restricted Subsidiary of such specified Person, including Indebtednessincurred in connection with, or in contemplation of, such other Person merging with or into orbecoming a Restricted Subsidiary of such specified Person, and

(2) Indebtedness secured by a Lien encumbering any asset acquired by such specifiedPerson.

“Additional First Lien Secured Party” means the holders of any Additional First Priority LienObligations, including the Holders, including any Holder that holds Additional First Priority Lien Obligations,and any Authorized Representative with respect thereto, including the Trustee, if applicable, and the CollateralAgent.

“Additional First Priority Lien Obligations” means any Obligations that are incurred after the IssueDate in accordance with the Indenture and secured by all or any part of the Collateral on a first-priority basisas permitted by the Indenture.

“Affiliate” of any specified Person means any other Person directly or indirectly controlling orcontrolled by or under direct or indirect common control with such specified Person. For purposes of thisdefinition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “undercommon control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, ofthe power to direct or cause the direction of the management or policies of such Person, whether through theownership of voting securities, by agreement or otherwise.

“Applicable Authorized Representative” means, with respect to any Collateral, (i) until the earlier of(x) the Discharge of Senior Credit Facilities Obligations and (y) the Non-Controlling AuthorizedRepresentative Enforcement Date, the administrative agent and/or collateral agent under the Senior CreditFacilities and (ii) from and after the earlier of (x) the Discharge of Senior Credit Facilities Obligations and(y) the Non-Controlling Authorized Representative Enforcement Date, the Major Non-Controlling AuthorizedRepresentative.

“Applicable Premium” means:

(i) with respect to any 2017 Note on any Redemption Date, the greater of:

(a) 1.0% of the principal amount of such Note on such Redemption Date and

(b) the excess, if any, of (i) the present value at such Redemption Date of(A) the redemption price of such Note at (such redemption price being set forth in

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the table appearing above with respect to the 2017 Notes under the caption “OptionalRedemption”), plus (B) all required interest payments due on such Note through(excluding accrued but unpaid interest to the Redemption Date), computed using a discountrate equal to the Treasury Rate as of such Redemption Date plus 50 basis points; over(ii) the principal amount of such Note on such Redemption Date; and

(ii) with respect to any 2020 Note on any Redemption Date, the greater of:

(a) 1.0% of the principal amount of such Note on such Redemption Date; and

(b) the excess, if any, of (i) the present value at such Redemption Date of(A) the redemption price of such Note at (such redemption price being set forth inthe table appearing above with respect to the 2020 Notes under the caption “OptionalRedemption”), plus (B) all required interest payments due on such Note through (excludingaccrued but unpaid interest to the Redemption Date), computed using a discount rate equalto the Treasury Rate as of such Redemption Date plus 50 basis points; over (ii) the principalamount of such Note on such Redemption Date.

“Asset Sale” means:

(1) the sale, conveyance, transfer or other disposition, whether in a single transaction ora series of related transactions, of property or assets (including by way of a Sale and Lease-BackTransaction) of the Issuer or any of its Restricted Subsidiaries (each referred to in this definition as a“disposition”); or

(2) the issuance or sale of Equity Interests of any Restricted Subsidiary, whether in asingle transaction or a series of related transactions;

in each case, other than:

(a) any disposition of obsolete or worn out equipment or any disposition of inventory orgoods (or other assets) held for sale in the ordinary course of business;

(b) the disposition of all or substantially all of the assets of the Issuer and its RestrictedSubsidiaries in a manner permitted pursuant to the provisions described above under “CertainCovenants—Merger, Consolidation or Sale of All or Substantially All Assets”;

(c) the making of any Restricted Payment or Permitted Investment that is permitted tobe made, and is made, under the covenant described above under “Certain Covenants—Limitation onRestricted Payments”;

(d) any disposition of assets or issuance or sale of Equity Interests of a RestrictedSubsidiary in any transaction or series of transactions with an aggregate fair market value of less than$5.0 million;

(e) any disposition of property or assets or issuance of securities by a RestrictedSubsidiary of the Issuer to the Issuer or by the Issuer or a Restricted Subsidiary of the Issuer toanother Restricted Subsidiary of the Issuer;

(f) the sale, lease, assignment or sublease of any real or personal property in theordinary course of business;

(g) any issuance or sale of Equity Interests in, or Indebtedness or other securities of, anUnrestricted Subsidiary;

(h) foreclosures on assets;

(i) any financing transaction with respect to property built or acquired by the Issuer orany Restricted Subsidiary after the Issue Date, including Sale and Lease-Back Transactions and assetsecuritizations permitted by the Indenture;

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(k) sales of accounts receivable in connection with the collection or compromisethereof;

(l) transfers of property subject to casualty or condemnation proceedings (including inlieu thereof) upon the receipt of the net cash proceeds therefor; provided that if the aggregate amountof such net cash proceeds exceeds $5.0 million, such net cash proceeds are deemed to be NetProceeds and are applied in accordance with the second paragraph under “Repurchase at the Optionof Holders—Asset Sales”;

(m) the abandonment of intellectual property rights in the ordinary course of business,which are not material to the conduct of the business of the Issuer and its Restricted Subsidiariestaken as a whole;

(n) voluntary terminations of Hedging Obligations;

(o) any sale or other disposition of assets in consideration for a payment of cash orcrude oil made substantially contemporaneously with the purchase of such asset; provided the amountof such payment shall be at least equal to the purchase price of such asset and, in the event suchpayment is made in crude oil purchased from an Affiliate, the purchase arrangement relating theretowas entered into otherwise in accordance with the Indenture;

(p) any sale or other disposition of assets arising under any PDVSA Agreement;

(q) sales of accounts receivable, or participants therein, in connection with anyReceivables Facility; and

(r) sales of Unrestricted Inventory in connection with any Inventory Financing.

“Authorized Representative” means (i) in the case of any Senior Credit Facilities Obligations, the“Secured Parties” (or similar term) as defined in the Senior Credit Facilities, the administrative agent and/orcollateral agent under the Senior Credit Facilities, (ii) in the case of the Notes Obligations or the Holders, theTrustee (acting at the direction of the Holders of the Notes pursuant to the terms of the Indenture) and (iii) inthe case of any Series of Additional First Priority Lien Obligations or Additional First Lien Secured Partiesthat become subject to the Intercreditor Agreement, the Authorized Representative named for such Series inthe applicable joinder agreement.

“Business Day” means each day which is not a Legal Holiday.

“Capital Stock” means:

(1) in the case of a corporation, corporate stock;

(2) in the case of an association or business entity, any and all shares, interests,participations, rights or other equivalents (however designated) of corporate stock;

(3) in the case of a partnership or limited liability company, partnership or membershipinterests (whether general or limited); and

(4) any other interest or participation that confers on a Person the right to receive ashare of the profits and losses of, or distributions of assets of, the issuing Person.

“Capitalization” means, as of any date of determination, an amount equal to the sum of:

(a) Indebtedness as of such date of the Issuer and its Restricted Subsidiaries (excludingany Indebtedness arising under unfunded surety bonds and Inventory Financing); minus

(b) An amount equal to (a) the Indebtedness as of such date of each RestrictedSubsidiary that is not a Wholly-Owned Subsidiary and whose Indebtedness is not guaranteed by theIssuer or any Restricted Subsidiary multiplied by (b) a fraction, the denominator of which is thenumber of shares of outstanding capital stock or other equity interest of such Restricted Subsidiary

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and the numerator of which is the number of shares of capital stock or other equity interest of suchRestricted Subsidiary not held by the Issuer or another Restricted Subsidiary; plus

(c) consolidated shareholder’s equity of the Issuer and its Restricted Subsidiaries as ofthat date determined in accordance with GAAP.

“Capitalization Ratio” means, as of any date of determination, the ratio of Indebtedness of the Issuerand its Restricted Subsidiaries (excluding any Indebtedness arising under unfunded surety bonds and InventoryFinancing) to Capitalization as of the end of the most recent fiscal quarter for which the Issuer has deliveredfinancial statements pursuant to “—Reports and Other Information;” provided, however, there shall beexcluded from Indebtedness an amount equal to (a) the Indebtedness of each Restricted Subsidiary that is nota Wholly-Owned Subsidiary and whose Indebtedness is not guaranteed by the Issuer or any RestrictedSubsidiary multiplied by (b) a fraction, the denominator of which is the number of shares of outstandingcapital stock or other equity interest of such Restricted Subsidiary and the numerator of which is the numberof shares of capital stock or other equity interest of such Restricted Subsidiary not held by the Issuer oranother Restricted Subsidiary.

“Capitalized Lease Obligation” means, at the time any determination thereof is to be made, theamount of the liability in respect of a capital lease that would at such time be required to be capitalized andreflected as a liability on a balance sheet (excluding the footnotes thereto) in accordance with GAAP.

“Cash Equivalents” means:

(1) United States dollars;

(2) (a) euros, or any national currency of any participating member state of theEMU; or

(b) in the case of the Issuer or a Restricted Subsidiary, such local currenciesheld by them from time to time in the ordinary course of business;

(3) securities issued or directly and fully and unconditionally guaranteed or insured bythe U.S. government or any agency or instrumentality thereof the securities of which areunconditionally guaranteed as a full faith and credit obligation of such government with maturities of12 months or less from the date of acquisition;

(4) certificates of deposit, time deposits and eurodollar time deposits with maturities ofone year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding oneyear and overnight bank deposits, in each case with any commercial bank having capital and surplusof not less than $500.0 million;

(5) repurchase obligations for underlying securities of the types described in clauses (3)and (4) entered into with any financial institution meeting the qualifications specified in clause (4)above;

(6) commercial paper rated at least P-2 by Moody’s or at least A-2 by S&P and in eachcase maturing within 24 months after the date of creation thereof;

(7) marketable short-term money market and similar securities having a rating of atleast P-2 or A-2 from either Moody’s or S&P, respectively (or, if at any time neither Moody’s norS&P shall be rating such obligations, an equivalent rating from another Rating Agency) and in eachcase maturing within 12 months after the date of creation thereof;

(8) investment funds investing 95% of their assets in securities of the types described inclauses (1) through (7) above and (9) below; and

(9) readily marketable direct obligations issued by any state, commonwealth or territoryof the United States or any political subdivision or taxing authority thereof having an InvestmentGrade Rating from either Moody’s or S&P with maturities of 12 months or less from the date ofacquisition;

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provided, however, that if S&P or Moody’s or both shall not make ratings of commercial paper of thetype referred to in clause (6) above or securities of the type referred to in clause (9) above publiclyavailable, the references in clause (6) or (9) or both, as the case may be, to S&P or Moody’s or both,as the case may be, shall be to a nationally recognized U.S. rating agency or agencies, as the casemay be, selected by the Issuer, and the references to the ratings in categories in clause (6) or (9) orboth, as the case may be, shall be to the corresponding rating categories of such rating agency orrating agencies, as the case may be.

“Change of Control” means the occurrence of any of the following:

(1) the sale, lease or transfer, in one or a series of related transactions, of all orsubstantially all of the assets of the Issuer and its Restricted Subsidiaries, taken as a whole, to anyPerson other than a Permitted Holder; or

(2) the Issuer becomes aware of (by way of a report or any other filing pursuant toSection 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) the acquisition by anyPerson or group acting for the purpose of acquiring, holding or disposing of securities (within themeaning of Rule 13d-5(b)(1) under the Exchange Act) but excluding any Permitted Holder, in asingle transaction or in a related series of transactions, by way of merger, consolidation or otherbusiness combination or purchase, of “beneficial ownership” (within the meaning of Rule 13d-3under the Exchange Act, or any successor provision) of Voting Stock of the Issuer or any of its director indirect parent companies enabling such Person or group to elect a majority of the board ofdirectors of the Issuer or any of its direct or indirect parent companies.

“Collateral” shall mean the following (and shall exclude Excluded Property), subject to certainexclusions and restrictions described in and documented by a security agreement and other instruments,including those certain mortgages, deeds of trust or other instruments on the Lake Charles, Louisiana, CorpusChristi, Texas and Lemont, Illinois refinery (the “Mortgages”), evidencing or creating, or purporting to createa security interest and/or lien in favor of BNP Paribas, as Collateral Agent, (the “Collateral Agent”) for itsbenefit and the benefit of the Trustee, the Holders of the Notes, and the other creditors referred to in theIntercreditor Agreement:

(a) the Mortgages on the Lake Charles, Louisiana refinery and the Lemont, Illinoisrefinery, including, without limitation, all real and personal property comprising a part thereof, butnot including the CITGO Lubricants & Wax facility located at the Lake Charles, Louisiana refinery,and certain exclusions relating to the hydrogen supply facilities and co-generation facilities at suchfacilities,

(b) all of the ownership interests held by the Issuer and/or CITGO Investment Companyin CITGO Refining and Chemicals Company L.P. and CITGO AR2008 Funding Company, LLC;

(c) all inventory owned by the Issuer and each Guarantor,

(d) all present and future Equity Interests held by the Issuer and any of its Subsidiariesin each of the Guarantors (limited, in the case of the voting Equity Interests of a foreign subsidiary toa pledge of 65% of the voting Equity Interests of each such foreign subsidiary.

(e) all of the present and future accounts receivables of the Issuer, and

(f) all proceeds and products of the property and assets described in (a)-(e) above.

“Collateral Agent” means BNP Paribas, in its capacity as collateral agent for First Priority LienSecured Parties, together with its successors and permitted assigns in such capacity under the IntercreditorAgreement.

“Consolidated Depreciation and Amortization Expense” means, with respect to any Person, for anyperiod, the total amount of depreciation and amortization expense, including the amortization of deferredfinancing fees and amortization of unrecognized prior service costs and actuarial gains and losses related to

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pensions and other post-employment benefits, of such Person and its Restricted Subsidiaries for such period ona consolidated basis and otherwise determined in accordance with GAAP.

“Consolidated Interest Expense” means, with respect to any Person for any period, withoutduplication, the sum of:

(1) consolidated interest expense of such Person and its Restricted Subsidiaries for suchperiod, to the extent such expense was deducted (and not added back) in computing Consolidated NetIncome (including (a) amortization of original issue discount resulting from the issuance ofIndebtedness at less than par, (b) all commissions, discounts and other fees and charges owed withrespect to letters of credit or bankers acceptances, (c) non-cash interest expense (but excluding anynon-cash interest expense attributable to the movement in the mark to market valuation of HedgingObligations or other derivative instruments pursuant to GAAP), (d) the interest component ofCapitalized Lease Obligations, and (e) net payments, if any, pursuant to interest rate HedgingObligations with respect to Indebtedness, and excluding (v) amortization of deferred financing fees,debt issuance costs, commissions, fees and expenses and any accelerated charges resulting from earlyrepayments of Indebtedness issued with original issue discount, (w) any expensing of bridge,commitment and other financing fees and (x) commissions, discounts, yield and other fees andcharges (including any interest expense) related to any Receivables Facility, (y) commissions,discounts, yield and other fees and charges (including any interest expense) related to any InventoryFinancing to the extent such Inventory Financing is permitted by clause (17) of the second paragraphof the covenant described under “Certain Covenants—Limitation on Incurrence of Indebtedness andIssuance of Disqualified Stock and Preferred Stock”) and (z) any amounts that would be included asinterest expense under GAAP in respect of any other items or transactions excluded from thedefinition of “Indebtedness” hereunder); plus

(2) consolidated capitalized interest of such Person and its Restricted Subsidiaries forsuch period, whether paid or accrued; less

(3) interest income of such Person and its Restricted Subsidiaries for such period.

For purposes of this definition, interest on a Capitalized Lease Obligation shall be deemed to accrueat an interest rate reasonably determined by the Issuer to be the rate of interest implicit in such CapitalizedLease Obligation in accordance with GAAP.

“Consolidated Net Income” means, with respect to any Person, for any period, the aggregate of theNet Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, after taxes,for such period, as determined in accordance with GAAP adjusted, to the extent included in calculating suchNet Income, by excluding, without duplication

(i) all extraordinary gains or losses (net of fees and expense relating to the transactiongiving rise thereto), income, expenses or charges, as determined in accordance with GAAP;

(ii) gains or losses in respect of any Asset Sales by such Person or one of its RestrictedSubsidiaries (net of fees and expenses relating to the transaction giving rise thereto), on an after-taxbasis;

(iii) the net income (loss) from any operations disposed of or discontinued and any netgains or losses on such disposition or discontinuance, on an after-tax basis; and

(iv) the cumulative effect of a change in accounting principles.

“Consolidated Net Tangible Assets” means, as of any date of determination, the consolidated totalassets of the Issuer and its Restricted Subsidiaries determined in accordance with GAAP as of the end of theIssuer’s most recent fiscal quarter for which internal financial statements are available, less the sum of (1) allcurrent liabilities (excluding any (i) current liabilities that by their terms are unconditionally extendable orrenewable at the sole option of the obligor thereon to a time more than 12 months after the time as of whichthe amount thereof is being computed and (ii) current maturities of long-term debt) and current liability items,

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and (2) all net amounts of goodwill, trade names, trademarks, patents, organization expense, unamortized debtdiscount and expense and other similar intangibles properly classified as intangibles in accordance with GAAP.

“Consolidated Secured Debt Ratio” means, as of the date of determination, the ratio of (a) theConsolidated Secured Indebtedness of the Issuer and its Restricted Subsidiaries on such date to (b) EBITDAof the Issuer and its Restricted Subsidiaries for the most recently ended four fiscal quarters endingimmediately prior to such date for which internal financial statements are available.

In the event that the Issuer or any Restricted Subsidiary (i) incurs, assumes, guarantees, redeems,retires or extinguishes any Indebtedness or (ii) issues or redeems Disqualified Stock or Preferred Stocksubsequent to the commencement of the period for which the Consolidated Secured Debt Ratio is beingcalculated but prior to or simultaneously with the event for which the calculation of the Consolidated SecuredDebt Ratio is made (the “Consolidated Secured Debt Ratio Calculation Date”), then the Consolidated SecuredDebt Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee, redemption,retirement or extinguishment of Indebtedness, or such issuance or redemption of Disqualified Stock orPreferred Stock, as if the same had occurred at the beginning of the applicable four-quarter period.

For purposes of making the computation referred to above, Investments, acquisitions, dispositions,mergers, amalgamations, consolidations and discontinued operations (as determined in accordance withGAAP), in each case with respect to an operating unit of a business made (or committed to be made pursuantto a definitive agreement) during the four-quarter reference period or subsequent to such reference period andon or prior to or simultaneously with the Consolidated Secured Debt Ratio Calculation Date, and otheroperational changes that the Issuer or any of its Restricted Subsidiaries has determined to make and/or madeduring the four-quarter reference period or subsequent to such reference period and on or prior to orsimultaneously with the Consolidated Secured Debt Ratio Calculation Date shall be calculated on a pro formabasis in accordance with GAAP assuming that all such Investments, acquisitions, dispositions, mergers,amalgamations, consolidations, discontinued operations and other operational changes had occurred on thefirst day of the four-quarter reference period. If since the beginning of such period any Person thatsubsequently became a Restricted Subsidiary or was merged with or into the Issuer or any of its RestrictedSubsidiaries since the beginning of such period shall have made any Investment, acquisition, disposition,merger, amalgamation, consolidation, discontinued operation or operational change, in each case with respectto an operating unit of a business, that would have required adjustment pursuant to this definition, then theConsolidated Secured Debt Ratio shall be calculated giving pro forma effect thereto for such period as if suchInvestment, acquisition, disposition, merger, consolidation, discontinued operation or operational change hadoccurred at the beginning of the applicable four-quarter period.

“Consolidated Secured Indebtedness” means, as of any date of determination, the sum, withoutduplication, of (1) the total amount of Secured Indebtedness of the Issuer and its Restricted Subsidiaries, plus(2) if secured by a Lien, the greater of the aggregate liquidation value and maximum fixed repurchase pricewithout regard to any change of control or redemption premiums of all Disqualified Stock of the Issuer andthe Restricted Subsidiaries and all Preferred Stock of its Restricted Subsidiaries that are not Guarantors, ineach case, determined on a consolidated basis in accordance with GAAP.

“Controlling Secured Parties” means, with respect to any Collateral, the holders of the Series of FirstPriority Lien Obligations whose Authorized Representative is the Applicable Authorized Representative forsuch Collateral.

“Corpus Christi Refinery” means CRCCLP’s refinery located at Corpus Christi, Texas, as furtherdefined in the Security Documents.

“Corpus Christi Refinery Purchase Option” means the purchase option in favor of CRCCLP withrespect to a portion of the Corpus Christi Refinery subject to the West Plant Lease and the West PlantSublease.

“CRCCLP” means CITGO Refining and Chemicals Company L.P., a Delaware limited partnership.

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“Credit Facilities” means, with respect to the Issuer or any of its Restricted Subsidiaries, one or moredebt facilities, including the Senior Credit Facilities, or other financing arrangements (including, withoutlimitation, commercial paper facilities or indentures) providing for revolving credit loans, term loans, letters ofcredit or other long-term indebtedness, including any notes, mortgages, guarantees, collateral documents,instruments and agreements executed in connection therewith, and any amendments, supplements,modifications, extensions, renewals, restatements or refundings thereof and any indentures or credit facilitiesor commercial paper facilities that replace, refund or refinance any part of the loans, notes, other creditfacilities or commitments thereunder, including any such replacement, refunding or refinancing facility orindenture that increases the amount permitted to be borrowed thereunder or alters the maturity thereof(provided that such increase in borrowings is permitted under “Certain Covenants—Limitation on Incurrenceof Indebtedness and Issuance of Disqualified Stock and Preferred Stock”) or adds Restricted Subsidiaries asadditional borrowers or guarantors thereunder and whether by the same or any other agent, lender or group oflenders.

“Default” means any event that is, or with the passage of time or the giving of notice or both wouldbe, an Event of Default.

“Discharge of Senior Credit Facilities Obligations” means, with respect to any Collateral, the date onwhich the Senior Credit Facilities Obligations are no longer secured by such Collateral; provided that theDischarge of Senior Credit Facilities Obligations shall not be deemed to have occurred in connection with arefinancing, refunding, replacement, renewal, extension, restatement, amendment, supplement or modificationof such Senior Credit Facilities Obligations with additional First Priority Lien Obligations secured by suchCollateral under an agreement relating to additional First Priority Lien Obligations which has been designatedin writing by the administrative agent under the Senior Credit Facilities so refinanced, refunded, replaced,renewed, extended, restated, amended, supplemented or modified to the Collateral Agent and each otherAuthorized Representative as the “Senior Credit Facilities” or similar term for purposes of the IntercreditorAgreement.

“Disqualified Stock” means, with respect to any Person, any Capital Stock of such Person which, byits terms, or by the terms of any security into which it is convertible or for which it is putable orexchangeable, or upon the happening of any event, matures or is mandatorily redeemable (other than solely asa result of a change of control or asset sale) pursuant to a sinking fund obligation or otherwise, or isredeemable at the option of the holder thereof (other than solely as a result of a change of control or assetsale), in whole or in part, in each case prior to the date 91 days after the earlier of the maturity date of theNotes or the date the Notes are no longer outstanding.

“EBITDA” means, with respect to any Person for any period, the Consolidated Net Income of suchPerson and its Restricted Subsidiaries for such period

(1) increased (without duplication) by:

(a) provision for taxes based on income or profits or capital, including, withoutlimitation, state, franchise and similar taxes, foreign withholding taxes and foreignunreimbursed value added taxes of such Person and such Subsidiaries paid or accrued duringsuch period deducted (and not added back) in computing Consolidated Net Income; plus

(b) Fixed Charges of such Person and such Subsidiaries for such period(including (x) net losses on Hedging Obligations or other derivative instruments entered intofor the purpose of hedging interest rate risk, (y) fees payable in respect of letters of creditand (z) costs of surety bonds in connection with financing activities, in each case, to theextent included in Fixed Charges) to the extent the same were deducted (and not added back)in calculating such Consolidated Net Income; plus

(c) Consolidated Depreciation and Amortization Expense of such Person andsuch Subsidiaries for such period to the extent the same was deducted (and not added back)in computing Consolidated Net Income; plus

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(d) any expenses or charges (other than depreciation or amortization expense)related to any Equity Offering, Permitted Investment, acquisition, disposition, recapitalizationor the incurrence or repayment of Indebtedness permitted to be incurred by the Indenture(including a refinancing thereof) (whether or not successful), including (i) such fees,expenses, or charges related to the offering of the Notes, (ii) any amendment or othermodification of the Senior Credit Facilities and the Notes and (iii) commissions, discounts,yield and other fees and charges (including any interest expense) related to any ReceivablesFacility, and, in each case, deducted (and not added back) in computing Consolidated NetIncome; plus

(e) any other non-cash charges, including any write-offs or write-downs,reducing Consolidated Net Income for such period (provided that if any such non-cashcharges represent an accrual or reserve for contingent cash items in any future period, thecash payment in respect thereof in such future period shall be subtracted from EBITDA insuch future period to the extent paid, and excluding amortization of a prepaid cash item thatwas paid in a prior period); plus

(f) the amount of any minority interest expense consisting of Subsidiaryincome attributable to minority equity interests of third parties in any non-Wholly-OwnedSubsidiary deducted (and not added back) in such period in calculating Consolidated NetIncome; plus

(g) the amount of loss on sale of receivables and related assets to theReceivables Subsidiary in connection with a Receivables Facility deducted (and not addedback) in computing Consolidated Net Income;

(2) decreased by (without duplication) non-cash gains increasing Consolidated NetIncome of such Person and such Subsidiaries for such period, excluding any non-cash gains to theextent they represent the reversal of an accrual or reserve for a contingent cash item that reducedEBITDA in any prior period; and

(3) increased or decreased by (without duplication):

(a) any net gain or loss resulting in such period from Hedging Obligations andthe application of Statement of Financial Accounting Standards No. 133 and InternationalAccounting Standards No. 39 and their respective related pronouncements andinterpretations; plus or minus, as applicable,

(b) any net gain or loss resulting in such period from currency translation gainsor losses related to currency remeasurements of indebtedness (including any net loss or gainresulting from hedge agreements for currency exchange risk).

“EMU” means economic and monetary union as contemplated in the Treaty on European Union.

“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire CapitalStock, but excluding any debt security that is convertible into, or exchangeable for, Capital Stock.

“Equity Offering” means any public or private sale of common stock or Preferred Stock of the Issueror of a direct or indirect parent of the Issuer (excluding Disqualified Stock), other than:

(1) public offerings with respect to any such Person’s common stock registered on FormS-8; and

(2) issuances to the Issuer or any Subsidiary of the Issuer.

“euro” means the single currency of participating member states of the EMU.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules andregulations of the SEC promulgated thereunder.

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“Excluded Property” means any and all of the following:

(a) accounts owned by CITGO AR2008 Funding Company, LLC (and/or any othersubsidiary established directly or indirectly by the Issuer for the purpose of the financing ofreceivables) in connection with a receivables financing transaction;

(b) Unrestricted Inventory sold as part of any Inventory Financing;

(c) any property or assets of the Issuer or any Guarantor to the extent that the Issuer orsuch Guarantor is prohibited from granting a security interest in, pledge of, or charge, mortgage, orlien upon any such property or assets by reason of (x) an existing and enforceable negative pledgeprovision or (y) applicable law or regulation to which such Grantor is subject, except to the extentsuch prohibition is ineffective under the UCC of any relevant jurisdiction, any other applicable law orprinciples of equity;

(c) all records pertaining to any of the foregoing;

(d) outstanding voting Equity Interests of a foreign subsidiary to the extent in excess of65% of the voting power of all classes of Equity Interests of such foreign subsidiary entitled to vote;

(e) any and all additions, accessions and improvements to, all substitutions andreplacements for and all products of or derived from the foregoing;

(f) all proceeds of the foregoing; and

(g) any cash collateral held at any time pursuant to the Senior Credit Facilities or anyagreement to issue letters of credit, each as in effect on the Issue Date or (b) any amounts on depositor otherwise segregated as required pursuant to the terms of any Fixed Rate IRB Documents thatconstitute security for the Fixed Rate IRB Obligations.

“First Priority Lien Documents” means the credit, guarantee and security documents governing theFirst Priority Lien Obligations, including, without limitation, the Indenture, the Security Documents, the CreditAgreement, the Fixed Rate IRB Documents and related security documents.

“First Priority Lien Obligations” means, collectively, (a) all Senior Credit Facilities Obligations,(b) the Notes Obligations, (c) the Fixed Rate IRB Obligations and (d) any Series of Additional First PriorityLien Obligations.

“First Priority Lien Secured Parties” means (a) the “Secured Parties” (or similar term), as defined inthe Senior Credit Facilities, (b) the Trustee and the Holders of Notes, (c) the holders of the Fixed Rate IRBObligations and (d) any other holders of any Series of Additional First Priority Lien Obligations.

“Fixed Charge Coverage Ratio” means, with respect to any Person for any period, the ratio of theEBITDA of such Person for such period to the Fixed Charges of such Person for such period. In the event thatthe Issuer or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (otherthan revolving credit borrowings under any Credit Facility) or issues or redeems preferred stock subsequent tothe commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but on orprior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made(the “Calculation Date”), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect tosuch incurrence, assumption, guarantee or redemption of Indebtedness, or such issuance or redemption ofpreferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period.

For purposes of making the computation referred to above, Investments, acquisitions, dispositions,mergers, amalgamations, consolidations and discontinued operations (as determined in accordance withGAAP), in each case with respect to an operating unit of a business made (or committed to be made pursuantto a definitive agreement) during the four-quarter reference period or subsequent to such reference period andon or prior to or simultaneously with the Calculation Date, and other operational changes that the Issuer orany of its Restricted Subsidiaries has determined to make and/or made during the four-quarter referenceperiod or subsequent to such reference period and on or prior to or simultaneously with the Calculation Date

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shall be calculated on a pro forma basis in accordance with GAAP assuming that all such Investments,acquisitions, dispositions, mergers, amalgamations, consolidations, discontinued operations and otheroperational changes had occurred on the first day of the four-quarter reference period. If since the beginningof such period any Person that subsequently became a Restricted Subsidiary or was merged with or into theIssuer or any of its Restricted Subsidiaries since the beginning of such period shall have made any Investment,acquisition, disposition, merger, amalgamation, consolidation, discontinued operation or operational change, ineach case with respect to an operating unit of a business, that would have required adjustment pursuant to thisdefinition, then the Fixed Change Coverage Ratio shall be calculated giving pro forma effect thereto for suchperiod as if such Investment, acquisition, disposition, merger, consolidation, discontinued operation oroperational change had occurred at the beginning of the applicable four-quarter period.

“Fixed Charges” means, with respect to any Person for any period, the sum, without duplication, of

(1) the Consolidated Interest Expense of such Person and its Restricted Subsidiaries forsuch period; and

(2) all dividend payments, whether or not in cash, on any series of preferred stock ofsuch Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interestspayable solely in Equity Interests of the Issuer (other than Disqualified Stock).

“Fixed Rate IRBs” means the bonds issued pursuant to (a) that certain Trust Indenture issued by GulfCoast Industrial Development Authority, dated as of April 1, 1995, with respect to the $50,000,000 Gulf CoastIndustrial Development Authority Solid Waste Disposal Revenue Bonds, (b) that certain Trust Indenture issuedby Gulf Coast Industrial Development Authority, dated as of April 1, 1998, with respect to the $25,000,000Gulf Coast Industrial Development Authority Solid Waste Disposal Revenue Bonds, and (c) that certainTrust Indenture issued by Illinois Development Finance Authority, dated as of June 1, 2002, with respect tothe $30,000,000 Illinois Development Finance Authority Environmental Facilities Revenue Bonds.

“Fixed Rate IRB Documents” means the indentures and the guarantee and security documentsgoverning the Fixed Rate IRB Obligations.

“Fixed Rate IRB Obligations” means Obligations in respect of the Fixed Rate IRBs, including, for theavoidance of doubt, Obligations in respect of guarantees thereof.

“Fixed Rate IRB Trustee” means the trustee in respect of the Fixed Rate IRBs.

“GAAP” means generally accepted accounting principles in the United States which are in effect onthe Issue Date. At any time after the Issue Date, the Issuer may elect to apply IFRS accounting principles inlieu of GAAP and, upon any such election, references herein to GAAP shall thereafter be construed to meanIFRS (except as otherwise provided in the Indenture); provided that any such election, once made, shall beirrevocable; provided, further, any calculation or determination in the Indenture that requires the application ofGAAP for periods that include fiscal quarters ended prior to the Issuer’s election to apply IFRS shall remainas previously calculated or determined in accordance with GAAP. The Issuer shall give notice of any suchelection made in accordance with this definition to the Trustee and the Holders of Notes.

“Government Securities” means securities that are:

(1) direct obligations of the United States of America for the timely payment of whichits full faith and credit is pledged; or

(2) obligations of a Person controlled or supervised by and acting as an agency orinstrumentality of the United States of America the timely payment of which is unconditionallyguaranteed as a full faith and credit obligation by the United States of America, which, in either case,are not callable or redeemable at the option of the issuer thereof, and shall also include a depositoryreceipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian withrespect to any such Government Securities or a specific payment of principal of or interest on anysuch Government Securities held by such custodian for the account of the holder of such depositoryreceipt; provided that (except as required by law) such custodian is not authorized to make any

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deduction from the amount payable to the holder of such depository receipt from any amountreceived by the custodian in respect of the Government Securities or the specific payment of principalof or interest on the Government Securities evidenced by such depository receipt.

“guarantee” means a guarantee (other than by endorsement of negotiable instruments for collection inthe ordinary course of business), direct or indirect, in any manner (including letters of credit andreimbursement agreements in respect thereof), of all or any part of any Indebtedness or other obligations.

“Guarantee” means the guarantee by any Guarantor of the Issuer’s Obligations under the Indenture.

“Guarantor” means, each Person that Guarantees the Notes in accordance with the terms of theIndenture.

“Hedging Obligations” means, with respect to any Person, the obligations of such Person under anyinterest rate swap agreement, interest rate cap agreement, interest rate collar agreement, commodity swapagreement, commodity cap agreement, commodity collar agreement, foreign exchange contract, currency swapagreement or similar agreement providing for the transfer or mitigation of interest rate, commodity price orcurrency risks either generally or under specific contingencies.

“Holder” means the Person in whose name a Note is registered on the registrar’s books.

“Hydrogen Supply Agreement” means a long-term agreement which for accounting purposes ischaracterized as a capital lease in accordance with GAAP under which a third party supplies hydrogen to theIssuer or any of its Subsidiaries to use in their business.

“IFRS” means the international accounting standards promulgated by the International AccountingStandards Board and its predecessors as in effect from time to time.

“Indebtedness” means, with respect to any Person, without duplication:

(1) any indebtedness (including principal and premium) of such Person, whether or notcontingent:

(a) in respect of borrowed money;

(b) evidenced by bonds, notes, debentures or similar instruments or letters ofcredit or bankers’ acceptances (or, without duplication, reimbursement agreements in respectthereof);

(c) representing the balance deferred and unpaid of the purchase price of anyproperty (including Capitalized Lease Obligations), except (i) any such balance thatconstitutes a trade payable or similar obligation to a trade creditor, in each case accrued inthe ordinary course of business or payable within 180 days of incurrence of such liabilityand (ii) liabilities accrued in the ordinary course of business; or

(d) representing any Hedging Obligations; provided that the amount of any netobligation under any Swap Contract on any date shall be deemed to be the Swap TerminationValue thereof as of such date;

if and to the extent that any of the foregoing Indebtedness (other than letters of credit and HedgingObligations) would appear as a liability upon a balance sheet (excluding the footnotes thereto) of suchPerson prepared in accordance with GAAP;

(2) to the extent not otherwise included, any obligation by such Person to be liable for,or to pay, as obligor, guarantor or otherwise, on the obligations of the type referred to in clause (1) ofa third Person (whether or not such items would appear upon the balance sheet of such obligor orguarantor), other than by endorsement of negotiable instruments for collection in the ordinary courseof business; and

(3) to the extent not otherwise included, the obligations of the type referred to inclause (1) of a third Person secured by a Lien on any asset owned by such first Person, whether or

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not such Indebtedness is assumed by such first Person up to a maximum amount of the principalamount of such third Person obligations or if less, the value of the asset pledged by the first Person;

provided, however, that notwithstanding the foregoing, Indebtedness, whether in the form of Capitalized LeaseObligations or otherwise, shall be deemed not to include obligations under or in respect of (i) ReceivablesFacilities, (ii) Hydrogen Supply Agreements, or (iii) Tax Sharing Agreements.

“Independent Financial Advisor” means an accounting, appraisal, investment banking firm orconsultant to Persons engaged in Similar Businesses of nationally recognized standing that is, in the good faithjudgment of the Issuer, qualified to perform the task for which it has been engaged.

“Intercreditor Agreement” means the Intercreditor Agreement among the Issuer, the other grantorsparty thereto, BNP Paribas, as collateral agent for the First Priority Lien Secured Parties and as authorizedrepresentative for the credit agreement secured parties, the Trustee, as the initial additional authorizedrepresentative, and each additional authorized representative from time to time party thereto, dated as of theIssue Date as the same may be amended, amended and restated, modified, renewed or replaced from time totime.

“Inventory Financing” means a financing arrangement pursuant to which the Issuer or any Guarantorsells Unrestricted Inventory to a bank or other institution (or a special purpose vehicle or partnershipincorporated or established by or on behalf of such bank or other institution or an Affiliate of such bank orother institution).

“Investment Grade Rating” means, with respect to the Issuer, a corporate family rating of the Issuerand its consolidated subsidiaries equal to or higher than Baa3 (or the equivalent) by Moody’s and BBB- (orthe equivalent) by S&P.

“Investments” means, with respect to any Person, all investments by such Person in other Persons(including Affiliates) in the form of loans (including guarantees), advances or capital contributions (excludingaccounts receivable, trade credit, advances to customers, commission, travel and similar advances to directors,officers, employees and consultants, in each case made in the ordinary course of business), purchases or otheracquisitions for consideration of Indebtedness, Equity Interests or other securities issued by any other Personand investments that are required by GAAP to be classified on the balance sheet (excluding the footnotes) ofsuch Person in the same manner as the other investments included in this definition to the extent suchtransactions involve the transfer of cash or other property. For purposes of the definition of “UnrestrictedSubsidiary” and the covenant described under “Certain Covenants—Limitation on Restricted Payments”:

(1) “Investments” shall include the portion (proportionate to the Issuer’s direct orindirect equity interest in such Subsidiary) of the fair market value of the net assets of a Subsidiary ofthe Issuer at the time that such Subsidiary is designated an Unrestricted Subsidiary; and

(2) any property transferred to or from an Unrestricted Subsidiary shall be valued at itsfair market value at the time of such transfer, in each case as determined in good faith by the Issuer.

“Issue Date” means , 2010.

“Issuer” has the meaning set forth in the first paragraph under “General.”

“Legal Holiday” means a Saturday, a Sunday or a day on which commercial banking institutions arenot required to be open in the State of New York or in the place of payment.

“Lien” means, with respect to any asset, any mortgage, lien (statutory or otherwise), pledge,hypothecation, charge, security interest, preference, priority or encumbrance of any kind in respect of suchasset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditionalsale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell orgive a security interest in and any filing of or agreement to give any financing statement under the UniformCommercial Code (or equivalent statutes) of any jurisdiction; provided that in no event shall an operating leasebe deemed to constitute a Lien.

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“Major Non-Controlling Authorized Representative” means, after the Applicable Authorized AgentDate, the Authorized Representative of the Series of First Priority Lien Obligations that constitutes the largestoutstanding principal amount of any then outstanding Series of First Priority Lien Obligations, other than theSenior Credit Facilities Obligations, with respect to the Collateral.

“Moody’s” means Moody’s Investors Service, Inc. and any successor to its rating agency business.

“Net Income” means, with respect to any Person, the net income (loss) of such Person and itsSubsidiaries that are Restricted Subsidiaries, determined in accordance with GAAP and before any reductionin respect of Preferred Stock dividends.

“Net Proceeds” means the aggregate cash proceeds (excluding any proceeds deemed as cash) receivedby the Issuer or any of its Restricted Subsidiaries in respect of any Asset Sale, including legal, accounting andinvestment banking fees, and brokerage and sales commissions, any relocation expenses incurred as a resultthereof, taxes paid or payable as a result thereof (after taking into account any available tax credits ordeductions and any tax sharing arrangements), amounts required to be applied to the repayment of principal,premium, if any, and interest on Indebtedness (other than Subordinated Indebtedness) required (other thanrequired by clause (1) of the second paragraph of “Repurchase at the Option of Holders—Asset Sales”) to bepaid as a result of such transaction (or in the case of Asset Sales of Collateral, which Indebtedness (other thanSubordinated Indebtedness) shall be secured by a Lien on such Collateral that has priority over the Liensecuring the Notes Obligations) and any deduction of appropriate amounts to be provided by the Issuer or anyof its Restricted Subsidiaries as a reserve in accordance with GAAP against any liabilities associated with theasset disposed of in such transaction and retained by the Issuer or any of its Restricted Subsidiaries after suchsale or other disposition thereof, including pension and other post-employment benefit liabilities and liabilitiesrelated to environmental matters or against any indemnification obligations associated with such transaction.

“Non-Controlling Authorized Representative Enforcement Date” means the date that is 90 days(throughout which 90-day period the applicable Authorized Representative of a Series of First Priority LienObligations was the Major Non-Controlling Authorized Representative) after the occurrence of both (a) anevent of default, as defined in the Indenture or other governing agreement for that Series of First Priority LienObligations, and (b) the Trustee’s and each other Authorized Representative’s receipt of written notice fromthat Authorized Representative certifying that (i) such Authorized Representative is the Major Non-ControllingAuthorized Representative and that an event of default, as defined in the Indenture or other governingagreement for that Series of First Priority Lien Obligations, has occurred and is continuing and (ii) the FirstPriority Lien Obligations of that Series are currently due and payable in full (whether as a result ofacceleration thereof or otherwise) in accordance with the Indenture or other governing agreement for thatSeries of First Priority Lien Obligations; provided that the Non-Controlling Authorized RepresentativeEnforcement Date shall be stayed and shall not occur and shall be deemed not to have occurred with respectto any Collateral at any time the administrative agent under the Senior Credit Facilities or the Collateral Agenthas commenced and is diligently pursuing any enforcement action with respect to such Collateral.

“Non-Controlling Secured Parties” means, with respect to any Collateral, the First Lien SecuredParties which are not Controlling Secured Parties with respect to such Collateral.

“Non-Core Assets” means assets of the Issuer and its Restricted Subsidiaries other than Collateraland, in any case, other than their petroleum refineries in Lake Charles, Louisiana, Corpus Christi, Texas andLemont, Illinois; provided, that the aggregate amount of Net Proceeds received from the sale or otherdisposition of the foregoing which shall constitute proceeds from the sale or other disposition of “Non-CoreAssets” shall not exceed $300.0 million.

“Notes” means the notes offered hereby and any Additional Notes subsequently issued under theIndenture.

“Notes Obligations” means Obligations in respect of the Notes, including for the avoidance of doubt,Obligations in respect of guarantees thereof.

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“Obligations” means any principal (including any accretion), interest (including any interest accruingsubsequent to the filing of a petition in bankruptcy, reorganization or similar proceeding at the rate providedfor in the documentation with respect thereto, whether or not such interest is an allowed claim underapplicable state, federal or foreign law), penalties, fees, indemnifications, reimbursements (includingreimbursement obligations with respect to letters of credit and banker’s acceptances), damages and otherliabilities, and guarantees of payment of such principal (including any accretion), interest, penalties, fees,expenses, indemnifications, reimbursements, damages and other liabilities, payable under the documentationgoverning any Indebtedness.

“Officer” means the Chairman of the Board, the Chief Executive Officer, the President, any ExecutiveVice President, Senior Vice President or Vice President, the Treasurer, the Controller, the General Counsel orthe Secretary of the Issuer.

“Officer’s Certificate” means a certificate signed on behalf of the Issuer by an Officer of the Issuer,that meets the requirements set forth in the Indenture.

“Opinion of Counsel” means a written opinion from legal counsel (not at the Trustee’s expense) whois acceptable to the Trustee. The counsel may be an employee of or counsel to the Issuer.

“PDVSA Agreements” means collectively, (a)(i) that certain Crude Oil Sales Agreement, dated as ofDecember 1, 2008 by and between PDVSA Petróleo, S.A., a sociedad anónima organized and existing underthe laws of the Bolivarian Republic of Venezuela (“PDVSA”) and the Issuer, (ii) that certain Offset Agreement,dated as of February 2, 2010, by and between PDVSA and the Issuer, (iii) that certain Corporate ServicesAgreement, dated as of January 1, 2002, by and between PDVSA Services, Inc., a Delaware corporation andthe Issuer, as amended by the First Amendment to the Corporate Services Agreement dated January 1, 2005,(iv) that certain promissory note made by PDVSA in favor of the Issuer on February 2, 2010, (v) that certainCrude Oil and Feedstock Supply Agreement, dated March 31, 1987, between Champlin Refining Company (aspredecessor in interest to Issuer) and Petroleos de Venezuela, S.A., (vi) that certain Aircraft ProcurementServices Agreement, dated as of March 19, 2010, by and between Issuer and Petróleos de Venezuela, S.A. and(vii) that certain Procurement Services Agreement, dated as of February 17, 2010, by and between Issuer andPetróleos de Venezuela, S.A., in each case, including any amendment, modification, extension or replacementthereof on terms no less favorable to the Issuer and its Subsidiaries immediately prior thereto; and (b) anyagreements entered into after the Issue Date pursuant to which the Issuer or a Restricted Subsidiary purchasesor manages or administers the purchase of assets or services from third parties on behalf of PDVSA or any ofits other Subsidiaries or Affiliates on terms consistent with procurement services agreements referred to inclause (a)(vi) and a(vii) of this definition which may include provisions under which PDVSA pays directly, ormakes available to the Issuer or such Restricted Subsidiary (either in cash or Cash Equivalents, or through setoffs of amounts otherwise payable by the Issuer or any of its Restricted Subsidiaries to PDVSA or any of itsother Subsidiaries or Affiliates for crude oil or other feedstock or assets or services purchased by the Issuer ora Restricted Subsidiary from any of PDVSA or any of its other Subsidiaries or Affiliates) the purchase pricefor such assets or services prior to the Issuer and/or the relevant Restricted Subsidiary’s payment thereof to thethird party supplier of the assets or services.

“Permitted Holder” means Petróleos de Venezuela, S.A. and its Wholly-Owned Subsidiaries.

“Permitted Investments” means:

(1) any Investment in the Issuer or any of its Restricted Subsidiaries;

(2) any Investment in cash and Cash Equivalents;

(3) any Investment by the Issuer or any of its Restricted Subsidiaries in a Person that isengaged in a Similar Business if as a result of such Investment:

(a) such Person becomes a Restricted Subsidiary; or

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(b) such Person, in one transaction or a series of related transactions, is mergedor consolidated with or into, or transfers or conveys substantially all of its assets to, or isliquidated into, the Issuer or a Restricted Subsidiary,

and, in each case, any Investment held by such Person; provided that such Investment was notacquired by such Person in contemplation of such acquisition, merger, consolidation or transfer;

(4) any Investment in securities or other assets received in connection with an AssetSale made pursuant to the provisions of “Repurchase at the Option of Holders—Asset Sales” or anyother disposition of assets not constituting an Asset Sale;

(5) any Investment existing on the Issue Date or made pursuant to bindingcommitments in effect on the Issue Date or an Investment consisting of any extension, modificationor renewal of any Investment existing on the Issue Date; provided that the amount of any suchInvestment may be increased (x) as required by the terms of such Investment as in existence on theIssue Date or (y) as otherwise permitted under this Indenture;

(6) any Investment acquired by the Issuer or any of its Restricted Subsidiaries:

(a) in exchange for any other Investment or accounts receivable held by theIssuer or any such Restricted Subsidiary in connection with or as a result of a bankruptcyworkout, reorganization or recapitalization of the issuer of such other Investment or accountsreceivable; or

(b) as a result of a foreclosure by the Issuer or any of its RestrictedSubsidiaries with respect to any secured Investment or other transfer of title with respect toany secured Investment in default;

(7) Hedging Obligations permitted under clause (9) of the covenant described in“Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stockand Preferred Stock”;

(8) Investments the payment for which consists of Equity Interests (exclusive ofDisqualified Stock) of the Issuer or any of its direct or indirect parent companies; provided, however,that such Equity Interests will not increase the amount available for Restricted Payments underclause (3) of the first paragraph under the covenant described in “Certain Covenants—Limitation onRestricted Payments”;

(9) Investments consisting of purchases and acquisitions of inventory, supplies, materialor equipment;

(10) advances to, or guarantees of Indebtedness of, directors, employees, officers andconsultants not in excess of $5.0 million outstanding at any one time, in the aggregate;

(11) loans and advances to officers, directors and employees for moving, travel andentertainment expenses and other similar expenses, in each case incurred in the ordinary course ofbusiness, for disaster relief, or to fund such Person’s purchase of Equity Interests of the Issuer or anydirect or indirect parent company thereof;

(12) Investments in the ordinary course of business consisting of endorsements forcollection or deposit;

(13) any Investment arising under any PDVSA Agreement and any obligation of anAffiliate of the Issuer that results from the payment by the Issuer or any of its Restricted Subsidiariesof income taxes owed by such Affiliate pursuant to a Tax Sharing Agreement;

(14) an Investment by the Issuer contemporaneously with the making of a capitalcontribution to or the issuance of Equity Interests (other than Disqualified Stock) of the Issuer, whichcapital contribution or the proceeds of which issuance are in cash and are specified for the purpose ofthe making of such Investment, and which Investment shall be no greater than the amount of such

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capital contribution, and provided that such capital contribution shall not be included in any basketcalculation provided in “Certain Covenants—Limitation on Restricted Payments”;

(15) other acquisitions or Investments in joint ventures with Persons other thanAffiliates (net of any distributions to the Issuer or its Restricted Subsidiaries with respect to theEquity Interest owned by the Issuer or such Restricted Subsidiary in such joint venture), that do notexceed the greater of $50.0 million or 1.0% of Consolidated Net Tangible Assets of the Issuer and itsSubsidiaries as of the end of the most recent fiscal quarter for which the Issuer has deliveredfinancial statements pursuant to “—Reports and Other Information” in the aggregate outstanding atany time since the Issue Date;

(16) Investments in Persons made after the Issue Date to the extent such Investments donot exceed the greater of $100.0 million or 2.0% of Consolidated Net Tangible Assets of the Issuerand its Subsidiaries as of the end of the most recent fiscal quarter for which the Issuer has deliveredfinancial statements pursuant to “—Reports and Other Information” in the aggregate outstanding atany time since the Issue Date; and

(17) Investments in or relating to a Receivables Subsidiary that, in the good faithdetermination of the Issuer, are necessary or advisable to effect any Receivables Facility.

“Permitted Liens” means, with respect to any Person:

(1) pledges or deposits by such Person under workmen’s compensation laws,unemployment insurance laws or similar legislation, or good faith deposits in connection with bids,tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is aparty, or deposits to secure public or statutory obligations of such Person or deposits of cash orU.S. government bonds to secure surety or appeal bonds to which such Person is a party, or depositsas security for contested taxes or import duties or for the payment of rent, in each case incurred inthe ordinary course of business;

(2) Liens imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens, ineach case for sums not yet overdue for a period of more than 45 days or being contested in good faithby appropriate proceedings or other Liens arising out of judgments or awards against such Personwith respect to which such Person shall then be proceeding with an appeal or other proceedings forreview if adequate reserves with respect thereto are maintained on the books of such Person inaccordance with GAAP and such proceedings have the effect of preventing the forfeiture or sale ofthe property subject to such Lien;

(3) Liens for taxes, assessments or other governmental charges not yet overdue for aperiod of more than 30 days or subject to penalties for nonpayment or which are being contested ingood faith by appropriate proceedings diligently conducted, if adequate reserves with respect theretoare maintained on the books of such Person in accordance with GAAP and such proceedings have theeffect of preventing the forfeiture or sale of the property subject to such Lien;

(4) Liens in favor of the issuer of stay, customs, appeal, performance and surety bondsor bid bonds or with respect to other regulatory requirements or letters of credit issued pursuant tothe request of and for the account of such Person in the ordinary course of its business or Liensrequired by any contract or statute in order to permit the Issuer or any Subsidiary of the Issuer toperform any contract or subcontract with or pursuant to the requirements of a U.S. governmentalentity and Liens on pipeline or pipeline facilities which arise by operation of applicable law or “firstpurchaser” Liens on crude oil;

(5) minor survey exceptions, minor encumbrances, easements or reservations of, orrights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines andother similar purposes, or zoning or other restrictions as to the use of real properties or Liensincidental to the conduct of the business of such Person or to the ownership of its properties whichwere not incurred in connection with Indebtedness and which (i) do not in the aggregate materially

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adversely affect the value of said properties or materially impair their use in the operation of thebusiness of such Person or (ii) are granted to suppliers of good and services;

(6) Liens securing Obligations under Indebtedness permitted to be incurred pursuant toclause (2) or (4) of the second paragraph under “Certain Covenants—Limitation on Incurrence ofIndebtedness and Issuance of Disqualified Stock and Preferred Stock”; provided that Liens securingIndebtedness permitted to be incurred pursuant to clause (4) are solely on the assets financed,purchased, constructed, improved, acquired or assets of the acquired entity, as the case may be;

(7) Liens existing on the Issue Date (other than Liens securing the Credit Facilities),including Liens in the nature of letters of credit that support the Issuer’s obligations in respect ofoutstanding variable rate IRBs;

(8) Liens on property or shares of stock of a Person at the time such Person becomes aSubsidiary; provided, however, such Liens are not created or incurred in connection with, or incontemplation of, such other Person becoming such a Subsidiary; provided, further, however, thatsuch Liens may not extend to any other property owned by the Issuer or any of its RestrictedSubsidiaries;

(9) Liens on property at the time the Issuer or a Restricted Subsidiary acquired theproperty, including any acquisition by means of a merger or consolidation with or into the Issuer orany of its Restricted Subsidiaries; provided, however, that such Liens are not created or incurred inconnection with, or in contemplation of, such acquisition; provided, further, however, that the Liensmay not extend to any other property owned by the Issuer or any of its Restricted Subsidiaries;

(10) Liens securing Hedging Obligations so long as, in the case of Hedging Obligationsrelated to interest, the related Indebtedness is permitted under the Indenture to be secured by a Lienon the same property securing such Hedging Obligations;

(11) Liens on specific items of inventory or other goods and proceeds of any Personsecuring such Person’s obligations in respect of bankers’ acceptances issued or created for the accountof such Person to facilitate the purchase, shipment or storage of such inventory or other goods;

(12) leases, subleases, licenses or sublicenses granted to others in the ordinary course ofbusiness which do not materially interfere with the ordinary conduct of the business of the Issuer orany of its Restricted Subsidiaries and do not secure any Indebtedness;

(13) Liens arising from Uniform Commercial Code financing statement filingsregarding operating leases entered into by the Issuer and its Restricted Subsidiaries in the ordinarycourse of business;

(14) Liens in favor of the Issuer or any Guarantor;

(15) Liens on equipment of the Issuer or any of its Restricted Subsidiaries granted inthe ordinary course of business to the Issuer’s or such Restricted Subsidiary’s client at whichequipment is located;

(16) Liens to secure any refinancing, refunding, extension, renewal or replacement (orsuccessive refinancing, refunding, extensions, renewals or replacements) as a whole, or in part, of anyIndebtedness permitted to be incurred pursuant to “Certain Covenants—Limitation on Incurrence ofIndebtedness and Issuance of Disqualified Stock and Preferred Stock” secured by any Lien referred toin the foregoing clauses (6), (7), (8) and (9); provided, however, that (a) such new Lien shall belimited to all or part of the same property that secured the original Lien (plus improvements on suchproperty), and (b) the Indebtedness secured by such Lien at such time is not increased to any amountgreater than the sum of (i) the outstanding principal amount or, if greater, committed amount of theIndebtedness described under clauses (6), (7), (8), and (9) at the time the original Lien became aPermitted Lien under the Indenture, and (ii) an amount necessary to pay any fees and expenses,including premiums, related to such refinancing, refunding, extension, renewal or replacement;

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(17) deposits made in the ordinary course of business to secure liability to insurancecarriers;

(18) other Liens securing Indebtedness or other obligations not to exceed$300.0 million at any one time outstanding; provided that to the extent such Liens are on Collateral,such Liens shall rank junior to the Liens on the Collateral for the benefit of the Holders of Notessubject to an intercreditor agreement customary for intercreditor arrangements between first-priorityand second-priority lenders;

(19) Liens securing judgments for the payment of money not constituting an Event ofDefault under clause (5) under the caption “Events of Default and Remedies” so long as such Liensare adequately bonded and any appropriate legal proceedings that may have been duly initiated for thereview of such judgment have not been finally terminated or the period within which suchproceedings may be initiated has not expired;

(20) Liens in favor of customs and revenue authorities arising as a matter of law tosecure payment of customs duties in connection with the importation of goods in the ordinary courseof business;

(21) Liens (i) of a collection bank arising under Section 4-210 of the UniformCommercial Code on items in the course of collection, (ii) attaching to commodity trading accountsor other commodity brokerage accounts incurred in the ordinary course of business, and (iii) in favorof banking institutions arising as a matter of law encumbering deposits (including the right of set-off)and which are within the general parameters customary in the banking industry;

(22) Liens encumbering reasonable customary initial deposits and margin deposits andsimilar Liens attaching to commodity trading accounts or other brokerage accounts incurred in theordinary course of business and not for speculative purposes;

(23) Liens that are contractual rights of set-off (i) relating to the establishment ofdepository relations with banks not given in connection with the issuance of Indebtedness, (ii) relatingto pooled deposit or sweep accounts of the Issuer or any of its Restricted Subsidiaries to permitsatisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Issuerand its Restricted Subsidiaries or (iii) relating to purchase orders and other agreements entered intowith customers of the Issuer or any of its Restricted Subsidiaries in the ordinary course of business;

(24) Liens securing the obligations of the Issuer and its Subsidiaries under HydrogenSupply Agreements;

(25) Liens in the nature of letters of credit securing obligations incurred in connectionwith IRBs;

(26) Liens on cash collateral securing obligations under the letter of credit facilitypermitted under clause (18) of the second paragraph of “Certain Covenants—Limitation onIncurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock,” in an amountnot to exceed the amount required to be so secured pursuant to the agreement governing suchfacilities;

(27) Liens on accounts receivable and related assets incurred in connection with aReceivables Facility; and

(28) Liens on Unrestricted Inventory incurred in connection with any InventoryFinancing to the extent such Inventory Financing is permitted by clause (17) of the second paragraphof the covenant described under “Certain Covenants—Limitation on Incurrence of Indebtedness andIssuance of Disqualified Stock and Preferred Stock”).

For purposes of this definition, the term “Indebtedness” shall be deemed to include interest on andthe costs in respect of such Indebtedness.

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“Person” means any individual, corporation, limited liability company, partnership, joint venture,association, joint stock company, trust, unincorporated organization, government or any agency or politicalsubdivision thereof or any other entity.

“Preferred Stock” means any Equity Interest with preferential rights of payment of dividends or uponliquidation, dissolution, or winding up.

“Rating Agencies” means Moody’s and S&P or if Moody’s or S&P or both shall not make a rating onthe Notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be,selected by the Issuer which shall be substituted for Moody’s or S&P or both, as the case may be.

“Receivables Facility” means any of one or more receivables financing facilities as amended,supplemented, modified, extended, renewed, restated or refunded from time to time, the Obligations of whichare non-recourse (except for customary representations, warranties, covenants and indemnities made inconnection with such facilities) to the Issuer or any of its Restricted Subsidiaries (other than a ReceivablesSubsidiary) pursuant to which the Issuer or any of its Restricted Subsidiaries sells its accounts receivable toeither (a) a Person that is not a Restricted Subsidiary or (b) a Receivables Subsidiary that in turn sells itsaccounts receivable to a Person that is not a Restricted Subsidiary.

“Receivables Fees” means distributions or payments made directly or by means of discounts withrespect to any accounts receivable or participation interest therein issued or sold in connection with, and otherfees paid to a Person that is not a Restricted Subsidiary in connection with, any Receivables Facility.

“Receivables Subsidiary” means any Subsidiary formed for the purpose of, and that solely engagesonly in one or more Receivables Facilities and other activities reasonably related thereto.

“Restricted Inventory” means inventory located within the battery limits of each of the refineriesother than inventory residing in assets of CITGO Products Pipeline Company or CITGO Pipeline Company.

“Responsible Officer” means any vice president, any assistant vice president, any assistant secretary,any assistant treasurer, any trust officer, any assistant trust officer or any other officer associated with thecorporate trust department (or any successor group of the Trustee) of the Trustee customarily performingfunctions similar to those performed by any of the above designated officers and also means, with respect to aparticular corporate trust matter, any other officer to whom such matter is referred because of such person’sknowledge of and familiarity with the particular subject, and who shall in each case have direct responsibilityfor the administration of the Indenture.

“Restricted Investment” means an Investment other than a Permitted Investment.

“Restricted Subsidiary” means, at any time, each direct and indirect Subsidiary of the Issuer that isnot then an Unrestricted Subsidiary; provided, however, that upon the occurrence of an Unrestricted Subsidiaryceasing to be an Unrestricted Subsidiary, such Subsidiary shall be included in the definition of “RestrictedSubsidiary.”

“S&P” means Standard & Poor’s, a division of The McGraw-Hill Companies, Inc., and any successorto its rating agency business.

“Sale and Lease-Back Transaction” means any arrangement providing for the leasing by the Issuer orany of its Restricted Subsidiaries of any real or tangible personal property, which property has been or is to besold or transferred by the Issuer or such Restricted Subsidiary to a third Person in contemplation of suchleasing.

“SEC” means the U.S. Securities and Exchange Commission.

“Secured Indebtedness” means any Indebtedness of the Issuer or any of its Restricted Subsidiariessecured by a Lien.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of theSEC promulgated thereunder.

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“Security Documents” means, collectively, the security agreements, pledge agreements and otheragreements granting or creating a Lien on the Collateral in favor of the Collateral Agent and the Mortgagesand instruments filed and recorded in appropriate jurisdictions to preserve and protect such Liens on theCollateral (including, without limitation, financing statements under the Uniform Commercial Code of therelevant states), each as in effect on the Issue Date, or if entered into after the Issue Date, as in effect on suchlater date, and as amended, amended and restated, modified, renewed or replaced from time to time.

“Senior Credit Facilities” means the Credit Facility under the Credit Agreement (the “CreditAgreement”) dated the Issue Date by and among the Issuer, the Guarantors, the lenders party thereto in theircapacities as lenders thereunder and BNP Paribas, as Administrative Agent (the “Administrative Agent”),including any guarantees, cash management agreements, collateral documents, instruments and agreementsexecuted in connection therewith, and any amendments, supplements, modifications, extensions, renewals,restatements, refundings or refinancings thereof and any indentures or credit facilities or commercial paperfacilities with banks or other institutional lenders or investors that replace, refund or refinance any part of theloans, notes, other credit facilities or commitments thereunder, including any such replacement, refunding orrefinancing facility or indenture that increases the amount borrowable thereunder or alters the maturity thereof(provided that such increase in borrowings is permitted under “Certain Covenants—Limitation on Incurrenceof Indebtedness and Issuance of Disqualified Stock and Preferred Stock” above).

“Senior Credit Facilities Obligations” means Obligations in respect of the Senior Credit Facilities,including, for the avoidance of doubt, Obligations in respect of guarantees thereof and Hedging Obligationssubject to guarantee and security agreements entered into in connection with the Senior Credit Facilities.

“Series” means (a) with respect to the First Priority Lien Secured Parties, each of (i) the “SecuredParties” (or similar term), as defined in the Senior Credit Facilities (in their capacities as such), (ii) theHolders and the Trustee (each in their capacity as such), (iii) the holders of the Fixed Rate IRB Obligationsunder the Fixed Rate IRB Documents and (iv) each other group of Additional First Lien Secured Parties thatbecome subject to the Intercreditor Agreement after the date hereof that are represented by a commonAuthorized Representative (in its capacity as such for such Additional First Lien Secured Parties) and (b) withrespect to any First Priority Lien Obligations, each of (i) the Senior Credit Facilities Obligations, (ii) the NotesObligations, (iii) the Fixed Rate IRB Obligations under the Fixed Rate IRB Documents and (iv) the AdditionalFirst Priority Lien Obligations incurred pursuant to any applicable common agreement, which pursuant to anyjoinder agreement, are to be represented under the Intercreditor Agreement by a common AuthorizedRepresentative (in its capacity as such for such Additional First Priority Lien Obligations), it being understoodthat holders of Fixed Rate IRB Obligations under each Fixed Rate IRB Document shall constitute a separateSeries of First Priority Lien Secured Parties under each Fixed Rate IRB Document and the Fixed Rate IRBObligations under each Fixed Rate IRB Document shall constitute a separate Series of First Priority LienObligations.

“Significant Party” means any Restricted Subsidiary that would be, or any group of RestrictedSubsidiaries that taken together would constitute, a “significant subsidiary” as defined in Article 1, Rule 1-02of Regulation S-X, promulgated pursuant to the Securities Act, as such regulation is in effect on the IssueDate.

“Similar Business” means any business conducted or proposed to be conducted by the Issuer and itsSubsidiaries on the Issue Date or any business that is similar, reasonably related, incidental or ancillary thereto.

“Subordinated Indebtedness” means:

(1) any Indebtedness of the Issuer which is by its terms subordinated in right ofpayment to the Notes; and

(2) any Indebtedness of any Guarantor which is by its terms subordinated in right ofpayment to the Guarantee of such entity of the Notes.

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“Subsidiary” means, with respect to any Person:

(1) any corporation, association, or other business entity (other than a partnership, jointventure, limited liability company or similar entity) of which more than 50% of the total voting powerof shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote inthe election of directors, managers or trustees thereof is at the time of determination owned orcontrolled, directly or indirectly, by such Person or one or more of the other Subsidiaries of thatPerson or a combination thereof; and

(2) any partnership, joint venture, limited liability company or similar entity of which

(x) more than 50% of the capital accounts, distribution rights, total equity andvoting interests or general or limited partnership interests, as applicable, are owned orcontrolled, directly or indirectly, by such Person or one or more of the other Subsidiaries ofthat Person or a combination thereof whether in the form of membership, general, special orlimited partnership or otherwise, and

(y) such Person or any Restricted Subsidiary of such Person is a controllinggeneral partner or otherwise controls such entity.

“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivativetransactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts,equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bondor forward bond price or forward bond index transactions, interest rate options, forward foreign exchangetransactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currencyrate swap transactions, currency options, spot contracts, or any other similar transactions or any combinationof any of the foregoing (including any options to enter into any of the foregoing), whether or not any suchtransaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind,and the related confirmations, which are subject to the terms and conditions of, or governed by, any form ofmaster agreement published by the International Swaps and Derivatives Association, Inc., any InternationalForeign Exchange Master Agreement, or any other master agreement (any such master agreement, togetherwith any related schedules, a “Master Agreement”), including any such obligations or liabilities under anyMaster Agreement.

“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking intoaccount the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date onor after the date such Swap Contracts have been closed out and termination value(s) determined in accordancetherewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s)determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts.

“Tax Sharing Agreement” means that certain Tax Allocation Agreement made as of June, 24, 1993 byand between PDV America, Inc., a Delaware corporation, VPHI Midwest, Inc., a Delaware corporation, theIssuer and PDV USA, Inc. a Delaware corporation, as amended by the First Amendment dated June 24, 1993,the Second Amendment dated as of April 26, 2000 and the Restated Agency Agreement dated August 14,2000, including any amendment, modification, extension or replacement thereof, in each case on terms no lessfavorable to the Issuer and its Subsidiaries prior thereto.

“Treasury Rate” means, as of any Redemption Date, the yield to maturity as of suchRedemption Date of United States Treasury securities with a constant maturity (as compiled and published inthe most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least twoBusiness Days prior to the Redemption Date (or, if such Statistical Release is no longer published, anypublicly available source of similar market data)) most nearly equal to the period from the Redemption Date to

, 2017, in the case of the 2017 Notes, or , 2020, in the case of the 2020 Notes; provided,however, that if the period from the Redemption Date to , 2017, in the case of the 2017 Notes, or

, 2020, in the case of the 2020 Notes, is less than one year, the weekly average yield on actuallytraded United States Treasury securities adjusted to a constant maturity of one year will be used.

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“Trust Indenture Act” means the Trust Indenture Act of 1939, as amended (15 U.S.C.§§ 77aaa-77bbbb).

“UCC” means Articles 8 and 9 of the Uniform Commercial Code as in effect from time to time inthe State of New York or, where applicable as to specific items or types of Collateral any other relevant state.

“Unrestricted Inventory” means all inventory of the Issuer and its Subsidiaries other than RestrictedInventory.

“Unrestricted Subsidiary” means:

(1) any Subsidiary of the Issuer which at the time of determination is an UnrestrictedSubsidiary (as designated by the Issuer, as provided below); and

(2) any Subsidiary of an Unrestricted Subsidiary.

The Issuer may designate any Subsidiary of the Issuer (including any existing Subsidiary and anynewly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any ofits Subsidiaries owns any Equity Interests or Indebtedness of, or owns or holds any Lien on, any property of,the Issuer or any Restricted Subsidiary of the Issuer (other than solely any Unrestricted Subsidiary of theSubsidiary to be so designated); provided that

(1) any Unrestricted Subsidiary must be an entity of which the Equity Interests entitledto cast at least a majority of the votes that may be cast by all Equity Interests having ordinary votingpower for the election of directors or Persons performing a similar function are owned, directly orindirectly, by the Issuer;

(2) such designation complies with the covenants described under “Certain Covenants—Limitation on Restricted Payments”; and

(3) each of:

(a) the Subsidiary to be so designated; and

(b) its Subsidiaries

has not at the time of designation, and does not thereafter, incur any Indebtedness pursuant to which the lenderhas recourse to any of the assets of the Issuer or any Restricted Subsidiary.

The Issuer may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that,immediately after giving effect to such designation, no Default shall have occurred and be continuing andeither:

(1) the Issuer could incur at least $1.00 of additional Indebtedness pursuant to the FixedCharge Coverage Ratio test described in the first paragraph under “Certain Covenants—Limitation onIncurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock”; or

(2) the Fixed Charge Coverage Ratio for the Issuer and its Restricted Subsidiarieswould be greater than such ratio immediately prior to such designation,

in each case on a pro forma basis taking into account such designation.

Any such designation by the Issuer shall be notified by the Issuer to the Trustee by promptly filingwith the Trustee a copy of the resolution of the board of directors of the Issuer or any committee thereofgiving effect to such designation and an Officer’s Certificate certifying that such designation complied withthe foregoing provisions.

“Voting Stock” of any Person as of any date means the Capital Stock of such Person that is at thetime entitled to vote in the election of the board of directors of such Person.

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“Weighted Average Life to Maturity” means, when applied to any Indebtedness, Disqualified Stock orPreferred Stock, as the case may be, at any date, the quotient obtained by dividing:

(1) the sum of the products of the number of years from the date of determination tothe date of each successive scheduled principal payment of such Indebtedness or redemption orsimilar payment with respect to such Disqualified Stock or Preferred Stock multiplied by the amountof such payment; by

(2) the sum of all such payments.

“West Plant Sublease” means that certain Sublease Agreement dated as of March 31, 1987 betweenAnadarko Petroleum Corporation, as successor in interest to Champlin Petroleum Company, sublessor, andCRCCLP, as successor in interest to Champlin Refining Company, sublesee, relating to a portion of theCorpus Christi Refinery.

“West Plant Lease” means that certain Lease Agreement dated as of July 15, 1983, between UnitedStates Trust Company of New York, lessor, and Anadarko E&P Company L.P., as successor in interest toChamplin Petroleum Company, lessee, as amended by Lease Supplement No. 1, Lease Supplement No. 2 andLease Supplement No. 3 thereto and as the same may be further amended, modified or supplemented fromtime to time, relating to a portion of the Corpus Christi Refinery.

“Wholly-Owned Subsidiary” of any Person means a Subsidiary of such Person, 100% of theoutstanding Equity Interests of which (other than directors’ qualifying shares) shall at the time be owned bysuch Person or by one or more Wholly-Owned Subsidiaries of such Person.

Book-Entry, Delivery and Form

The notes are being offered and sold in connection with the initial offering thereof solely to“qualified institutional buyers,” as defined in Rule 144A under the Securities Act (“QIBs”), pursuant toRule 144A under the Securities Act (“Rule 144A”) and in offshore transactions to persons other thanU.S. persons, as defined in Regulation S (“Regulation S”) under the Securities Act (“non-U.S. persons”) inreliance on Regulation S. Following the initial offering of the notes, the notes may be sold to QIBs pursuant toRule 144A, non-U.S. persons in reliance on Regulation S and pursuant to other exemptions from, or intransactions not subject to, the registration requirements of the Securities Act, as described under “Notice toInvestors.”

Rule 144A Global Securities. Notes offered and sold to QIBs pursuant to Rule 144A will be issued inthe form of registered notes in global form, without interest coupons (the “Rule 144A global securities”). TheRule 144A global securities will be deposited on the date of the closing of the sale of the notes (the “closingdate”) with, or on behalf of, a custodian for The Depository Trust Company (“DTC”) and registered in thename of Cede & Co., as nominee of the DTC, or any successor nominee. Interests in the Rule 144A globalsecurities will be available for purchase only by QIBs.

Regulation S Global Securities. Notes offered and sold in offshore transactions to non-U.S. persons inreliance on Regulation S will be issued in the form of registered notes in global form, without interestcoupons (the “Regulation S global securities”). The Regulation S global securities will be deposited on theclosing date with, or on behalf of, a custodian for DTC and registered in the name of Cede & Co., as nomineeof the DTC, or any successor nominee, for credit to the respective accounts of the purchasers (or to such otheraccounts as they may direct) at Euroclear Bank S.A./NV, as operator of the Euroclear System (“Euroclear”), orClearstream Banking, societe anonyme, Luxembourg (“Clearstream Luxembourg”).

Investors may hold their interests in the Regulation S global securities directly through Euroclear orClearstream Luxembourg, if they are participants in such systems, or indirectly through organizations that areparticipants in such systems. Investors may also hold such interests through organizations other than Euroclearor Clearstream Luxembourg that are participants in the DTC system. Euroclear and Clearstream Luxembourgwill hold such interests in the Regulation S global securities on behalf of their participants through customers’securities accounts in their respective names on the books of their respective depositaries. Such depositaries, in

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turn, will hold such interests in the Regulation S global securities in customers’ securities accounts in thedepositories’ names on the books of DTC.

Except as set forth below, the Rule 144A global securities and the Regulation S global securities(collectively, the “global securities”) may be transferred, in whole and not in part, solely to DTC or anothernominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the global securities may notbe exchanged for certificated securities except in the limited circumstances described below.

The notes will be subject to restrictions on transfer and will bear a restrictive legend as set forthunder “Notice to Investors.”

All interests in the global securities, including those held through Euroclear or ClearstreamLuxembourg, may be subject to the procedures and requirements of DTC. Those interests held throughEuroclear or Clearstream Luxembourg may also be subject to the procedures and requirements of suchsystems.

Exchanges Among the Global Securities

Prior to the 40th day after the later of the commencement of the offering of the notes and the closingdate (such period through and including such 40th day, the “distribution compliance period”), transfers by anowner of a beneficial interest in a Regulation S global security to a transferee who takes delivery of suchinterest through a Rule 144A global security of that series will be made only upon receipt by the trustee of awritten certification from the transferor of the beneficial interest to the effect that such transfer is being madeto a person whom the transferor reasonably believes is a QIB within the meaning of Rule 144A in atransaction meeting the requirements of Rule 144A.

Transfers by an owner of a beneficial interest in a Rule 144A global security to a transferee whotakes delivery through the Regulation S global security of that series, whether before or after the expiration ofthe distribution compliance period, will be made only upon receipt by the trustee of a certification from thetransferor to the effect that such transfer is being made in accordance with Regulation S or (if available)Rule 144 under the Securities Act and that, if such transfer is being made prior to the expiration of therestricted period, the interest transferred will be held immediately thereafter through Euroclear or ClearstreamLuxembourg.

The trustee will be entitled to receive such evidence as it may reasonably request to establish theidentity and/or signatures of any transferee or transferor.

Any beneficial interest in one of the global securities that is transferred to a person who takesdelivery in the form of a beneficial interest in another global security of that series will, upon transfer, ceaseto be an interest in the initial global security of that series and will become an interest in the other globalsecurity of that series and, accordingly, will thereafter be subject to all transfer restrictions, if any, and otherprocedures applicable to beneficial interests in such other global security of that series for as long as itremains such an interest.

Certain Book-Entry Procedures for the Global Securities

The operations and procedures of DTC, Euroclear and Clearstream Luxembourg are solely within thecontrol of the respective settlement systems and are subject to change by them from time to time. Investors areurged to contact the relevant system or its participants directly to discuss these matters.

DTC has advised us that it is:

k a limited-purpose trust company organized under the laws of the State of New York;

k a “banking organization” within the meaning of the New York Banking Law;

k a member of the Federal Reserve System;

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k a “clearing corporation” within the meaning of the New York Uniform Commercial Code, asamended; and

k a “clearing agency” registered pursuant to Section 17A of the Exchange Act of 1934.

DTC was created to hold securities for its participants (collectively, the “participants”) and tofacilitate the clearance and settlement of securities transactions, such as transfers and pledges, betweenparticipants through electronic book-entry changes to the accounts of its participants, thereby eliminating theneed for physical transfer and delivery of certificates. DTC’s participants include securities brokers and dealers(including the initial purchasers), banks and trust companies, clearing corporations and certain otherorganizations. DTC is a wholly owned subsidiary of the Depository Trust & Clearing Corporation, which isowned by a number of direct participants of DTC and by the New York Stock Exchange, Inc., the AmericanStock Exchange, LLC and the National Association of Securities Dealers, Inc. Indirect access to DTC’s systemis also available to other entities such as banks, brokers, dealers and trust companies (collectively, the “indirectparticipants”) that clear through or maintain a custodial relationship with a participant, either directly orindirectly. Investors who are not participants may beneficially own securities held by or on behalf of DTC onlythrough participants or indirect participants. The rules applicable to DTC and its participants are on file withthe SEC.

Purchases of securities under DTC’s system must be made by or through its direct participants. Weexpect that, pursuant to procedures established by DTC:

k upon deposit of each global security, DTC will credit, on its book-entry registration and transfersystem, the accounts of participants designated by the initial purchasers with an interest in thatglobal security, and

k ownership of beneficial interests in the global securities will be shown on, and the transfer ofownership interests in the global securities will be effected only through, records maintained byDTC (with respect to the interests of participants) and by participants and indirect participants(with respect to the interests of persons other than participants).

The laws of some jurisdictions may require that some purchasers of securities take physical deliveryof those securities in definitive form. Accordingly, the ability to transfer beneficial interests in notesrepresented by a global security to those persons may be limited. In addition, because DTC can act only onbehalf of its participants, who in turn act on behalf of persons who hold interests through participants, theability of a person holding a beneficial interest in a global security to pledge or transfer that interest topersons or entities that do not participate in DTC’s system, or to otherwise take actions in respect of thatinterest, may be affected by the lack of a physical security in respect of that interest.

So long as DTC or its nominee is the registered owner of a global security, DTC or that nominee, asthe case may be, will be considered the sole legal owner or holder of the notes represented by that globalsecurity for all purposes of the notes and the indenture. Except as provided below, owners of beneficialinterests in a global security will not be entitled to have the notes represented by that global security registeredin their names, will not receive or be entitled to receive physical delivery of certificated securities, and willnot be considered the owners or holders of the notes represented by that beneficial interest under the indenturefor any purpose, including with respect to the giving of any direction, instruction or approval to the trustee. Tofacilitate subsequent transfers, all global securities that are deposited with, or on behalf of, DTC will beregistered in the name of DTC’s nominee, Cede & Co. The deposit of global securities with, or on behalf of,DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. Weunderstand that DTC has no knowledge of the actual beneficial owners of the securities. Accordingly, eachholder owning a beneficial interest in a global security must rely on the procedures of DTC and, if that holderis not a participant or an indirect participant, on the procedures of the participant through which that holderowns its interest, to exercise any rights of a holder of notes under the indenture or that global security. Weunderstand that under existing industry practice, in the event that we request any action of holders of notes, ora holder that is an owner of a beneficial interest in a global security desires to take any action that DTC, asthe holder of that global security, is entitled to take, DTC would authorize the participants to take that action

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and the participants would authorize holders owning through those participants to take that action or wouldotherwise act upon the instruction of those holders.

Conveyance of notices and other communications by DTC to its direct participants, by its directparticipants to indirect participants and by its direct and indirect participants to beneficial owners will begoverned by arrangements among them, subject to any statutory or regulatory requirements as may be in effectfrom time to time.

Neither DTC nor Cede & Co. will consent or vote with respect to the global securities unlessauthorized by a direct participant under DTC’s procedures. Under its usual procedures, DTC will mail anomnibus proxy to us as soon as possible after the applicable record date. The omnibus proxy assigns Cede &Co.’s consenting or voting rights to those direct participants of DTC to whose accounts the securities arecredited on the applicable record date, which are identified in a listing attached to the omnibus proxy.

Neither we nor the trustee will have any responsibility or liability for any aspect of the recordsrelating to or payments made on account of beneficial interests in the global securities by DTC, or formaintaining, supervising or reviewing any records of DTC relating to those beneficial interests.

Payments with respect to the principal of and premium, if any, additional interest, if any, and intereston a global security will be payable by the trustee or the paying agent to DTC or its nominee in its capacity asthe registered holder of the global security under the indenture. Under the terms of the indenture, we, thetrustee and any paying agent may treat the persons in whose names the notes, including the global securities,are registered as the owners thereof for the purpose of receiving payment thereon and for any and all otherpurposes whatsoever. Accordingly, neither we, the trustee nor any paying agent has or will have anyresponsibility or liability for the payment of those amounts to owners of beneficial interests in a globalsecurity. It is our understanding that DTC’s practice is to credit the direct participants’ accounts upon DTC’sreceipt of funds and corresponding detail information from us or the paying agent on the applicable paymentdate in accordance with their respective holdings shown on DTC’s records. Payments by the participants andthe indirect participants to the owners of beneficial interests in a global security will be governed by standinginstructions and customary industry practice and will be the responsibility of the participants and indirectparticipants and not of DTC, us, the trustee or the paying agent, subject to statutory or regulatory requirementsin effect at the time.

Transfers between participants in DTC will be effected in accordance with DTC’s procedures, andwill be settled in same-day funds. Transfers between participants in Euroclear or Clearstream Luxembourg willbe effected in the ordinary way in accordance with their respective rules and operating procedures.

Subject to compliance with the transfer restrictions applicable to the notes, cross-market transfersbetween the participants in DTC, on the one hand, and Euroclear or Clearstream Luxembourg participants, onthe other hand, will be effected through DTC in accordance with DTC’s rules on behalf of Euroclear orClearstream Luxembourg, as the case may be, by its respective depositary; however, those cross-markettransactions will require delivery of instructions to Euroclear or Clearstream Luxembourg, as the case may be,by the counterparty in that system in accordance with the rules and procedures and within the establisheddeadlines (Brussels time) of that system. Euroclear or Clearstream Luxembourg, as the case may be, will, ifthe transaction meets its settlement requirements, deliver instructions to its respective depositary to take actionto effect final settlement on its behalf by delivering or receiving interests in the relevant global securities inDTC, and making or receiving payment in accordance with normal procedures for same-day funds settlementapplicable to DTC. Euroclear participants and Clearstream Luxembourg participants may not deliverinstructions directly to the depositaries for Euroclear or Clearstream Luxembourg.

Because of time zone differences, the securities account of a Euroclear or Clearstream Luxembourgparticipant purchasing an interest in a global security from a participant in DTC will be credited, and any suchcrediting will be reported to the relevant Euroclear or Clearstream Luxembourg participant, during thesecurities settlement processing day (which must be a business day for Euroclear and ClearstreamLuxembourg) immediately following the settlement date of DTC. Cash received in Euroclear or ClearstreamLuxembourg as a result of sales of interests in a global security by or through a Euroclear or Clearstream

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Luxembourg participant to a participant in DTC will be received with value on the settlement date of DTC butwill be available in the relevant Euroclear or Clearstream Luxembourg cash account only as of the businessday for Euroclear or Clearstream Luxembourg following DTC’s settlement date.

Although we understand that DTC, Euroclear and Clearstream Luxembourg have agreed to theforegoing procedures to facilitate transfers of interests in the global securities among participants in DTC,Euroclear and Clearstream Luxembourg, they are under no obligation to perform or to continue to performthose procedures, and those procedures may be discontinued at any time. Neither we nor the trustee will haveany responsibility for the performance by DTC, Euroclear or Clearstream Luxembourg or their respectiveparticipants or indirect participants of their respective obligations under the rules and procedures governingtheir operations.

DTC, Euroclear or Clearstream Luxembourg may discontinue providing its services as securitiesdepositary with respect to the global securities at any time by giving reasonable notice to us or the trustee.Under such circumstances, if a successor securities depositary is not obtained, certificates for the securities arerequired to be printed and delivered.

We may decide to discontinue use of the system of book-entry transfers through DTC or a successorsecurities depositary. In that event, certificates for the securities will be printed and delivered.

We have provided the foregoing information with respect to DTC to the financial community forinformation purposes only. Although we obtained the information in this section and elsewhere in thisoffering memorandum concerning DTC, Euroclear and Clearstream Luxembourg and their respectivebook-entry systems from sources that we believe are reliable, we take no responsibility for the accuracyof such information.

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SUMMARY OF U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of the material U.S. federal income tax consequences that may berelevant to holders (as defined below) of the notes. This discussion does not purport to be tax advice and maynot be applicable depending upon a holder’s particular situation. Holders should consult their own tax advisorswith respect to the current and future federal, state, local and foreign tax consequences to them of theownership and disposition of the notes.

To ensure compliance with Internal Revenue Service Circular 230, holders of the notes arehereby notified that: (a) any discussion of U.S. federal tax issues in this document is not intended orwritten to be relied upon, and cannot be relied upon, by holders of the notes for the purpose of avoidingpenalties that may be imposed on holders of the notes under the Internal Revenue Code; (b) suchdiscussion is included herein in connection with the promotion or marketing (within the meaning ofInternal Revenue Service Circular 230) of the notes; and (c) holders of the notes should seek advicebased on their particular circumstances from an independent tax advisor.

As used herein, the term “U.S. Holder” means a beneficial owner of a note, who is, for U.S. federalincome tax purposes: (i) an individual citizen or resident of the United States; (ii) a domestic corporation;(iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) atrust if a U.S. court is able to exercise primary supervision over the administration of the trust and one ormore U.S. persons have the authority to control all substantial decisions of the trust (or the trust made a validelection under applicable Treasury Regulations to be treated as a U.S. trust). As used herein, the term“Non-U.S. Holder” is any holder that is not a U.S. Holder or treated as a partnership for U.S federal incometax purposes. U.S. Holders and Non-U.S. Holders are referred to collectively herein as “holders.” The taxtreatment of persons who hold their notes through a partnership (including an entity treated as a partnershipfor U.S. federal income tax purposes) generally will depend upon the status of the partner and the activities ofthe partnership. Partners in a partnership holding notes should consult their tax advisors.

This summary is directed solely at holders that hold their notes as capital assets and whose functionalcurrency is the U.S. dollar. This summary does not discuss all of the U.S. federal income tax consequencesthat may be relevant to holders, particularly those that may be subject to special treatment under U.S. federalincome tax laws, such as partnerships, financial institutions, thrifts, real estate investment trusts, regulatedinvestment companies, insurance companies, dealers in securities or currencies, tax-exempt investors,expatriates, former long-term U.S. residents, U.S. Holders that reside outside the United States, persons whoreceive notes in return for services rendered or in connection with their employment, persons that own (or aredeemed to own for U.S. tax purposes) 10% or more of the voting stock of CITGO, or persons that hold theirnotes as part of a hedge, straddle or other integrated transaction. This summary does not discuss anyalternative minimum tax consequences or the tax laws of any state, local or foreign government that may beapplicable to the holders of the notes.

This summary is based on the Internal Revenue Code of 1986, the Treasury Regulations promulgatedthereunder and administrative and judicial interpretations thereof, all as of the date hereof, and all of whichare subject to change, possibly with retroactive effect, or to different interpretations. No ruling has beenrequested from the IRS in connection with the offering of the notes and no assurance can be given that thetreatment described herein will be accepted by the IRS or, if challenged, by a U.S. court.

U.S. Holders

Interest

Interest on the notes will be taxed to a U.S. Holder as ordinary interest income at the time it accruesor is received, in accordance with the U.S. Holder’s regular method of accounting for federal income taxpurposes.

A U.S. Holder may elect to use the constant-yield method to include in its income all interest thataccrues on a note issued with OID or de minimis OID (rather than including only OID under the constant-yield method, as described in “OID on the notes” below). For purposes of this election, interest includes all

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stated interest and OID or de minimis OID. In the case of a U.S. Holder that uses the cash method ofaccounting, this election generally will result in such U.S. Holder including stated interest on the notes inincome earlier than would be the case if no such election were made. This election applies only to the notewith respect to which it is made and may not be revoked without the consent of the IRS. U.S Holders shouldconsult their tax advisors as to the desirability, the mechanics and the collateral consequences of making thiselection with respect to the notes. The remainder of this discussion assumes a U.S. Holder has not made thiselection.

OID on the Notes

A note will be treated as issued with OID for U.S. federal income tax purposes if, and in the amountby which, the “stated redemption price at maturity” of the note exceeds its “issue price” unless the amount ofOID determined under this formula is less than “de minimis OID.” De minimis OID is equal to the product of(i) 0.25%, (ii) the stated redemption price at maturity and (iii) the number of complete years from the issuedate to the maturity date of the note.

The issue price of a note will generally be the first price at which a substantial amount of the notes issold for cash, other than to bond houses, brokers or similar persons or organizations acting in the capacity ofunderwriters, placement agents, or wholesalers. The stated redemption price at maturity of a note will equalthe total amount of all principal and interest payments to be made on the note, other than qualified statedinterest. Qualified stated interest is stated interest that is unconditionally payable in cash or in property (otherthan our debt instruments) at least annually at a single fixed rate (or at certain floating rates that properly takeinto account the length of the interval between stated interest payments) over the entire term of the note.

If the notes are issued with OID for U.S. federal income tax purposes, a U.S. Holder must accrue theOID as ordinary income on a constant-yield method before the receipt of cash attributable to the income,regardless of whether such U.S. Holder is a cash basis or accrual method taxpayer and generally will have toinclude in income increasingly greater amounts of OID over the life of the notes. The amount of the OIDincludible in income is the sum of the daily portions of OID with respect to a note for each day during thetaxable year or portion of the taxable year on which the U.S. Holder holds the note (“accrued OID”). Thedaily portion is determined by allocating to each day in an “accrual period” a pro rata portion of the OIDallocable to that accrual period. Accrual periods with respect to a note may be of any length selected by theU.S. Holder and may vary in length over the term of the note as long as (i) no accrual period is longer thanone year, and (ii) each scheduled payment of interest or principal on the note occurs on either the final or firstday of an accrual period. The amount of OID allocable to an accrual period equals the excess of (a) theproduct of the note’s adjusted issue price at the beginning of the accrual period and the note’s yield to maturity(determined on the basis of compounding at the close of each accrual period and properly adjusted for thelength of the accrual period) over (b) the sum of the payments of stated interest on the note allocable to theaccrual period. A note’s “yield to maturity” is the discount rate that, when used in computing the present valueof all principal and interest payments to be made on the note, produces an amount of equal to the note’s issueprice. The “adjusted issue price” of a note at the beginning of any accrual period is the issue price of the noteincreased by the amount of accrued OID for each prior accrual period and decreased by the amount of anypayment (other than a payment of stated interest) previously made on the note.

Special Rules Applicable to High-Yield Notes Issued at Discount

In general, an applicable high yield discount obligation (“AHYDO”) is any debt instrument with“significant original issue discount,” a maturity date that is more than five years from the issue date, and ayield to maturity that is at least five percentage points higher than the applicable federal rate on its issue date.If the notes are treated as AHYDOs, we may permanently be denied a deduction for a portion of the OID onsuch notes and may claim an interest deduction as to the remainder of the OID only when such portion is paidas cash. The tax consequences to holders generally will not be affected, except that for purposes of thedividends received deduction, corporate holders of the notes may be required to treat the disallowed portion ofthe OID as a dividend paid by us to the extent of our current and accumulated earnings and profits.

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Disposition of Notes

A U.S. Holder who disposes of a note by sale, exchange for other property or payment by us,generally will recognize taxable gain or loss equal to the difference between the amount realized on the sale orother disposition (not including any amount attributable to accrued but unpaid interest) and the U.S. Holder’sadjusted tax basis in the note. Any amount attributable to accrued but unpaid interest will be treated as apayment of interest and taxed in the manner described above under “– U.S. Holders – Interest.” In general, theU.S. Holder’s adjusted tax basis in a note will be equal to the purchase price of the note paid by theU.S. Holder increased by the amount of any OID previously included in income and decreased by the amountof any payment (other than a payment of stated interest) previously made on the note.

Gain or loss realized on the sale, exchange or retirement of a note generally will be capital gain orloss, and will be long-term capital gain or loss if at the time of sale, exchange or retirement the note has beenheld for more than one year. For individuals, the excess of net long-term capital gains over net short-termcapital losses generally is taxed at a lower rate than ordinary income. The distinction between capital gain orloss and ordinary income or loss is also relevant for purposes of, among other things, limitations on thedeductibility of capital losses.

Non-U.S. Holders

Subject to the discussion below concerning backup withholding, principal and interest payments(including payments of OID, if any, as well as payments of additional interest, if any) made on, and gains fromthe sale, exchange or other disposition of, a note, in each case, by a Non-U.S. Holder, will not be subject tothe withholding of United States federal income tax in certain circumstances.

Interest

Interest (including OID, if any) on the notes will not be subject to withholding provided:

k the Non-U.S. Holder does not own, actually or constructively, 10% or more of the total combinedvoting power of all classes of voting stock of CITGO;

k the Non-U.S. Holder is not a controlled foreign corporation related, directly or indirectly, to theCITGO through stock ownership;

k the Non-U.S. Holder is not a bank receiving interest described in section 881(c)(3)(A) of theCode; and

k the certification requirements under section 871(h) or section 881(c) of the Code and theTreasury Regulations thereunder, summarized below, are met.

Sections 871(h) and 881(c) of the Code and Treasury Regulations thereunder require that, in order toobtain the exemption from withholding described above, either:

k the beneficial owner of the note must certify, under penalties of perjury, to the withholding agentthat such owner is a Non-U.S. Holder and must provide such owner’s name, address andU.S. taxpayer identification number, if any, and otherwise satisfy documentary evidencerequirements;

k a financial institution that holds customers’ securities in the ordinary course of business and holdsa note must certify to the withholding agent that appropriate certification has been received fromthe beneficial owner by it or by a financial institution between it and the beneficial owner andgenerally furnish the withholding agent with a copy thereof; or

k the Non-U.S. Holder must provide such certification to a “qualified intermediary” or a“withholding foreign partnership” and certain other conditions must be met.

A Non-U.S. Holder may give the certification described above on IRS Form W-8BEN, whichgenerally is effective: (i) for the remainder of the year of signature plus three full calendar years, unless a

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change in circumstances makes any information on the form incorrect, if the Non-U.S. Holder’s taxpayeridentification number is not provided; or (ii) until a change in circumstances makes any information on theform incorrect if the Non-U.S. Holder’s taxpayer identification number is provided. Special rules apply toforeign partnerships. In general, a foreign non-withholding partnership will be required to provide a properlyexecuted IRS Form W-8IMY and attach thereto an appropriate certification from each partner. Partners inforeign partnerships are urged to consult their tax advisors.

Even if a Non-U.S. Holder does not meet the above requirements, interest (including OID, if any)payments will either not be subject to the withholding of federal income tax or will be subject to a reducedrate of withholding if the Non-U.S. Holder appropriately certifies to the withholding agent that either (i) anapplicable tax treaty exempts, or provides for a reduction in, withholding or (ii) interest paid on a note iseffectively connected with the holder’s trade or business in the United States and therefore is not subject towithholding (as described in greater detail below).

If a Non-U.S. Holder is engaged in a trade or business in the United States, and if interest (includingOID, if any) on a note is effectively connected with the conduct of such trade or business, theNon-U.S. Holder, although exempt from withholding of federal income tax, will generally be subject to regularfederal income tax on such interest in the same manner as if such holder were a U.S. Holder. In lieu ofproviding an IRS Form W-8BEN, such a Non-U.S. Holder will be required to provide the withholding agentwith a properly executed IRS Form W-8ECI in order to claim an exemption from withholding. In addition, ifsuch Non-U.S. Holder is a foreign corporation, it may be subject to branch profits tax equal to 30%, or suchlower rate as may be provided by an applicable treaty, of its effectively connected earnings and profits for thetaxable year, subject to certain adjustments.

Disposition of Notes

A Non-U.S. Holder will not be subject to federal income tax on any gain realized on the sale,exchange or disposition of a note unless the gain is effectively connected with such holder’s trade or businessin the United States or, if the holder is an individual, such holder is present in the United States for 183 daysor more in the taxable year of the sale, exchange or disposition and certain other conditions are met. Anyamount received on the sale, exchange or disposition of a note that is attributable to accrued but unpaidinterest (including OID, if any) will be treated as a payment of interest and taxed in the manner describedunder “— Non-U.S. Holders – Interest.” The branch profits tax described above may apply to gains effectivelyconnected with a U.S. trade or business of a foreign corporation.

Backup Withholding and Information Reporting

U.S. Holders. Information reporting requirements apply to interest (including OID, if any) andprincipal payments made to, and to the proceeds of sales before maturity by, certain non-corporateU.S. Holders. In addition, backup withholding is required unless a U.S. Holder furnishes a correct taxpayeridentification number (which for an individual is the Social Security Number) and certifies, under penalties ofperjury, that he or she is not subject to backup withholding on an IRS Form W-9 and otherwise complies withapplicable requirements of the backup withholding rules. The current rate of backup withholding is 28% of theamount paid. Backup withholding does not apply with respect to payments made to certain exempt recipients,such as corporations and tax-exempt organizations. Any amounts withheld under the backup withholding rulesmay be allowed as a credit against the U.S. Holder’s federal income tax liability, provided that the requiredinformation is timely furnished to the IRS.

Non-U.S. Holders. Generally, backup withholding tax does not apply to payments of interest(including OID, if any) and principal made to, and the proceeds of sales before maturity by, a Non-U.S. Holderif such Non-U.S. Holder certifies (on Form IRS W-8BEN or other appropriate form) its Non-U.S. Holderstatus. However, information reporting on IRS Form 1042-S will generally apply to payments of interest(including OID, if any) made on the notes. Information reporting will also apply to payments made within theUnited States on the sale, exchange, redemption, retirement or other disposition of a note. Informationreporting may apply to payments made outside the United States on the sale, exchange, redemption, retirement

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or other disposition of a note, if payment is made by a payor that is, for federal income tax purposes (i) aU.S. person, (ii) a controlled foreign corporation, (iii) a U.S. branch of a foreign bank or foreign insurancecompany, (iv) a foreign partnership controlled by U.S. persons or engaged in a U.S. trade or business or (v) aforeign person, 50% or more of whose gross income is effectively connected with the conduct of a U.S. tradeor business for a specified three-year period, unless such payor has in its records documentary evidence thatthe beneficial owner is not a U.S. Holder and certain other conditions are met or the beneficial ownerotherwise establishes an exemption. Any amounts withheld under the backup withholding rules may beallowed as a credit against a Non-U.S. Holder’s federal income tax liability, provided that the requiredinformation is timely furnished to the IRS.

Recent Legislation

President Obama recently signed into law the Hiring Incentives to Restore Employment (HIRE) Actof 2010, which will impose certain increased certification and information reporting requirements. In the eventof noncompliance with the revised certification requirements, 30% withholding tax could be imposed onpayments to non-U.S. Holders of interest, dividends or sales proceeds. Such provisions will generally apply topayments made after December 31, 2012, but not to any amount to be deducted or withheld from any paymentunder any obligation outstanding on March 18, 2012. This legislation may be subject to further modificationor implementing regulations, which may result in additional substantive changes to the rules discussed herein.Prospective investors should consult their own tax advisors regarding this new legislation.

The U.S. federal income tax discussion set forth above is included for general information onlyand may not be applicable depending upon a holder’s particular situation. Prospective purchasers of thenotes should consult their own tax advisors with respect to the tax consequences to them of theacquisition, ownership and disposition of the notes, including the tax consequences under state, local,estate, foreign and other tax laws and the possible effects of changes in U.S. or other tax laws.

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CERTAIN ERISA CONSIDERATIONS

The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the regulationsissued by the Department of Labor under ERISA, Section 4975 of the Code, and the regulations issued by theInternal Revenue Service under Section 4975 of the Code impose certain restrictions on the following:

(1) “employee benefit plans” (as defined in Section 3(3) of ERISA) that are subject to Title I of ERISA;

(2) “plans” that are described in and subject to Section 4975 of the Code, including individual retirementaccounts and Keogh plans;

(3) entities whose underlying assets include “plan assets” within the meaning of U.S. Department ofLabor Regulation 29 C.F.R. Section 2510.3-101, as amended by Section 3(42) of ERISA, by reasonof a plan’s investment in such entities (each of (1), (2) and (3) is referred to as an “ERISAPlan”); and

(4) persons who have certain specified relationships to Plans (“parties in interest” under ERISA and“disqualified persons” under the Code) (collectively, “parties in interest”).

Both ERISA and Section 4975 of the Code prohibit certain transactions between an ERISA Plan andparties in interest. ERISA also imposes certain duties on persons who are fiduciaries of an ERISA Plan that issubject to Title I of ERISA.

ERISA and the Code prohibit various transactions involving the assets of an ERISA Plan and partiesin interest. If the notes are acquired or held by an ERISA Plan with respect to which we or the InitialPurchasers are a party in interest, such acquisition or holding could be deemed to be a direct or indirectprohibited transaction. A party in interest who has engaged in a non-exempt prohibited transaction may besubject to excise taxes and other penalties and liabilities under ERISA and the Code. In addition, the fiduciaryof the ERISA Plan who has engaged in such a non-exempt prohibited transaction may be subject to penaltiesand liabilities under ERISA and the Code.

Such transactions may, however, be exempt from the otherwise applicable taxes and penalties byreason of one or more statutory, class, individual or administrative exemptions. Such class exemptions mayinclude:

(1) Prohibited Transaction Class Exemption (PTE) 95-60 which exempts certain transactions involvinglife insurance company general accounts;

(2) PTE 96-23 which exempts certain transactions directed by an in-house asset manager;

(3) PTE 90-1 which exempts certain transactions involving insurance company pooled separate accounts;

(4) PTE 91-38 which exempts certain transactions involving bank collective investment funds; and

(5) PTE 84-14 as amended, which exempts certain transactions entered into on behalf of an ERISA Planby an independent qualified professional asset manager.

In addition, Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code provide limited relieffrom the prohibited transaction provisions of ERISA and Section 4975 of the Code for certain transactions,provided that neither the issuer of the securities nor any of its affiliates (directly or indirectly) have or exerciseany discretionary authority or control or render any investment advice with respect to the assets of any ERISAPlan involved in the transaction and provided further that the ERISA Plan receives no less, and pays no more,than adequate consideration in connection with the transaction.

There can be no assurance that all of the conditions of any such exemptions will be satisfied.

Furthermore, Section 404 of ERISA sets forth standards of care for investment decisions made by afiduciary of an ERISA Plan that is subject to Title I of ERISA. In deciding whether to invest in the notes, afiduciary of an ERISA Plan must take the following into account, among other considerations:

(1) whether the fiduciary has the authority to make the investment;

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(2) whether the investment is made in accordance with the written documents that govern the ERISAPlan;

(3) whether the investment constitutes a direct or indirect transaction with a party in interest;

(4) the composition of the ERISA Plan’s portfolio with respect to diversification by type of asset;

(5) the ERISA Plan’s funding objectives and investment policy statement;

(6) the tax effects of the investment; and

(7) whether under the general fiduciary standards of investment procedure and diversification aninvestment in the notes is appropriate for the ERISA Plan, taking into account the overall investment policy ofthe ERISA Plan, the composition of the ERISA Plan’s investment portfolio and all other appropriate factors.

Prior to making an investment in the notes, an ERISA Plan investor must determine whether we or aninitial purchaser are a party in interest or disqualified person with respect to such ERISA Plan and, if so,whether such transaction is subject to one or more statutory or administrative exemptions, including thosedescribed above. Prospective investors should consult with their legal and other advisors concerning the impactof ERISA and the Code and the potential consequences of an investment in the notes based on their specificcircumstances.

Employee benefit plans that are non-U.S. plans (as described in Section 4(b)(4) of ERISA),governmental plans (as defined in Section 3(32) of ERISA) and certain church plans (as defined inSection 3(33) of ERISA) (collectively, “Non-ERISA Plans”) are not subject to the fiduciary responsibility orprohibited transaction provisions of ERISA or the Code. As a result, assets in such Non-ERISA Plans may beinvested in the notes without regard to the ERISA and Code restrictions. However, such Non- ERISA Plansmay be subject to the provisions of other applicable federal, state, local, non-U.S. or other laws or regulationsthat are similar to such provisions of ERISA or the Code (“Similar Laws”).

To address the above concerns, the notes may not be purchased by or transferred to any investorunless such investor makes the representations contained in paragraph 10 under “Notice to Investors,” whichare designed to ensure that the acquisition of the notes will not constitute or result in a non-exempt prohibitedtransaction under ERISA, the Code, or other applicable law.

The above is a summary of some of the material ERISA considerations applicable to prospectiveERISA Plan investors. It is not intended to be a complete discussion, nor is it to be construed as legaladvice or a legal opinion. Prospective ERISA Plan investors should consult their own counsel and taxadvisors on these matters.

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PLAN OF DISTRIBUTION

RBS Securities Inc., BNP Paribas Securities Corp., UBS Securities LLC and Credit AgricoleSecurities (USA) Inc. are acting as representatives of each of the initial purchasers named in the purchaseagreement. Subject to the terms and conditions set forth in the purchase agreement among us, the guarantorsnamed therein and the initial purchasers, we have agreed to sell to the initial purchasers, and each of the initialpurchasers has agreed, severally and not jointly, to purchase from us, the respective principal amount of notesset forth in the purchase agreement.

Subject to the terms and conditions set forth in the purchase agreement, the initial purchasers haveagreed, severally and not jointly, to purchase all of the notes sold under the purchase agreement if any of thesenotes are purchased. If an initial purchaser defaults, the purchase agreement provides that the purchasecommitments of the nondefaulting initial purchasers may be increased or the purchase agreement may beterminated.

We have agreed to indemnify the initial purchasers against certain liabilities, including liabilitiesunder the Securities Act, or to contribute to payments the initial purchasers may be required to make inrespect of those liabilities.

Commissions and Discounts

The representatives have advised us that the initial purchasers propose initially to offer the notes atthe offering price set forth on the cover page of this offering memorandum. After the initial offering, theoffering price or any other term of the offering may be changed by the initial purchasers without notice.

Notes Are Not Being Registered

The notes have not been registered under the Securities Act or any state securities laws. The initialpurchasers propose to offer the notes for resale in transactions not requiring registration under the SecuritiesAct or applicable state securities laws pursuant to Rule 144A and Regulation S. The initial purchasers will notoffer or sell the notes except to persons they reasonably believe to be QIBs or pursuant to offers and sales tonon-U.S. persons that occur outside of the United States within the meaning of Regulation S. In addition, until40 days following the commencement of this offering, an offer or sale of notes within the United States by adealer (whether or not participating in the offering) may violate the registration requirements of the SecuritiesAct unless the dealer makes the offer or sale in compliance with Rule 144A or another exemption fromregistration under the Securities Act. Each purchaser of the notes will be deemed to have madeacknowledgments, representations and agreements as described under “Notice to Investors.”

New Issue of Notes

The notes are a new issue of securities with no established trading market. We have applied to admitthe notes to listing on the Official List of the Luxembourg Stock Exchange and to trading on the Euro MTFmarket, however, we cannot assure you that the notes will be approved for listing or that such listing will bemaintained.

We have been advised by the initial purchasers that they presently intend to make a market in thenotes after completion of the offering. However, they are under no obligation to do so and may discontinueany market-making activities at any time without any notice.

We cannot assure the liquidity of the trading market for the notes. If an active trading market for thenotes does not develop, the market price and liquidity of the notes may be adversely affected. If the notes aretraded, they may trade at a discount from their initial offering price, depending on prevailing interest rates, themarket for similar securities, our operating performance and financial condition, general economic conditionsand other factors.

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No Sales of Similar Securities

We have agreed that except for financing transactions expressly contemplated in this offeringmemorandum, for a period of 90 days after the date of this offering memorandum, we will not without firstobtaining the prior written consent of RBS Securities Inc, directly or indirectly, issue, sell, offer to contract orgrant any option to sell, pledge, transfer or otherwise dispose of, any debt securities or securities exchangeablefor or convertible into debt securities, except for the notes sold to the initial purchasers pursuant to thepurchase agreement.

Short Positions

In connection with the offering, the initial purchasers may purchase and sell the notes in the openmarket. These transactions may include short sales and purchases on the open market to cover positionscreated by short sales. Short sales involve the sale by the initial purchasers of a greater principal amount ofnotes than they are required to purchase in the offering. The initial purchasers must close out any shortposition by purchasing notes in the open market. A short position is more likely to be created if the initialpurchasers are concerned that there may be downward pressure on the price of the notes’ in the open marketafter pricing that could adversely affect investors who purchase in the offering.

Similar to other purchase transactions, the initial purchasers’ purchases to cover their short sales mayhave the effect of raising or maintaining the market price of the notes or preventing or retarding a decline inthe market price of the notes. As a result, the price of the notes may be higher than the price that mightotherwise exist in the open market.

Neither we nor any of the initial purchasers make any representation or prediction as to the directionor magnitude of any effect that the transactions described above may have on the price of the notes. Inaddition, neither we nor any of the initial purchasers make any representation that the representatives willengage in these transactions or that these transactions, once commenced, will not be discontinued withoutnotice.

Notice to Prospective Investors in the EEA

In relation to each Member State of the European Economic Area which has implemented theProspectus Directive (each, a “Relevant Member State”) an offer to the public of any notes which are thesubject of the offering contemplated by this offering memorandum may not be made in that Relevant MemberState, except that an offer to the public in that Relevant Member State of any notes may be made at any timeunder the following exemptions under the Prospectus Directive, if they have been implemented in thatRelevant Member State:

(a) to legal entities which are authorized or regulated to operate in the financial markets or, if notso authorized or regulated, whose corporate purpose is solely to invest in securities;

(b) to any legal entity which has two or more of (1) an average of at least 250 employees duringthe last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual netturnover of more than 50,000,000, as shown in its last annual or consolidated accounts;

(c) by the initial purchasers to fewer than 100 natural or legal persons (other than “qualifiedinvestors” as defined in the Prospectus Directive) subject to obtaining the prior consent of therepresentatives for any such offer; or

(d) in any other circumstances falling within Article 3(2) of the Prospectus Directive;

provided that no such offer of notes shall result in a requirement for the publication by us or anyrepresentative of a prospectus pursuant to Article 3 of the Prospectus Directive.

Any person making or intending to make any offer of notes within the EEA should only do so incircumstances in which no obligation arises for us or any of the initial purchasers to produce a prospectus forsuch offer. Neither we nor the initial purchasers have authorized, nor do we or they authorize, the making of

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any offer of notes through any financial intermediary, other than offers made by the initial purchasers whichconstitute the final offering of notes contemplated in this offering memorandum.

For the purposes of this provision, and your representation below, the expression an “offer to thepublic” in relation to any notes in any Relevant Member State means the communication in any form and byany means of sufficient information on the terms of the offer and any notes to be offered so as to enable aninvestor to decide to purchase any notes, as the same may be varied in that Relevant Member State by anymeasure implementing the Prospectus Directive in that Relevant Member State and the expression “ProspectusDirective” means Directive 2003/71 /EC and includes any relevant implementing measure in each RelevantMember State.

Each person in a Relevant Member State who receives any communication in respect of, or whoacquires any notes under, the offer of notes contemplated by this offering memorandum will be deemed tohave represented, warranted and agreed to and with us and each initial purchaser that:

(a) it is a “qualified investor” within the meaning of the law in that Relevant Member Stateimplementing Article 2(1)(e) of the Prospectus Directive; and

(b) in the case of any notes acquired by it as a financial intermediary, as that term is used inArticle 3(2) of the Prospectus Directive, (i) the notes acquired by it in the offering have notbeen acquired on behalf of, nor have they been acquired with a view to their offer or resale to,persons in any Relevant Member State other than “qualified investors” (as defined in theProspectus Directive), or in circumstances in which the prior consent of the representatives hasbeen given to the offer or resale; or (ii) where notes have been acquired by it on behalf ofpersons in any Relevant Member State other than qualified investors, the offer of those notes toit is not treated under the Prospectus Directive as having been made to such persons.

Other Relationships

The initial purchasers and their affiliates from time to time have provided other investment banking,commercial banking and financial advisory services to us and our affiliates in the ordinary course of businesswith us, for which they have received and will receive customary fees and commissions, and they may providethese services to us in the future, for which they expect to receive customary fees and commissions. Affiliatesof certain of the initial purchasers are expected to be lenders under our New Senior Credit Facility. Anaffiliate of RBS Securities Inc. serves as a lender and served as co-documentation agent under our existingrevolving credit facility and Term Loan B. An affiliate of UBS Securities LLC serves as a lender under ourexisting revolving credit facility. BNP Paribas currently serves as administrative agent and a lender under ourexisting revolving credit facility and Term Loan B and also as collateral agent and paying agent under ourExisting Senior Credit Facility. BNP Paribas also served as joint lead arranger, joint bookrunner and co-syndication agent under our existing revolving credit facility and Term Loan B. In addition, BNP Paribasserves as program administrator, one of the purchaser agents and related alternate purchaser under ouraccounts receivable sales facility. An affiliate of Credit Agricole Securities (USA) Inc. serves as a lenderunder our existing revolving credit facility. An affiliate of DNB NOR Markets, Inc. serves as a lender underour existing revolving credit facility and Term Loan A. An affiliate of Natixis Bleichroeder LLC serves as alender under our existing revolving credit facility and Term Loan A. An affiliate of UniCredit CapitalMarkets, Inc. serves as a lender under our existing revolving credit facility, Term Loan A and Term Loan B.We expect to use the net proceeds of this offering, together with a portion of the proceeds of our New SeniorCredit Facility, to repay all amounts outstanding under our Existing Senior Credit Facility. See “Use ofProceeds.”

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NOTICE TO INVESTORS

The notes have not been registered under the Securities Act or any other applicable securities law andmay not be offered or sold within the United States or to, or for the account or benefit of, U.S. Persons (assuch terms are defined under the Securities Act) except pursuant to an exemption from, or in a transaction notsubject to the registration requirements of the Securities Act and such other securities laws. Accordingly, thenotes are being offered by this offering memorandum only (a) to qualified institutional buyers, or “QIBs,” inreliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A and(b) outside the United States to persons other than U.S. persons in reliance upon Regulation S under theSecurities Act.

Each purchaser of the notes, by its acceptance thereof, will be deemed to have acknowledged,represented to, and agreed with us, the guarantors and the initial purchasers as follows:

(1) The purchaser understands and acknowledges that the notes have not been registered underthe Securities Act or any other applicable securities law, the notes are being offered for resalein transactions not requiring registration under the Securities Act or any other securities laws,including sales pursuant to Rule 144A under the Securities Act, and none of the notes maybe offered, sold or otherwise transferred except in compliance with the registrationrequirements of the Securities Act or any other applicable securities law, pursuant to anexemption from such laws or in a transaction not subject to such laws, and in each case, incompliance with the conditions for transfer set forth in paragraph (4) below.

(2) The purchaser is either:

(a) a QIB and is aware that any sale of the notes to it will be made in reliance onRule 144A and such acquisition will be for its own account or for the account ofanother QIB; or

(b) not a U.S. person (and was not purchasing for the account or benefit of aU.S. person) within the meaning of Regulation S under the Securities Act.

(3) The purchaser acknowledges that we, the guarantors, the trustee and the initial purchasers orany person representing us, the guarantors, the trustee or the initial purchasers have not madeany representation to it with respect to us, the guarantors or the offering or sale of any notes,other than the information contained in this offering memorandum, which offeringmemorandum has been delivered to it. Accordingly, it acknowledges that no representation orwarranty is made by the initial purchasers as to the accuracy or completeness of suchmaterials. The purchaser has had access to such financial and other information as it hasdeemed necessary in connection with its decision to purchase any of the notes, including anopportunity to ask questions of and request information from us, the guarantors and theinitial purchasers, and it has received and reviewed all information that it requested.

(4) The purchaser is purchasing the notes for its own account, or for one or more investoraccounts for which it is acting as a fiduciary or agent, in each case for investment, and notwith a view to, or for offer or sale in connection with, any distribution of the notes inviolation of the Securities Act, subject to any requirement of law that the disposition of itsproperty or the property of such investor account or accounts be, at all times, within its ortheir control and subject to its or their ability to resell such notes pursuant to Rule 144A,Regulation S or any other exemption from registration available under the Securities Act. Thepurchaser agrees on its own behalf and on behalf of any investor account for which it ispurchasing the notes and each subsequent holder of the notes, by its acceptance of the notes,will agree to offer, sell or otherwise transfer such notes prior to the date, which is one yearafter the later of the date of the original issue of the notes and the last date on which we orany of our affiliates was the owner of such notes (the “Resale Restriction Termination Date”)only (a) to us or any subsidiary thereof, (b) pursuant to a registration statement which hasbeen declared effective under the Securities Act, (c) for so long as the notes are eligible for

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resale pursuant to Rule 144A to a person it reasonably believes is a QIB that purchases forits own account or for the account of a QIB, to whom notice is given that the transfer isbeing made in reliance on Rule 144A, (d) pursuant to offers and sales to non-U.S. personsthat occur outside the United States within the meaning of Regulation S under the SecuritiesAct or (e) pursuant to any other available exemption from the registration requirements of theSecurities Act, subject in each of the foregoing cases to any requirement of law that thedisposition of its property or the property of such investor account or accounts be at all timeswithin its or their control and to compliance with any applicable state securities laws. Theforegoing restrictions on resale will not apply subsequent to the Resale RestrictionTermination Date. Each purchaser acknowledges that we and the trustee under the indenturereserve the right prior to any offer, sale or other transfer (including, but not limited to,pursuant to clause (d) prior to the end of the 40-day distribution compliance period withinthe meaning of Regulation S under the Securities Act or pursuant to clause (e) prior to theResale Restriction Termination Date of the notes) to require the delivery of an opinion ofcounsel, certifications and/or other information satisfactory to us and the trustee as set forthin the indenture.

The purchaser understands that if it is a foreign person outside of the United States, thenotes will be represented by the Regulation S global note and that transfers of such note arerestricted as described in this section and in the section entitled “Description of the Notes –Book-Entry, Delivery and Form” or, if it is a QIB, the notes it purchases will be representedby a Rule 144A global note.

Each purchaser acknowledges that each certificate representing a note will contain a legendsubstantially to the following effect:

THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLYISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE“SECURITIES ACT”), AND THE SECURITY EVIDENCED HEREBY MAY NOT BEOFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCHREGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACHPURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIEDTHAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THEPROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144ATHEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREESON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FORWHICH IT HOLDS THE SECURITY, FOR THE BENEFIT OF THE ISSUER, THAT(A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED,ONLY (1)(a) INSIDE THE UNITED STATES TO A PERSON THE SELLERREASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINEDIN RULE 144A UNDER THE SECURITIES ACT) PURCHASING FOR ITS OWNACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN ATRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THESECURITIES ACT, (b) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN ATRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OFREGULATION S UNDER THE SECURITIES ACT, (c) PURSUANT TO ANEXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BYRULE 144 THEREUNDER (IF APPLICABLE) OR (d) IN ACCORDANCE WITHANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THESECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TOTHE ISSUER IF THE ISSUER SO REQUESTS), (2) TO THE ISSUER OR (3) PURSUANTTO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, INACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF

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THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THEHOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFYANY PURCHASER OF THE SECURITY EVIDENCED HEREBY OF THE RESALERESTRICTIONS SET FORTH IN CLAUSE (A) ABOVE. NO REPRESENTATION CANBE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE144 FOR RESALE OF THE SECURITY EVIDENCED HEREBY.

(5) If it is (a) a purchaser in a sale that occurs outside the United States within the meaning ofRegulation S under the Securities Act, or (b) a “distributor,” “dealer” or person “receiving aselling concession fee or other remuneration” in respect of notes sold prior to the expirationof the applicable “distribution compliance period” (as defined below), it acknowledges thatuntil the expiration of such “distribution compliance period” any offer or sale of the notesshall not be made by it to a U.S. person or for the account or benefit of a U.S. person withinthe meaning of Rule 902(k) of Regulation S under the Securities Act. The “distributioncompliance period” means the 40-day period following the issue date for the notes.

(6) If it is an initial foreign purchaser pursuant to Regulation S, it acknowledges that, until theexpiration of the “distribution compliance period” described above, it may not, directly orindirectly, refer, resell, pledge or otherwise transfer a note or any interest in a note except toa person who certifies in writing to the applicable transfer agent that such transfer satisfies,as applicable, the requirements of the legends described above and that the notes will not beaccepted for registration of any transfer prior to the end of the applicable “distributioncompliance period” unless the transferee has first complied with the certificationrequirements described in this paragraph.

(7) It acknowledges that the trustee for the notes will not be required to accept for registration oftransfer any notes acquired by it, except upon presentation of evidence satisfactory to us andthe trustee (as set forth in the indenture) that the restrictions set forth herein have beencomplied with.

(8) It agrees that it will deliver to each person, to whom it transfers notes, notice of anyrestrictions on the transfer of such securities.

(9) It acknowledges that we, the guarantors, the initial purchasers, the trustee and others will relyupon the truth and accuracy of the foregoing acknowledgments, representations, warrantiesand agreements and agrees that if any of the acknowledgments, representations, warrantiesand agreements deemed to have been made by its purchase of the notes are no longeraccurate, it shall promptly notify us and the initial purchasers. If it is acquiring any notes asa fiduciary or agent for one or more investor accounts, it represents that it has soleinvestment discretion with respect to each such investor account and that it has full power tomake the foregoing acknowledgments, representations and agreements on behalf of each suchinvestor account.

(10) The notes may not be sold or transferred to, and each purchaser, by its purchase of the notesshall be deemed to have represented and covenanted that it is not acquiring the notes for oron behalf of, and will not transfer the notes to, any pension or welfare plan (as defined inSection 3 of the Employee Retirement Income Security Act of 1974, as amended(“ERISA”)), plan (as defined in Section 4975 of the Internal Revenue Code of 1986, asamended (“Code”)), or any entity whose assets include assets of such an employee benefitplan or plan pursuant to 29 C.F.R. Section 2510.3-101 (as modified by Section 3(42) ofERISA (collectively, a “Plan”), except that such a purchase for or on behalf of a Plan will bepermitted:

(a) to the extent the purchase is made by or on behalf of a bank collective investmentfund maintained by the purchaser in which no Plan (together with any other Plansmaintained by the same employer or employee organization) has an interest in

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excess of 10% of the total assets in such collective investment fund, and theconditions of Section III of Prohibited Transaction Class Exemption 91-38 issued bythe Department of Labor are satisfied and such purchase does not involve atransaction described in Sections 406(b)(1) or (3) of ERISA orSection 4975(c)(1)(E) or (F) of the Code;

(b) to the extent the purchase is made by or on behalf of an insurance company pooledseparate account maintained by the purchaser in which, at any time while the notesare outstanding, no Plan (together with any other Plans maintained by the sameemployer or employee organization) has an interest in excess of 10% of the totalassets in such pooled separate account, and the conditions of Section III ofProhibited Transaction Class Exemption 90-1 issued by the Department of Labor aresatisfied and such purchase does not involve a transaction described inSections 406(b)(1) or (3) of ERISA or Section 4975(c)(1)(E) or (F) of the Code;

(c) to the extent such purchase is made by or on behalf of an insurance company withassets in its insurance company general account, if no Plan (together with any otherPlans maintained by the same employer or employee organization) has an interest inthe general account the amount of reserves and liabilities for which exceed 10% ofthe total reserves and liabilities of the general account plus surplus, determined asset forth in Prohibited Transaction Class Exemption 95-60 issued by the Departmentof Labor, and the conditions of Sections I and IV of such exemption are otherwisesatisfied and the purchase does not involve a transaction described inSections 406(b)(1) or (3) of ERISA or Section 4975(c)(1)(E) or (F) of the Code;

(d) to the extent the purchase is made on behalf of a Plan by (i) an investment advisorregistered under the Investment Advisers Act of 1940, as amended, that had as ofthe last day of its most recent fiscal year total client assets under its managementand control in excess of $85,000,000 and had stockholders’ or partners’ equity inexcess of $1,000,000, as shown in its most recent balance sheet prepared inaccordance with generally accepted accounting principles, or (ii) a bank as definedin Section 202(a)(2) of the Investment Advisers Act of 1940, as amended, that hasthe power to manage, acquire or dispose of assets of a Plan, with equity capital inexcess of $1,000,000 as of the last day of its most recent fiscal year, or (iii) aninsurance company, which is qualified under the laws of more than one state tomanage, acquire or dispose of any assets of a Plan, which insurance company has asof the last day of its most recent fiscal year, net worth in excess of $1,000,000 andwhich is subject to supervision and examination by a state authority havingsupervision over insurance companies and, in any case, such investment adviser,bank or insurance company is otherwise a “qualified professional asset manager,” assuch term is used in Prohibited Transaction Class Exemption 84-14 issued by theDepartment of Labor, with respect to such Plan, and the assets of such Planmanaged by such investment advisor, bank or insurance company, when combinedwith the assets of other Plans established or maintained by the same employer (oraffiliate of such employer) or employee organization and managed by suchinvestment adviser, bank or insurance company, do not represent more than 20% ofthe total client assets managed by such investment adviser, bank or insurancecompany, and the conditions of Part I of such exemption are otherwise satisfied andsuch purchase does not involve a transaction described in Sections 406(b)(1) or(3) of ERISA or Section 4975(c)(1)(E) or (F) of the Code;

(e) to the extent such Plan is a governmental plan (as defined in Section 3(32) ofERISA) which is not subject to the provisions of Title I of ERISA or Section 4975of the Code and the purchase of the notes by such governmental plan is not

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otherwise prohibited by applicable law, including any law or regulation similar toSection 406 of ERISA or Section 4975 of the Code;

(f) to the extent such purchase is made on behalf of a Plan by an “in-house assetmanager” (the “INHAM”) as defined in Part IV of Prohibited Transaction ClassExemption 96-23 issued by the Department of Labor, Plans maintained by affiliatesof the INHAM and/or the INHAM have aggregate assets in excess of $250 million,the conditions of Part I of such exemption are otherwise satisfied and the purchasedoes not involve a transaction described in Sections 406(b)(1) or (3) of ERISA orSection 4975(c)(1)(E) or (F) of the Code; or

(g) to the extent such purchase is exempt from prohibited transaction provisions ofSection 406 of ERISA and Section 4975 of the Code pursuant to Section 409(b)(17)of ERISA and Section 4975(d)(20) of the Code.

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LEGAL MATTERS

Certain legal matters with respect to the validity of the notes offered hereby will be passed upon forus by Curtis, Mallet-Prevost, Colt & Mosle LLP, New York, New York. The initial purchasers have beenrepresented by Cahill Gordon & Reindel LLP, New York, New York.

INDEPENDENT AUDITORS

The financial statements of CITGO Petroleum Corporation as of December 31, 2009 and 2008 andfor the years ended December 31, 2009, 2008 and 2007, included in this offering memorandum, have beenaudited by KPMG LLP, independent auditors, as stated in their report appearing herein.

LISTING AND GENERAL INFORMATION

1. The notes sold pursuant to Rule 144A under the Securities Act and the notes sold pursuant toRegulation S under the Securities Act have been accepted for clearance through the DepositoryTrust Company, Euroclear and Clearstream, Luxembourg. With respect to the notes represented by theRule 144A Global Note, the CUSIP number is , the Common Code number is and theInternational Securities Identification Number (ISIN) is . With respect to the notes represented by theRegulation S Global Note, the CUSIP number is , the Common Code number is and the ISINis .

2. Resolutions relating to the issue, sale and listing of the notes on the Euro MTF Market of theLuxembourg Stock Exchange were adopted by our Board of Directors on May 6, 2010.

3. Except as disclosed in this offering memorandum, there has been no material adverse changein our financial position since March 31, 2010, which is material in the context of the issue of the notes.

4. Application has been made to admit the notes to listing on the Official Listing of theLuxembourg Stock Exchange and to trading on the Euro MTF market. Copies of the following documentswill, for so long as any notes are admitted to trading on the Euro MTF market, be available for inspectionduring usual business hours at the specified office of the Luxembourg Paying Agent, Deutsche BankLuxembourg S.A., in Luxembourg:

k This offering memorandum;

k Our and the guarantors’ articles of incorporation;

k The indenture (which includes the forms of notes as exhibits thereto); and

k Our latest audited annual consolidated financial statements.

We do not prepare unconsolidated financial statements. None of the guarantors preparesunconsolidated or consolidated financial statements.

5. Deutsche Bank Luxembourg S.A. has been appointed as the Luxembourg Paying Agent andTransfer Agent. The Luxembourg Paying Agent will act as intermediary between the holders of the noteslisted on the Euro MTF market of the Luxembourg Stock Exchange and us. For so long as any of the notesare listed on the Euro MTF market of the Luxembourg Stock Exchange and the rules thereof so require, wewill maintain a paying and transfer agent in Luxembourg. We reserve the right to vary such appointment andshall publish notice of such change of appointment in a newspaper having general circulation in Luxembourg(which is expected to be the ) or on the Luxembourg Stock Exchange’s website, www.bourse.lu.

6. Except as disclosed in this offering memorandum, so far as we are aware, no legal orarbitration proceedings relating to claims or amounts that are material in the context of this offering arepending, nor is any such litigation or arbitration threatened.

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7. The issuer

CITGO Petroleum Corporation is a Delaware corporation. Its registered office is at 1209 OrangeStreet, Wilmington, Delaware 19801, United States of America. CITGO has issued 1,000 shares of commonstock, all of which are held by PDV America, Inc., an indirect wholly owned subsidiary of Petróleos deVenezuela, S.A. The members of the board of directors of CITGO Petroleum Corporation are AlejandroGranado, Eudomario Carruyo, Asdrúbal Chávez and Eulogio Del Pino.

8. The guarantors

CITGO Refining and Chemicals Company L.P. is a Delaware limited liability partnership. Itsregistered office is at 1209 Orange Street, Wilmington, Delaware 19801, United States of America. It is 99%owned by CITGO Investment Company, which is wholly owned by the issuer, and 1% owned by the issuer.The issuer is the general partner of CITGO Refining and Chemicals Company L.P.

CITGO Investment Company is a Delaware corporation. Its registered office is at 1209 Orange Street,Wilmington, Delaware 19801, United States of America. It is a wholly owned holding company subsidiary ofthe issuer. The members of the board of directors of CITGO Investment Company are Eduardo Assef,Marshall G. Buzan, Jr. and Daniel Cortéz.

CITGO Pipeline Company is a Delaware corporation. Its registered office is at 1209 Orange Street,Wilmington, Delaware 19801, United States of America. It is a wholly owned subsidiary of the issuer. Themembers of the board of directors of CITGO Pipeline Company are Curtis A. Rowe, Simón A. Suárez andGustavo J. Velásquez.

VPHI Midwest, Inc. is a Delaware corporation. Its registered office is at 1209 Orange Street,Wilmington, Delaware 19801, United States of America. It is a wholly owned holding company subsidiary ofthe issuer. The members of the board of directors of VPHI Midwest, Inc. are Alejandro Granado, JesúsLuongo and Amilkar Mata.

PDV Midwest Refining, L.L.C. is a Delaware limited liability company. Its registered office is at1209 Orange Street, Wilmington, Delaware 19801, United States of America. Its sole member is VPHIMidwest, Inc. The members of the management committee of PDV Midwest Refining, L.L.C. are AlejandroGranado, James Cristman and Robert E. Kent, Jr.

9. CITGO Petroleum Corporation and the guarantors referenced above, on a consolidated basis,represented in excess of 75% of our consolidated revenues for the year ended December 31, 2009, and inexcess of 75% of our consolidated total assets as of December 31, 2009, and March 31, 2010, respectively.

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INDEX TO FINANCIAL STATEMENTS

Page

Independent Auditors’ Report to the Board of Directors and Shareholder of CITGO PetroleumCorporation for the fiscal years ended December 31, 2009, 2008 and 2007.

F-2

Consolidated Balance Sheets as of December 31, 2009 and 2008 F-4

Consolidated Statements of Income (Loss) and Comprehensive Income for the fiscal years endedDecember 31, 2009, 2008 and 2007

F-5

Consolidated Statements of Shareholder’s Equity for the fiscal years ended December 31, 2009, 2008and 2007

F-6

Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2009, 2008 and 2007 F-7

Notes to Consolidated Financial Statements F-9

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009 F-52

Unaudited Condensed Consolidated Statements of Income (Loss) and Comprehensive Loss for the threemonths ended March 31, 2010 and 2009

F-53

Unaudited Condensed Consolidated Statements of Shareholder’s Equity for the three months endedMarch 31, 2010

F-54

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31,2010 and 2009

F-55

Notes to Unaudited Condensed Consolidated Financial Statements F-56

F-1

F-2�

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholder of CITGO Petroleum Corporation:

We have audited the accompanying consolidated balance sheets of CITGO Petroleum Corporation and subsidiaries (“the Company”) as of December 31, 2009 and 2008, and the related consolidated statements of income (loss) and comprehensive income, shareholder’s equity, and cash flows for each of the three years ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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 Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CITGO Petroleum Corporation and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

As discussed in note 1 to the consolidated financial statements, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, included in Accounting Standards Codification (“ASC”) Subtopic 715-20, Compensation – Retirement Benefits – Defined Benefit Plans - General, as of December 31, 2007.

As discussed in note 2 to the consolidated financial statements, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, included in ASC Subtopic 740-10, Income Taxes – Overall, effective as of January 1, 2007.

F-3�

As discussed in note 1 to the consolidated financial statements, the Company adopted the provisions of FASB SFAS No. 157, Fair Value Measurements and Disclosures, included in ASC Topic 820, Fair Value Measurements and Disclosures, for fair value measurements of financial assets and financial liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis as of January 1, 2008. The Company adopted the provisions of this standard for fair value measurements of nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis as of January 1, 2009.

/s/ KPMG LLP

March 31, 2010

Houston, Texas

�

F-4

CITGO PETROLEUM CORPORATIONCONSOLIDATED BALANCE SHEETS (Dollars in Thousands)

2009 2008ASSETSCURRENT ASSETS: Cash and cash equivalents 352,705$ 23,925$ Accounts receivable, net 737,967 791,474 Due from affiliates 97,233 165,187 Notes receivable from ultimate parent, PDVSA 611,195 1,000,000 Inventories 594,949 675,597 Current income tax receivable 190,293 15,033 Prepaid expenses and other 185,085 454,560 Assets held for sale 1,468 96,864 Total current assets 2,770,895 3,222,640 PROPERTY, PLANT AND EQUIPMENT - Net 4,313,454 4,241,365 RESTRICTED CASH 25,190 56,008 INVESTMENTS IN AFFILIATES 78,126 72,157 NOTE RECEIVABLE FROM ULTIMATE PARENT, PDVSA 65,205 - OTHER ASSETS 276,453 325,336

7,529,323$ 7,917,506$

LIABILITIES AND SHAREHOLDER’S EQUITYCURRENT LIABILITIES: Accounts payable 863,328$ 752,858$ Payables to affiliates 690,011 359,949 Taxes other than income 158,177 170,493 Current income tax payable 1,313 111,753 Current deferred income taxes 144,257 73,798 Derivative liabilities 13,249 154,761 Other current liabilities 175,762 285,572 Current portion of long-term debt 406,357 6,357 Current portion of capital lease obligation 6,746 5,439 Dividends payable to parent, PDV America - 27,018 Total current liabilities 2,459,200 1,947,998 LONG-TERM DEBT 1,771,586 2,191,649 CAPITAL LEASE OBLIGATION 17,643 24,317 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 535,682 491,498 OTHER NONCURRENT LIABILITIES 453,800 561,943 DEFERRED INCOME TAXES 572,655 744,057 COMMITMENTS AND CONTINGENCIES (Note 14)SHAREHOLDER’S EQUITY: Common stock - $1.00 par value, 1,000 shares authorized, issued and outstanding 1 1 Additional capital 1,659,698 1,659,698 Retained earnings 210,940 511,893 Accumulated other comprehensive loss (151,882) (215,548) Total shareholder’s equity 1,718,757 1,956,044

7,529,323$ 7,917,506$ See notes to consolidated financial statements.

December 31,

F-5

CITGO PETROLEUM CORPORATIONCONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2009(Dollars in Thousands)

2009 2008 2007

REVENUES: Net sales 24,531,976$ 40,734,259$ 37,471,414$ Sales to affiliates 399,745 545,477 543,564 24,931,721 41,279,736 38,014,978

Equity in earnings of affiliates 13,906 36,136 35,387 Other income (expense), net 20,580 53,334 53,972 Insurance recoveries - 33,862 29,079 Gain on sale of assets - 404,301 207,019 Gain on sale of investments in affiliates - - 640,724

24,966,207 41,807,369 38,981,159

COST OF SALES AND EXPENSES: Cost of sales and operating expenses (including impairments of $52,341, -0- and -0- and purchases from affiliates of $9,563,585, $15,465,007 and $14,573,007 from affiliates) 24,938,396 40,135,078 35,950,382 Selling, general and administrative expenses 373,297 352,968 503,381 Interest expense, excluding capital lease 49,349 108,711 77,460 Capital lease interest charge 2,150 2,718 3,280 Insurance recoveries (47,923) (37,625) (17,271) 25,315,269 40,561,850 36,517,232

(LOSS) INCOME BEFORE INCOME TAXES (BENEFIT) (349,062) 1,245,519 2,463,927 INCOME TAXES (BENEFIT) (147,619) 444,075 877,741

NET (LOSS) INCOME (201,443) 801,444 1,586,186

OTHER COMPREHENSIVE INCOME (LOSS): Foreign currency translation gain - - 35 Unrealized change in investment security, net of related tax expense (benefit) of $-0- in 2009, $261 in 2008 and ($261) in 2007 - 451 (451) Pension and postretirement adjustments, net of tax expense (benefit) of $36,436 in 2009, ($113,698) in 2008 and $4,139 in 2007 63,666 (196,105) 7,139

Total other comprehensive income (loss) 63,666 (195,654) 6,723

COMPREHENSIVE (LOSS) INCOME (137,777)$ 605,790$ 1,592,909$

See notes to consolidated financial statements.

F-6

CITGO PETROLEUM CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2009(Dollars and Shares in Thousands)

Pension & Foreign Change in Total Additional Retained Postretirement Currency Investment Shareholder’s

Shares Amount Capital Earnings Liability Translation Securities Total Equity

BALANCE, DECEMBER 31, 2006 1 1$ 1,659,698$ 734,328$ (18,388)$ (456)$ $ - (18,844)$ 2,375,183$

Net income - - - 1,586,186 - - - - 1,586,186

Adjustment to initially apply ASC 740-10 - - - (7,252) - - - - (7,252)

Adjustment to initially apply ASC 715-20, net of tax - - - - (7,773) - - (7,773) (7,773) Other comprehensive income (loss) - - - - 7,139 35 (451) 6,723 6,723

Dividends paid to parent, PDV America - - - (1,151,000) - - - - (1,151,000)

Indirect non-cash dividend to parent, PDV America - - - (15,147) - - - - (15,147)

BALANCE, DECEMBER 31, 2007 1 1 1,659,698 1,147,115 (19,022) (421) (451) (19,894) 2,786,920

Net income - - - 801,444 - - - - 801,444 Adjustment to initially apply ASC 715-60, net of tax - - - (1,666) - - - - (1,666)

Other comprehensive income (loss) - - - - (196,105) - 451 (195,654) (195,654) Dividends paid to parent, PDV America - - - (1,330,000) - - - - (1,330,000)

Indirect non-cash dividend to parent, PDV America - - - (105,000) - - - - (105,000)

BALANCE, DECEMBER 31, 2008 1 1 1,659,698 511,893 (215,127) (421) - (215,548) 1,956,044

Net loss - - - (201,443) - - - - (201,443)

Other comprehensive income - - - - 63,666 - - 63,666 63,666

Indirect non-cash dividend to parent, PDV America - - - (99,510) - - - - (99,510)

BALANCE, DECEMBER 31, 2009 1 1$ 1,659,698$ 210,940$ (151,461)$ (421)$ - $ (151,882)$ 1,718,757$

See notes to consolidated financial statements.

Common Stock

Accumulated OtherComprehensive Income (Loss)

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CITGO PETROLEUM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2009(Dollars in Thousands)

2009 2008 2007

CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income (201,443)$ 801,444$ 1,586,186 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 446,006 458,970 453,845 Provision for losses on accounts receivable 8,679 4,844 4,869 Property impairments 52,341 - - Deferred income taxes (137,982) 134,396 (100,398) Dividends and distributions in excess of (less than) equity in earnings of affiliates 2,612 3,047 (11,481) Gain on sale of assets - (404,301) (207,019) Gain on sale of investments in affiliates - - (640,724) Other adjustments 4,387 5,322 10,190 Changes in operating assets and liabilities: Accounts receivable and due from affiliates (220,666) 889,106 (28,513) Proceeds from sale of accounts receivable 186,757 39,513 - Inventories 86,586 68,475 172,750 Prepaid expenses and other current assets 91,138 258,013 (360,382) Accounts payable and other current liabilities 649,121 (1,044,059) (42,019) Other noncurrent assets (92,076) (121,562) (197,768) Other noncurrent liabilities (14,880) 76,257 45,997 Net cash provided by operating activities 860,580 1,169,465 685,533

CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, including interest capitalized (524,204) (485,360) (360,663) Leasehold improvements - (2) (9,458) Proceeds from sale of assets 21 815,163 248,056 Decrease (increase) in restricted cash 30,818 (12,841) (33,171) Proceeds from sales of investments in affiliates - - 756,000 Proceeds from sale of (investment in) available for sale securities - 13,287 (14,000) Investments in and advances to other affiliates (8,500) - (4,250) Loan to ultimate parent, PDVSA - - (1,000,000) Issuance costs on loan to ultimate parent, PDVSA - - 21,525

Net cash (used in) provided by investing activities (501,865) 330,247 (395,961)

CASH FLOWS FROM FINANCING ACTIVITIES: (Payments on) proceeds from revolving credit facilities (13,711) 333,711 59,000 Payments on senior secured term loan (6,357) (19,986) (6,496) Proceeds from senior secured term loan - 515,000 - Payments on loans from affiliates - - (35,000) (Payment on) proceeds from bridge term loan - (1,000,000) 1,000,000 Payments on tax-exempt bonds (25,000) (19,850) (11,800) Proceeds from tax-exempt bonds 25,000 50,000 45,000 Payments of capital lease obligations (5,367) (6,547) (8,434) Dividends paid to parent, PDV America - (1,330,000) (1,339,000) Debt issuance costs (4,500) (7,186) (22,205)

Net cash used in financing activities (29,935) (1,484,858) (318,935)

(Continued)

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CITGO PETROLEUM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2009(Dollars in Thousands)

2009 2008 2007

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 328,780$ 14,854$ (29,363)$

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 23,925 9,071 38,434

CASH AND CASH EQUIVALENTS, END OF YEAR 352,705$ 23,925$ 9,071$

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest, net of amounts capitalized 49,734$ 82,918$ 78,027$

Income taxes for PDV Holding and subsidiaries, net of refunds of $11,452 in 2009, $10,574 in 2008, and $899 in 2007 (Note 1 and 4) 226,405$ 157,891$ 1,210,149$

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES: Capital expenditures (19,559)$ 36,872$ - $

Capital leases (Note 15) 239$ - $ 384$

Indirect non-cash dividends (Note 4) (99,510)$ (105,000)$ (15,147)$

Crude payable offsets against note receivable from ultimate parent, PDVSA (Note 4) 393,115$ - $ - $

Crude payable / product receivable offsets with affiliates (Note 4) 116,912$ - $ - $

Interest income on note receivable from ultimate parent, PDVSA (Note 4) 2,371$ - $ - $

See notes to consolidated financial statements. (Concluded)

F-9

CITGO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2009

1. SIGNIFICANT ACCOUNTING POLICIES

Description of Business - CITGO Petroleum Corporation (“CITGO”) is a subsidiary of PDV America, Inc. (“PDV America”), an indirect wholly-owned subsidiary of Petróleos de Venezuela, S.A. (“PDVSA” or “ultimate parent”), the national oil company of the Bolivarian Republic of Venezuela.

CITGO manufactures or refines and markets transportation fuels as well as lubricants, petrochemicals and other industrial products. CITGO owns and operates three crude oil refineries (Lake Charles, Louisiana, Corpus Christi, Texas, and Lemont, Illinois) with a combined aggregate rated crude oil refining capacity of 749 thousand barrels per day (“MBPD”) (unaudited). CITGO owned two asphalt refineries (Paulsboro, New Jersey, and Savannah, Georgia), also known as CITGO Asphalt Refining Company (“CARCO”), with an aggregate rated crude oil refining capacity of 112 MBPD. CITGO sold these two asphalt refineries to NuStar Energy L.P. in March 2008. CITGO’s consolidated financial statements also include accounts relating to a lubricant and wax plant, pipelines, and equity interests in pipeline companies and petroleum storage terminals.

CITGO’s transportation fuel customers include CITGO branded wholesale marketers and other light oil suppliers located in the United States mainly east of the Rocky Mountains. Asphalt was generally marketed to independent paving contractors on the East and Gulf Coasts and in the Midwest of the United States. Lubricants are sold principally in the United States to independent marketers, mass marketers and industrial customers. Petrochemical feedstocks and industrial products are sold to various manufacturers and industrial companies throughout the United States. Petroleum coke is sold primarily in international markets. The Company operates as a single business and geographical segment.

Principles of Consolidation – The consolidated financial statements include the accounts of CITGO and its subsidiaries (collectively referred to as the “Company”). All consolidated subsidiaries are wholly owned. All material intercompany transactions and accounts have been eliminated.

The Company’s investments in less than majority-owned affiliates are accounted for by the equity method. The excess of the carrying value of the investments over the equity in the underlying net assets of the affiliates is amortized on a straight-line basis over 40 years, which is based upon the estimated useful lives of the affiliates’ assets.

Estimates, Risks and Uncertainties - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CITGO’s operations can be influenced by domestic and international political, legislative, regulatory and legal environments. In addition, significant changes in the prices or availability of crude oil and refined products could have a significant impact on CITGO’s results of operations and cash flows for any particular year.

Impairment of Long-Lived Assets - The Company periodically evaluates the carrying value of long-lived assets or asset groups to be held and used when events or changes in circumstances indicate that the

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carrying amount of an asset may not be recoverable, in accordance with FASB ASC Subtopic 360-10, “Property, Plant and Equipment – Overall”. The carrying value of a long-lived asset or asset group is considered impaired when the separately identifiable anticipated undiscounted net cash flow from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset or asset group. Fair value is determined primarily using the anticipated net cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for disposal costs (Note 8).

Revenue Recognition - Revenue is generated from the sale of refined petroleum products to bulk purchasers, wholesale purchasers and final consumers. Revenue recognition occurs at the point that title to the refined petroleum product is transferred to the customer. That transfer is determined from the delivery terms of the customer’s contract. In the case of bulk purchasers, delivery and title transfer may occur while the refined petroleum products are in transit, if agreed by the purchaser; or may occur when the hydrocarbons are transferred into a storage facility at the direction of the purchaser. In the case of wholesale purchasers, delivery and title transfer generally occurs when the refined petroleum products are transferred from a storage facility to the transport truck. Direct sales to the final consumer make up an immaterial portion of revenue recognized by CITGO.

Supply and Marketing Activities - The Company engages in the buying and selling of crude oil to supply its refineries. In order to obtain crude oil of a specific grade and quantity in a certain location, the Company may enter a contract to sell a different grade and quantity at a different location. In the event that the Company does not have the specified crude oil to satisfy its counterparty’s needs, it must purchase that crude oil from a third party and sell it to the counterparty. The net results of this activity are recorded in cost of sales.

The Company also engages in the buying and selling of refined products to facilitate the marketing of its refined products. In a typical refined product buy/sell transaction, the Company enters into a contract to buy a particular type of refined product at a specified location and date from a particular counterparty and agrees to sell a particular type of refined product at a different location on the same or another specified date. The value of the purchased volume may not equal the value of the sold volume due to grade or quality differentials, location differentials or timing differences.

These refined product buy/sell transactions are monetary in nature and thus outside the scope of guidance that would pertain to nonmonetary transactions. Additionally, the Company has evaluated the applicable accounting guidance and recorded these transactions on a gross basis. The results of this activity are recorded in cost of sales and sales, except for those buy/sell transactions made with the same counterparty and in contemplation of each other, which are recorded on a net basis in accordance with “Accounting for Purchases and Sales of Inventory with the Same Counterparty” guidance.

The characteristics of the refined product buy/sell transactions include gross invoicing between the Company and its counterparties and cash settlement of the transactions. Nonperformance by one party to deliver does not relieve the other party of its obligation to perform. Both transactions require physical delivery of the product. The risks and rewards of ownership are evidenced by title transfer, assumption of risk of loss and credit risk.

Refined product exchange transactions that do not involve the payment or receipt of cash are not accounted for as purchases or sales. Any resulting volumetric exchange balances are accounted for as inventory in accordance with the Company’s last-in, first-out (“LIFO”) inventory method. Exchanges that are settled through payment or receipt of cash are accounted for as purchases or sales.

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Excise Taxes - The Company collects excise taxes on sales of gasoline and other motor fuels. Excise taxes are collected from customers and paid to various governmental entities. Excise taxes are not included in sales revenue.

Cash and Cash Equivalents - Cash and cash equivalents consist of highly liquid short-term investments and bank deposits with initial maturities of three months or less. Cash equivalents were $101 million and $15 million at December 31, 2009 and 2008, respectively.

Inventories - Crude oil and refined product inventories are stated at the lower of cost or market. Cost is determined using the LIFO method. Materials and supplies are valued using the average cost method.

Property, Plant and Equipment - Property, plant and equipment is reported at cost, less accumulated depreciation. Depreciation is based upon the estimated useful lives of the related assets using the straight-line method. Depreciable lives are generally as follows: buildings and leaseholds – 10 to 24 years; machinery and equipment – 5 to 25 years; and vehicles – 3 to 10 years.

Upon disposal or retirement of property, plant and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized.

The Company capitalizes interest on projects when construction entails major expenditures over extended time periods. Such interest is allocated to property, plant and equipment and amortized over the estimated useful lives of the related assets. Interest capitalized totaled $6 million and $10 million during 2009 and 2008, respectively.

Restricted Cash – The Company has restricted cash consisting of highly liquid investments held in trust accounts in accordance with tax exempt revenue bonds due 2031 and 2043. Funds are released solely for financing the qualified capital expenditures as defined in the bond agreement.

Securities Available for Sale – Securities classified as available for sale are carried at fair value. Unrealized gains and losses are excluded from earnings and reported as accumulated comprehensive income or loss, net of tax, until realized. Declines in the fair value of individual securities below cost that are determined to be other-than-temporary would result in writedowns, as a realized loss, of the individual securities to their fair value. Interest earned on these assets is included in interest income. The Company sold its $14 million investment in a mutual fund in November 2008. Cash proceeds of $9 million were received and losses of $5 million were recorded as realized losses in the consolidated statement of income (loss) and comprehensive income. Unrealized losses of $451 thousand previously included in accumulated other comprehensive income were reclassified out of equity.

On December 31, 2008, the Company reclassified a $22 million investment from cash and cash equivalents to securities available for sale. At December 31, 2008, this investment was fully reserved. On October 31, 2008, an introducing broker failed to remit approximately $22 million that was reportedly invested in a money market fund account. The broker was an introducing broker for a financial institution with whom CITGO and its parent company had custodial brokerage accounts. After an investigation, CITGO and its parent company learned that contrary to the instructions given to the broker, the broker had been investing CITGO’s and its parent company’s surplus cash in certain bonds. The Company has cooperated with an informal investigation into the broker by the U.S. Securities and Exchange Commission (“SEC”), and continues to cooperate with the SEC, which subsequently filed an action against the broker and related entities on May 20, 2009. Through its outside counsel, the Company had been negotiating with the broker so that the broker could remit the $22 million to the Company. After the cessation of negotiations, CITGO filed suit against the broker and related entities, including its principals, regarding this matter. The matter is currently pending in an arbitration administered by Financial Industry Regulatory Authority, Inc. filed on

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May 18, 2009. During the second quarter of 2009, the Company recovered $0.9 million from the financial institution and subsequently reduced the reserved amount to $21 million.

Concentration of Credit Risk –The Company’s financial instruments that are exposed to concentrations of credit risk consist principally of its cash equivalents, derivative financial instruments, notes and accounts receivable and pension plan assets held in trust. The Company’s cash equivalents are in high-quality securities placed with a wide array of institutions. Similar standards of creditworthiness and diversity are applied to the Company’s counterparties to derivative instruments. Accounts receivable balances are dispersed among a broad customer base and the Company routinely assesses the financial position of its customers. The Company’s credit risk is dependent on numerous additional factors including the price of crude oil and refined products, as well as the demand for and the production of crude oil and refined products. The carrying amount of financial assets represents the maximum credit exposure.

Commodity Derivatives – The Company balances its crude oil and petroleum product supply/demand and manages a portion of its price risk by entering into petroleum commodity derivatives. The Company uses futures, forwards, swaps and options primarily to reduce its exposure to market risk. To manage these exposures, management has defined certain benchmarks consistent with its preferred risk profile for the environment in which the Company operates and finances its assets. CITGO does not attempt to manage the price risk related to all of its inventories of crude oil and refined products.

In accordance with FASB ASC Topic 815, “Derivatives and Hedging”, fair values of derivatives are recorded in other current assets or other current liabilities, as applicable, and changes in the fair value of derivatives not designated in hedging relationships are recorded in cost of sales. The Company’s policy is to elect hedge accounting only under limited circumstances involving derivatives with initial terms of 90 days or greater and notional amounts of $50 million or greater. Hedge accounting was not used during the three years ended December 31, 2009 (Note 16).

Refinery Maintenance - Costs of major refinery turnaround maintenance are capitalized and charged to operations over the estimated period between turnarounds. Turnaround periods range from approximately one to seven years. Unamortized costs are included in other current and noncurrent assets. Amortization of refinery turnaround costs is included in depreciation and amortization expense. Amortization was $141 million, $149 million, and $161 million for 2009, 2008, and 2007, respectively. Ordinary maintenance is expensed as incurred.

Environmental Expenditures - Environmental expenditures that relate to current or future revenues are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenue generation are expensed. Liabilities are recorded when environmental assessments and/or cleanups are probable and the costs can be reasonably estimated. Environmental liabilities are recorded at their undiscounted current value and without consideration of potential recoveries from third parties which are recorded in other noncurrent assets. Subsequent adjustments to estimates, to the extent required, may be made as more refined information becomes available.

Income Taxes - The Company is included in the consolidated U.S. federal income tax return filed by PDV Holding, Inc. (“PDV Holding”), the direct parent of PDV America. The Company’s current and deferred income tax expense has been computed on a stand-alone basis using an asset and liability approach. Under this approach, deferred income taxes reflect the net tax effects of temporary differences between the financial and tax basis of assets and liabilities, and loss and tax credit carryforwards. Deferred amounts are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. Under the requirements for nonpublic entities, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, included in FASB ASC Subtopic 740-10 – “Income Taxes – Overall”, in 2009, but has shown the adoption as of

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January 1, 2007 as was required for public entities. With the adoption of this new accounting principle the Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Prior to the adoption of Interpretation 48, the Company recognized the effect of income tax positions only if such positions were probable of not being sustained. The Company records interest related to unrecognized tax benefits in interest expense and penalties in selling, general and administrative expenses.

New Accounting Standards – In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162” (the “Codification”). The Codification modifies the nongovernmental generally accepted accounting principles (“GAAP”) hierarchy into authoritative standards and guidance that is nonauthoritative. All other non-grandfathered, non-Securities and Exchange Commission (“SEC”) accounting literature not included in the Codification will become nonauthoritative. On the effective date of the Codification, the ASC became the single source of U.S. GAAP used by nongovernmental entities in the preparation of financial statements, except for rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative accounting guidance for SEC registrants. The Codification became effective during 2009. The adoption of the Codification has only modified the Company’s reference to GAAP literature in the notes to the Company’s consolidated financial statements.

In December 2007, the FASB issued an accounting standard, “Business Combination – a replacement of FASB No. 141”, subsequently amended in April 2009, which was codified into ASC 805-20-25. ASC 805-20-25 requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at fair value on the acquisition date. ASC 805-20-25 also requires the Company to recognize at fair value an asset acquired or a liability assumed in a business combination that arises from a contingency if the fair value of that asset or liability can be determined at the acquisition date. This standard replaces the cost-allocation process and applies to all business entities, including mutual entities and combinations by contract alone. ASC 805-20-25 became effective for the Company on January 1, 2009. The Company will comply with this statement prospectively in future acquisitions.

Also in December 2007, the FASB issued an accounting standard, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51”, which was codified into ASC 810-10-65-1. ASC 810-10-65-1 establishes accounting and reporting standards for noncontrolling interests by requiring noncontrolling interests be treated as a separate component of equity, not as a liability or other item outside of equity. It also requires disclosure of the amounts attributable to the parent and to the noncontrolling interest on the consolidated statement of income. ASC 810-10-65-1 became effective for the Company on January 1, 2009; earlier adoption was prohibited. The provisions in this accounting principle must be applied on a retrospective basis. The adoption of this standard had no impact on the Company’s financial position and results of operations.

In February 2008, the FASB issued an accounting standard, “Fair Value Measurements and Disclosures - Effective Date of FASB Statement No. 157”, which delayed the effective date for disclosing all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value on a recurring basis to fiscal years beginning after November 15, 2008. The standard was codified into ASC 820-10. ASC 820-10 applies to impaired property, plant and equipment and the initial recognition of the fair value of asset retirement obligations. ASC 820-10 became effective for the Company on January 1, 2009. The adoption of this standard had no material impact on the Company’s financial position and results of operations (Note 17).

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In March 2008, the FASB issued an accounting standard, “Derivatives and Hedging”, which was codified into ASC 815-10-65. ASC 815-10-65 requires enhanced disclosures about an entity’s derivative and hedging activities and was effective for the Company on January 1, 2009. Except for the required presentation and disclosure, the adoption of this standard had no impact on the Company’s financial position and results of operations (Note 16).

In November 2008, the FASB issued an accounting standard, “Equity Method Investment Accounting Considerations”, which was codified into ASC 323-10. ASC 323-10 requires entities to measure equity-method investments initially at cost and to recognize other than temporary impairment of equity-method investments in accordance with ASC 323-10-15, “The Equity Method of Accounting for Investments in Common Stock”. An equity-method investor shall not separately test an investee’s underlying assets for impairment but should recognize its share of any impairment charge recorded by an investee in accordance with ASC 323-10-15. An equity investor shall account for a share issuance by an investee as if the investor had sold a proportionate share of its investment. Any gain or loss to the investor resulting from an investee’s share should be recognized in earnings. This standard became effective for the Company on January 1, 2009. The adoption of this standard had no impact on the Company’s financial position and results of operations.

In December 2008, the FASB issued an accounting standard, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”, which was codified into ASC 715-20-65. ASC 715-20-65 requires employers to make additional disclosures about its plan assets for defined benefit pension or other postretirement plans. The additional disclosures are to help users of financial statements understand (i) how investment allocation decision are made, (ii) the major categories of plan assets, (iii) the inputs and valuation techniques used to measure the fair value of plan assets, (iv) the effect of fair-value measurements using significant unobservable inputs on changes in plan assets for the period, and (v) significant concentrations of risk within plan assets. This standard also includes a technical amendment that requires a nonpublic entity to disclose net periodic benefit cost for the period. The requirement applies to employers that are subject to the disclosure requirements under Topic ASC 715-20-50. This standard became effective for the Company on December 31, 2009. Except for the required presentation and disclosure, the adoption of this standard had no impact on the Company’s financial position and results of operations. (Note 12).

In April 2009, the FASB issued an accounting standard, “Subsequent Events”, which was codified into Topic 855. ASC 855 establishes accounting and reporting standard for events that occur after the balance sheet date but before the issuance of the financial statements. This standard became effective for the Company for interim and annual periods ending after June 15, 2009. This standard requires the entity to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. An entity is also required to disclose the date through which subsequent events have been evaluated. The adoption of this standard had no material impact on the Company’s financial position and results of operations (Note 19).

In August 2009, the FASB issued Accounting Standard Update (“ASU”) 2009-05, “Fair Value Measurements and Disclosures – Measuring Liabilities at Fair Value”, which was codified into Topic 820. ASU 2009-05 provides clarification that in the circumstance when a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value by using one of the following techniques: (i) a valuation technique that uses the quoted price of the identical liability or quoted price of similar liabilities when traded as assets, or (ii) a present value technique or based on the amount a reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability. The update also clarifies that when measuring the fair value of liabilities, a reporting entity is not required to adjust inputs relating to the existence of a restriction that prevents the transfer of the liability. The update is effective for interim and annual periods beginning after its issuance. The adoption of this standard had no material impact on the Company’s financial position and results of operations.

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In September 2009, the FASB issued ASU 2009-06, “Income Taxes – Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities”. ASU 2009-06 amends disclosure requirements for nonpublic entities for unrecognized tax benefits. The guidance is not intended to change practice but to provide implementation guidance on accounting for uncertainty in income taxes in accordance with ASC 740, “Income Taxes”. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. If a tax position is more likely than not to be sustained upon examination, then an enterprise would be required to recognize in its financial statements the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company deferred the application of accounting guidance on income tax uncertainties pursuant to the guidance in ASC paragraph 740-10-65-1(e). ASU 2009-06 becomes effective upon adoption of that guidance. The Company adopted this standard in 2009. The impact of the adoption of this standard is recorded in the Company’s financial statements (Note 2 and 13).

In September 2009, the FASB issued ASU 2009-12, “Fair Value Measurements and Disclosures – Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. ASU 2009-12 permits investors to use net asset value (“NAV”) as a practical expedient when measuring the fair values of an investment that does not have a readily determinable fair value. ASU 2009-12 requires disclosures, by major category of investment, about the attributes of those investments such as (i) the nature of any restrictions on the investor’s ability to redeem its investments at the measurement date, (ii) any unfunded commitments, and (iii) the investment strategies of the investees. ASU 2009-12 became effective for the Company at December 31, 2009. The adoption of this standard had no material impact on the Company’s financial position and results of operations.

In December 2009, the FASB issued ASU 2009-16, “Transfers and Servicing - Accounting for Transfer of Financial Assets”. ASU 2009-16 amends the ASC on Topic 860-10 for the issuance of SFAS No. 166, “Accounting for Transfers of Financial Assets - an amendment of FASB Statement No. 140”, in June 2009. ASU 2009-16 is to improve the relevance and comparability of the information that a reporting entity provides in its financial statements about (i) a transfer of financial assets (ii) the effects of the transferred financial assets on the entity’s financial statements and (iii) a transferor’s continuing involvement in transferred assets. SFAS No. 166 eliminates the concept of a qualifying special-purpose entity. The statement limits circumstances in which a transferor derecognizes a financial asset. It clarifies the requirement that a transferred financial asset be legally isolated from the transferor. ASU 2009-16 requires enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. The guidance is effective for annual reporting periods that begin after November 15, 2009, for interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter, with early adoption prohibited. The Company will adopt this standard effective January 1, 2010. The adoption of this standard is not expected to have a material impact on the Company’s financial position and results of operations.

In December 2009, the FASB issued ASU 2009-17, “Consolidation – Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities”. ASU 2009-17 amends the ASC on Topic 810-10 for the issuance of SFAS No. 167, “Amendments to FASB Interpretation FASB No. 46(R)”, in June 2009. The amendment requires a company to perform an analysis to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity. The primary beneficiary of a variable interest entity is the company that has (a) the power over the significant activities of the variable interest entity and (b) an obligation to absorb losses or the right to receive benefits that could potentially be significant to the variable interest entity. The revised guidance requires ongoing reassessments of whether a company is the primary beneficiary and eliminates the quantitative approach previously required for determining the primary beneficiary. The guidance is effective for annual reporting periods that begin after November 15, 2009, for interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter, with early adoption prohibited. The Company will adopt this standard effective

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January 1, 2010. The Company is currently evaluating the impact, if any, of ASU 2009-17 on its financial position and results of operations.

2. ADOPTION OF NEW ACCOUNTING STANDARDS

The Company adopted several new accounting standards in 2009, none of which had a material impact on the Company’s financial position or results of operations, except the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, included in ASC Subtopic 740-10, “Income Taxes – Overall” and ASU 2009-06, “Income Taxes – Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities”. The Company adopted these new standards in 2009 effective as of January 1, 2007 and revised prior years’ financial statements as if adopted based on the requirements for public entities. ASC 740 established the minimum threshold for recognizing and measuring the benefits of tax return positions in financial statements. The adoption of this interpretation resulted in a decrease to retained earnings of $7 million in 2007, the year the adoption was effective and an additional $3 million decrease in net income in 2008. For the year ended December 31, 2009, the Company recognized approximately $0.5 million of interest expense related to uncertain tax position. The Company recognized interest related to unrecognized tax benefits as operating expense in the statement of operations. At December 31, 2009, the Company had accrued interest liability of $4 million. The Company does not expect its unrecognized tax benefit to change significantly over the next twelve months.

3. REFINERY AGREEMENTS

An affiliate of PDVSA has a 50% equity interest in a joint venture that owns and operates a refinery in St. Croix, U.S. Virgin Islands (“HOVENSA”) and has the right under a product sales agreement to assign periodically to CITGO, or other related parties, its option to purchase 50% of the refined products produced by HOVENSA (less a certain portion of such products that HOVENSA will market directly in the local and Caribbean markets). In addition, under the product sales agreement, the PDVSA affiliate has appointed CITGO as its agent in designating which of its affiliates shall from time to time take deliveries of the refined products available to it. The product sales agreement will be in effect for the life of the joint venture, subject to termination events based on default or mutual agreement (Note 4). Pursuant to the above arrangement, CITGO acquired approximately (unaudited) 134 MBPD, 142 MBPD, and 156 MBPD of refined products from HOVENSA during 2009, 2008, and 2007, respectively, approximately one-half of which was gasoline, for which $3.3 billion, $5.7 billion and $4.9 billion is included in purchases from affiliates for 2009, 2008 and 2007, respectively.

4. RELATED PARTY TRANSACTIONS

The Company purchases approximately 40% of the crude oil processed in its refineries from subsidiaries of PDVSA under long-term supply agreements and spot purchases. On December 1, 2008, the Company entered into an agreement with PDVSA which combines all crude oil purchases for the Lake Charles refinery and Corpus Christi refinery in a single agreement, which extends through March 31, 2012 and can be extended further under the terms of the agreement. Either party may provide notice of cancellation of their current crude oil supply agreement at the end of the term or any renewal term at least one year prior to the expiration date. The Company’s crude oil purchase commitment under the agreement is approximately 250 MBPD.

The long-term crude oil supply agreement requires PDVSA to supply minimum quantities of crude oil to CITGO. The crude oil supply agreement pertaining to the Lake Charles and Corpus Christi refineries incorporates formulas based on the spot market values of widely traded crudes and other hydrocarbons plus an adjustment for market change.

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The feedstock supply agreement (“FSA”) for the supply of naphtha, which remains in effect for the Corpus Christi refinery through 2012, incorporates a formula price based on the market value of a slate of refined products deemed to be produced from each particular grade of feedstock, less (i) specified deemed refining costs; (ii) specified actual costs, including transportation charges, actual cost of natural gas and electricity, import duties and taxes; and (iii) a deemed margin. Under the FSA, deemed margins and deemed costs are adjusted periodically by a formula primarily based on the rate of inflation. Because deemed operating costs and the slate of refined products deemed to be produced for a given barrel of feedstock do not necessarily reflect the actual costs and yields in any period, the actual refining margin earned by CITGO under the FSA will vary depending on, among other things, the efficiency with which CITGO conducts its operations during such period.

The Company purchased $6.2 billion, $9.6 billion, and $9.5 billion of crude oil, feedstocks, and other products from wholly-owned subsidiaries of PDVSA in 2009, 2008, and 2007, respectively, under these and other purchase agreements. At December 31, 2009 and 2008, $459 million and $263 million, respectively, were included in payables to affiliates as a result of these transactions.

The Company also purchases refined products from various other affiliates including HOVENSA (see Note 3) and Mount Vernon Phenol Plant Partnership, under long-term contracts. These agreements incorporate various formula prices based on published market prices and other factors. Such purchases totaled $3.4 billion, $5.8 billion, and $5.1 billion for 2009, 2008, and 2007, respectively. Any portion of the HOVENSA purchases that were donated are reflected in the statement of income (loss) as selling, general and administrative expense. At December 31, 2009 and 2008, $150 million and $33 million, respectively, were included in payables to affiliates as a result of these transactions.

The Company had refined product, feedstock, and other product sales to affiliates, primarily at market-related prices, of $400 million, $545 million, and $544 million in 2009, 2008, and 2007, respectively. At December 31, 2009 and 2008, $61 million and $85 million, respectively, were included in due from affiliates as a result of these and related transactions.

During 2009, the Company sold $117 million of refined products to a PDVSA affiliate. The receivable related to this transaction was offset by reducing the payable to PDVSA for crude oil purchases.

In December 2007, CITGO entered into a one-year, $1 billion note receivable from PDVSA. The original note bore interest at 3.82% per annum paid quarterly. The note was extended in December 2008 with a maturity date of December 17, 2009 and bore interest at 1.36% per annum paid quarterly. The Company and PDVSA entered into a letter of intent in October 2009 to extend the note past the December 17, 2009 maturity date and agreed to the terms of the amortization of the balance of the note. The definitive agreement including an offset payment agreement and the new promissory note was executed on February 2, 2010. The note will be amortized by offset of two designated cargoes of crude oil delivered by PDVSA each month commencing in August 2009 and continuing until the note is paid in full. The remaining outstanding balance would become due no later than December 31, 2010 if the offset arrangement were to be terminated for any reason. Under the definitive agreement, the note will continue to bear interest at 1.36% per annum. At December 31, 2009 and 2008, the outstanding principal balance of the note was $607 million and $1 billion, respectively. The Company recorded interest income of approximately $12 million, $58 million, and $2 million related to the note in the consolidated statement of income (loss) for the years ended December 31, 2009, 2008, and 2007, respectively.

Under a separate guarantee of rent agreement, PDVSA has guaranteed payment of rent, stipulated loss value and terminating value due under the lease of the Corpus Christi refinery facilities described in Note 15. The Company has also guaranteed debt of certain affiliates (Note 14).

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The Company and PDV Holding are parties to a tax allocation agreement that is designed to provide PDV Holding with sufficient cash to pay its consolidated income tax liabilities. PDV Holding appointed CITGO as its agent to handle the payment of such liabilities on its behalf. As such, CITGO calculates the taxes due, allocates the payments among the members according to the agreement and bills each member accordingly. Each member records its amounts due from or payable to CITGO in a related party payable account. At December 31, 2009, CITGO had net related party payables related to federal income taxes of $31 million included in payables to affiliates. At December 31, 2008 CITGO had a $16 million net related party receivable related to federal income taxes included in due from affiliates.

At December 31, 2009, the Company has federal income tax receivables of $181 million included in current assets. At December 31, 2008, CITGO had federal income taxes payables of $105 million included in other current liabilities.

At December 31, 2009, the Company has $14 million in payables to affiliates relating to insurance policies obtained through a subsidiary of its ultimate parent. There was no outstanding balance at December 31, 2008.

CITGO, from time to time, provides services for and makes payments on behalf of its ultimate parent company for various items such as medical expenses, travel and accommodations, advertising and transportation. In addition, the Company transferred certain non-operating assets to its ultimate parent during 2008 and 2009. In order to settle these payments, indirect non-cash dividends of approximately $100 million and $105 million were declared in 2009 and 2008, respectively.

The Company also sold certain non-operating assets and related spare parts to its ultimate parent in November 2009 for $69 million. No gain or loss was recorded by the Company as a result of this transaction. At December 31, 2009, $4 million of current notes receivable and $65 million of noncurrent notes receivable are included on the consolidated balance sheet related to this transaction. The receivable related to this transaction is scheduled to be paid to the Company as the shareholder receives payments on certain bonds they hold. Payments will be received each April and October through April 2017.

5. ACCOUNTS RECEIVABLE

2009 2008

Trade 623,861$ 668,361$ Credit card 47,664 64,974 Other 85,248 79,142

756,773 812,477 Allowance for uncollectible accounts (18,806) (21,003)

737,967$ 791,474$

(000s omitted)

Sales are made on account, based on pre-approved unsecured credit terms established by CITGO management. Allowances for uncollectible accounts are established based on several factors that include, but are not limited to, analysis of specific customers, historical trends and other information.

The Company has a limited purpose consolidated subsidiary, CITGO AR2008 Funding Company, LLC (“AR Funding”), which in June 2008 established a non-recourse agreement to sell an undivided interest in specified trade accounts receivables (“pool”) to independent third parties. Under the terms of the agreement, new receivables are added to the pool as collections (administrated by CITGO) reduce previously sold receivables. CITGO pays specified fees related to its sale of receivables under the program.

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The outstanding invested amount of the interest sold to third parties at any one time under the trade accounts receivable sales agreement is limited to a maximum of $450 million. The duration of this facility is 364 days. The Company renewed this facility in June 2009 for another year.

As of December 31, 2009 and 2008, $887 million and $631 million, respectively, of CITGO’s accounts receivable comprised the designated pool of trade receivables owned by AR Funding. As of December 31, 2009 and 2008, a $226 million and $39 million investment in the receivables in the designated pool had been sold to the third parties and the remainder of the receivables was retained by AR Funding. This retained interest which is included in accounts receivable, net in the consolidated balance sheets, is recorded at fair value. Due to (i) a short average collection cycle for such trade receivables, (ii) CITGO’s positive collection history, and (iii) the characteristics of such trade accounts receivable, the fair value of CITGO’s retained interest approximates the total amount of trade accounts receivable reduced by the outstanding invested amount of the third parties in the trade accounts receivable in which interests are sold to the third parties under the facility.

CITGO recorded no gains or losses associated with the sales in the year ended December 31, 2009 and 2008 other than the fees incurred by CITGO related to this facility, which were included in other income (expense), net in the consolidated statements of income. Such fees were $8 million for both years ended December 31, 2009 and 2008. The third party’s outstanding investments in CITGO trade accounts receivable were never in excess of the sales facility limits at any time under this program.

CITGO is responsible for servicing the transferred receivables for which it receives a monthly servicing fee equal to 1% per annum times the average outstanding amount of receivables in the program for the prior month. Because the servicing fee is an intercompany obligation from AR Funding to CITGO, CITGO does not believe that it incurs incremental costs associated with the activity. CITGO has not, on a consolidated basis, recorded any servicing assets or liabilities related to this servicing activity.

6. INVENTORIES

2009 2008

Refined product 328,386$ 435,491$ Crude oil 173,736 154,590 Materials and supplies 92,827 85,516

594,949$ 675,597$

(000s omitted)

At December 31, 2009 and 2008, estimated net market values exceeded historical cost by approximately $1.5 billion and $883 million, respectively.

The reduction of hydrocarbon LIFO inventory quantities resulted in a liquidation of prior years’ LIFO layers and decreased cost of goods sold by $287 million, $116 million, and $240 million in 2009, 2008, and 2007, respectively. The liquidation of prior year’s LIFO layers increased the gain on sale of assets by $98 million in 2008.

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7. ASSETS HELD FOR SALE

CITGO Lubes and Wax Plant (“CLAW”) is a wholly-owned lubricant refinery of CITGO located in Lake Charles, Louisiana. In August 2008, CITGO engaged an investment banker to market CLAW’s fixed assets. The assets were reclassified as assets held for sale in the accompanying consolidated balance sheet. At December 31, 2008, marketing of the assets was still in progress. As of December 31, 2008, the aggregate carrying value of CLAW’s net property, plant and equipment, prepaid major refinery turnaround maintenance, and warehouse materials and supplies inventory included in assets held for sale was $96 million.

Due to the current market conditions, the timing of the disposal of CLAW is uncertain and disposal was unlikely to happen in 2009. As a result, these assets were no longer classified as held for sale in September 2009. The depreciation expense and turnaround amortization of approximately $9 million and $6 million, respectively, which were not recognized during the held for sale period, were recognized at the date the related assets were reclassified from assets held for sale back to property, plant and equipment and current and noncurrent other assets. The remaining balance of $6 million was reclassified back to materials and supplies inventory. See Note 8.

The Company and Shell Oil Products U.S. have entered into an agreement for the sale of their jointly-owned Louisville, Kentucky terminal. As of December 31, 2009 and 2008, the carrying value of the terminal included in assets held for sale was $1 million. No impairment was recognized at the time of reclassification of the assets to assets held for sale.

In October 2009, CITGO decided to market its South Louisiana Gathering System (“SLGS”) and reclassified it to assets held for sale. In connection with the sales plan, a loss of less than $1 million was recorded, which represents the excess of the carrying value over the estimated selling price.

The following presents the detail of assets held for sale as of December 31, 2009 and 2008:

2009 2008

Property, plant and equipment and prepaid major refinery turnaround maintenance 6,347$ 259,284$ Accumulated depreciation (4,879) (168,358)

Net property, plant and equipment 1,468 90,926 Inventories - 5,938

Total assets held for sale 1,468$ 96,864$

(000s omitted)

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8. PROPERTY, PLANT AND EQUIPMENT

2009 2008

Land 117,971$ 117,966$ Buildings and leaseholds 683,636 660,291 Machinery and equipment 6,275,021 6,114,016 Vehicles 35,624 31,169 Construction in process 567,091 391,463

7,679,343 7,314,905 Accumulated depreciation and amortization (3,365,889) (3,073,540)

4,313,454$ 4,241,365$

(000s omitted)

Depreciation expense for 2009, 2008, and 2007 was $298 million, $285 million, and $286 million, respectively.

Net losses on disposals, impairments and retirements of property, plant and equipment were approximately $31 million, $4 million, and $9 million in 2009, 2008, and 2007, respectively.

At December 31, 2009, management evaluated several options for the utilization of the CLAW facility. The most probable option was a blend of projects utilizing specific groupings of the assets in the facility. This option required the Company to categorize assets into separate asset groups for the purpose of this analysis. Based on the most probable option and in adherence with ASC 360-10-05-4 guidance, the Company recorded an impairment of certain CLAW assets. The carrying value of the CLAW assets that would no longer be utilized for the most probable option is included in the impairment amount. On December 31, 2009, the Company recorded an impairment of $52 million, of which $27 million was related to property, plant and equipment. The remaining $25 million of impairment was related to prepaid major refinery turnaround maintenance associated with those operating units which were written off and is recorded in other current and noncurrent assets. This impairment was recorded in cost of sales in the consolidated statement of income (loss).

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9. INVESTMENTS IN AFFILIATES

The Company’s investments in affiliates consist primarily of equity interests of 9.5% to 50% in joint interest pipelines and terminals; a 49.5% partnership interest in Nelson Industrial Steam Company (“NISCO”), which is a qualified cogeneration facility; and a 49% partnership interest in Mount Vernon Phenol Plant. The carrying value of these investments exceeded the Company’s equity in the underlying net assets by approximately $11 million at December 31, 2009 and approximately $12 million at December 31, 2008, which is being amortized over the estimated life of the investments.

Information on the Company’s investments follows:

2009 2008 2007

Company’s investments in affiliates 78,126$ 72,157$ 76,355$ Company’s equity in earnings of affiliates 13,906 36,136 35,387 Dividends and distributions received from affiliates 16,518 39,183 23,906

(000s omitted)

Selected (unaudited) financial information provided by the affiliates is summarized as follows:

2009 2008 2007

Summary of financial position: Current assets 192,419$ 233,338$ 291,288$ Noncurrent assets 279,441 289,927 340,423 Current liabilities (including debt of $7,914, $7,914, and $147,643 at December 31, 2009, 2008, and 2007, respectively) 177,992 183,746 376,176 Noncurrent liabilities (including debt of $67,877, $82,791, and $83,705 at December 31, 2009, 2008, and 2007, respectively) 116,082 132,742 138,630

Summary of operating results: Revenues 1,076,318$ 1,902,934$ 1,611,802$ Gross profit 181,512 162,593 169,582 Net income 73,433 100,708 79,438

(000s omitted)

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10. ASSET RETIREMENT OBLIGATIONS

The Company accounts for asset retirement obligations in accordance with ASC 410-20, “Accounting for Asset Retirement Obligations” and adopted the provision of “Accounting for Conditional Asset Retirement Obligations" effective December 31, 2005. This interpretation clarifies that an entity is required to recognize a liability for all legal obligations, including conditional obligations, to perform asset retirement activities if the fair value of the obligation can be reasonably estimated. The Company has asset retirement obligations with respect to asbestos abatement on certain of its refinery assets. Application of ASC 410-20-25 increased property, plant and equipment, net, by $9.2 million and established an asset retirement obligation of $23.7 million in the year of adoption. The asset retirement costs are capitalized as part of the carrying amount of property, plant and equipment, net, and depreciated over the period that the asset is expected to contribute directly or indirectly to future cash flows. After the initial measurement of the asset retirement obligation, the liability is adjusted at the end of each reporting period to reflect changes in the estimates and accretion of the liability. Changes in asset retirement obligations, which are included in other noncurrent liabilities in the accompanying consolidated balance sheets, are as follows:

2009 2008

Balance, January 1 23,052$ 22,806$ Accretion expense 1,441 1,784 Spending on existing obligation (859) (1,538) Balance, December 31 23,634$ 23,052$

(000s omitted)

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11. LONG-TERM DEBT AND FINANCING ARRANGEMENTS

2009 2008

Secured Revolving Credit Facility with variable interest rate 400,000$ 413,711$

Senior Secured Term Loan B, due 2012 with variable interest rate 610,286 616,643

Senior Secured Term Loan A, due 2012 with variable interest rate 515,000 515,000

Tax-Exempt Bonds, due 2023 to 2043 with variable and fixed interest rates 592,657 592,652

Taxable Bonds, due 2026 with variable interest rates 60,000 60,000

2,177,943 2,198,006

Current portion of long-term debt (406,357) (6,357)

Total long-term debt 1,771,586$ 2,191,649$

(000s omitted)

Senior Secured Credit Facility -- On November 15, 2005, the Company entered into an agreement for a $1.85 billion senior secured credit facility, which consists of the five-year secured revolving credit facility in the amount of up to $1.15 billion and the seven-year senior secured term loan B of $700 million. This agreement was amended in 2007 to provide for a $1 billion bridge term loan. The bridge term loan was replaced in June 2008 with a senior secured term loan A of $515 million and a non-recourse agreement to sell an undivided interest of up to $450 million in specified accounts receivable (Note 5). These agreements are collectively referred to as the “senior secured credit facility”. The credit facility is secured by CITGO’s interests in its Lake Charles, Louisiana and Corpus Christi, Texas refineries, its trade accounts receivable and its inventories and is subject to covenants typical for senior secured financings.

Secured Revolving Credit Facility – The $1.15 billion, five-year, secured revolving credit facility matures in November 2010. The interest rate on the secured revolving credit facility was 1.49% and 3.25% at December 31, 2009 and 2008, respectively. At December 31, 2009 and 2008, $400 million and $414 million, respectively, were outstanding under this secured revolving credit facility. The unused portion of the secured revolving credit facility (less letters of credit issued under the facility) is subject to a quarterly commitment fee ranging from 15 to 50 basis points or 20.0 basis points at December 31, 2009 (Note 14). The Company’s plan for 2010 is to refinance the secured revolving credit facility and restructure its debt portfolio. The Company has begun discussions with existing lenders and other banks and expects to refinance the secured revolving credit facility and restructure its debt portfolio during the second quarter of 2010. In the event the Company is unable to refinance its current secured revolving credit facility, the Company would consider optimizing working capital, monetizing non-strategic assets and working with its ultimate parent to ensure payments of its obligations.

Senior Secured Term Loan B – The Company entered into a $700 million senior secured term loan agreement in November 2005. The proceeds from the loan were used to redeem certain senior notes. The senior secured term loan B due in 2012 has a variable interest rate based on the senior secured debt rating. The interest rate at December 31, 2009 was LIBOR plus 150.0 basis points or 1.72%.

Senior Secured Term Loan A – The Company entered into a $515 million senior secured term loan agreement in June 2008. The senior secured term loan A due in 2012 has a variable interest rate based on

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the senior secured debt rating. The Company had a principal balance of $515 million outstanding as of December 31, 2009. The interest rate at December 31, 2009 was LIBOR plus 212.5 basis points or 2.35%.

The ratings on the senior secured credit facility, as currently assessed by the three major debt rating agencies, are as follows:

Secured

Standard & Poor's Ratings Group BB+Moody's Investors Service Ba1Fitch Investors Services, Inc. BBB-

In the event of a downgrade in the ratings on the senior secured credit facility, the interest rate on the facility would increase by 25 basis points for both term loans and the revolver.

Covenants - The Company executed an amendment and waiver to the senior secured credit facility on February 4, 2010. The amendment:

� permits the Company to refinance existing indebtedness in whole or in part;

� modifies certain covenants under the existing credit agreement;

� permits the Company to issue up to $400 million of secured indebtedness in connection with industrial revenue bond financings;

� restricts the Company from declaring and paying dividends so long as the covenant waivers remain in effect and thereafter the payment of dividends will be subject to a minimum liquidity requirement of $500 million, after giving effect to such dividends, and to a maximum capitalization of 0.55 to 1. A declaration or payment of dividends during the waiver period would, in effect, terminate the covenant waivers. In addition, the dividend calculation was revised to include 100% of net income arising after January 1, 2009;

� waives the interest coverage ratio through September 30, 2010 and revises it to 1.5 to 1 at December 31, 2010. The interest coverage ratio requirement will increase each quarter until it returns to 3 to 1 at December 31, 2011;

� waives the capitalization ratio for December 31, 2009 and revises it to 0.60 to 1 thereafter;

� includes a minimum liquidity requirement of $300 million at March 31, 2010, increasing to $400 million at June 30, 2010, which will remain in effect through September 30, 2011;

� revises the security to include the Company’s interest in the Lemont, Illinois refinery.

The various credit agreements under the senior secured credit facility described above reflect the same covenants based on the senior secured credit facility agreement originally executed in 2005, as amended in 2007, as supplemented in 2008 and as further amended in 2010 as discussed above. Material covenant provisions include:

� aggregate proceeds of a disposition of assets cannot exceed $4 billion other than certain permitted exceptions including inventory in the normal course of business;

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� other indebtedness not otherwise expressly permitted by the senior secured credit facility cannot exceed an aggregate principal amount of $200 million or 10% of net worth;

� the Company may declare and pay cash dividends out of the sum of 100% of net income arising after January 1, 2005, plus an additional amount of up to $4 billion of net cash proceeds, net of taxes and certain other transaction costs received from permitted sales of assets (amended as stated above for the waiver period);

� the Company must maintain a capitalization ratio to be more than 0.55 to 1 (amended as stated above for the waiver period);

� the Company must maintain a ratio of EBITDA to interest expense to be less than 3 to 1 (amended as stated above for the waiver period);

� indebtedness owed by the Company to, and guarantees by the Company of any obligations of an affiliate cannot exceed an aggregate principal amount of $75 million; and

� permitted indebtedness, in the combined principal amount of receivables financing indebtedness and additional indebtedness, cannot at any time exceed in the aggregate amount equal to $1 billion.

The Company’s debt instruments described above do not contain any covenants that trigger prepayment as a result of a change in its debt ratings and do not contain any covenants that restrict amendment to or termination of its long-term crude supply agreements. The Company covenants that all transactions with affiliates will be structured as arms-length transactions. The Company was in compliance with the debt covenants at December 31, 2009.

Tax-Exempt Bonds - At December 31, 2009, through state entities, CITGO has outstanding $453 million of industrial development bonds for certain Lake Charles, Corpus Christi and Lemont port facilities and pollution control equipment and $139 million of environmental revenue bonds to finance a portion of the Company’s environmental facilities at its Lake Charles, Corpus Christi and Lemont refineries. The bonds bear interest at various fixed and floating rates, which ranged from 1.0% to 8.0% at December 31, 2009 and ranged from 2.0% to 8.0% at December 31, 2008. Additional credit support for the variable rate bonds is provided through letters of credit issued under the Company’s secured revolving credit facility.

Included above is a $50 million floating rate tax-exempt industrial revenue bond that the Company issued on April 22, 2008. This bond bears interest at the rate of 1.4% at December 31, 2009 and is due in 2043. The proceeds from the bond are being used for qualified projects at the Corpus Christi refinery.

Taxable Bonds - At December 31, 2009, through a state entity, the Company has outstanding $60 million of taxable environmental revenue bonds to finance a portion of the environmental facilities at the Lake Charles refinery. Such bonds are secured by letter of credit issued under the Company’s secured revolving credit facility and have a floating interest rate (weighted average 1.6% and 3.1% at December 31, 2009 and December 31, 2008, respectively). At the option of the Company and upon the occurrence of certain specified conditions, all or any portion of such taxable bonds may be converted to tax-exempt bonds. There were no taxable bonds converted to tax-exempt bonds during 2009 or 2008.

Debt Maturities – Future maturities of long-term debt as of December 31, 2009, are: 2010 - $406 million, 2011 - $206 million, 2012 - $913 million, 2013 - $-0-, 2014 - $-0-, and $653 million thereafter.

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12. EMPLOYEE BENEFIT PLANS

Employee Savings - CITGO sponsors three qualified defined contribution retirement and savings plans covering substantially all eligible salaried and hourly employees. Participants make voluntary contributions to the plans and CITGO makes contributions, including matching of employee contributions, based on plan provisions. CITGO expensed $25 million related to its contributions to these plans in both 2009 and 2008.

PDV Midwest Refining, L.L.C. (“PDVMR”) is a subsidiary of CITGO. It sponsors a defined contribution plan. This plan was frozen as of May 1, 1997 and no further contributions to the plan could be made after that date. There will be no new participants in the plan.

Pension Benefits - CITGO sponsors three qualified noncontributory defined benefit pension plans, two covering eligible hourly employees and one covering eligible salaried employees. CITGO also sponsors two nonqualified defined benefit plans for certain eligible employees.

PDVMR sponsors a qualified and a nonqualified plan, frozen at their then current levels on April 30, 1997. The plans cover former employees of the partnership who were participants in the plans as of April 30, 1997.

Postretirement Benefits Other Than Pensions - In addition to pension benefits, CITGO also provides certain health care and life insurance benefits for eligible salaried and hourly employees at retirement. These benefits are subject to deductibles, copayment provisions and other limitations and are primarily funded on a pay-as-you-go basis. CITGO reserves the right to change or to terminate the benefits at any time.

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Obligations and funded status - December 31 is the measurement date used to determine pension and other postretirement benefit measurements for the plans. The following sets forth the changes in benefit obligations and plan assets for the CITGO and PDVMR pension and the CITGO postretirement plans for the years ended December 31, 2009 and 2008, and the funded status of such plans reconciled with amounts reported in the Company’s consolidated balance sheets:

Pension Benefits Other Benefits2009 2008 2009 2008

Change in benefit obligation:Benefit obligation at beginning of year 761,394$ 692,646$ 508,045$ 422,574$ Service cost 24,709 22,654 11,817 9,927 Interest cost 43,569 44,290 30,149 27,007 Amendments - - 21,063 - Actuarial (gain) loss (12,730) 32,258 (5,015) 61,409 Plan settlements (55,227) (4,975) - - Benefits paid (28,663) (25,479) (14,663) (13,744) Medicare subsidies received - - 927 872 Net transfer in - - 2,607 -

Benefit obligation at end of year 733,052$ 761,394$ 554,930$ 508,045$

Change in plan assets:Fair value of plan assets at beginning of year 428,496$ 577,325$ 1,447$ 1,389$ Actual return on plan assets 109,282 (171,229) 30 58 Plan settlements (55,227) (4,975) - - Employer contribution 81,355 52,854 14,663 13,744 Benefits paid (28,663) (25,479) (14,663) (13,744) Adjustments - - (1,477) -

Fair value of plan assets at end of year 535,243$ 428,496$ - 1,447$

Reconciliation of funded status:Fair value of plan assets 535,243$ 428,496$ 0$ 1,447$ Benefit obligations 733,052 761,394 554,930 508,045

Funded status (197,809)$ (332,898)$ (554,930)$ (506,598)$

Amounts recognized in the Company's consolidated balance sheets consist of:

Current liabilities (4,113) (53,178) (19,248) (15,100) Non-current liabilities (193,696) (279,720) (535,682) (491,498)

Net amount recognized (197,809)$ (332,898)$ (554,930)$ (506,598)$ Reconciliation of amounts recognized in Company's consolidated balance sheets: Initial net asset $ - 8$ $ - $ - Prior service (cost) credit (10,563) (10,950) (20,215) 1,342 Net loss (182,712) (300,511) (26,260) (29,741) Accumulated other comprehensive loss (193,275) (311,453) (46,475) (28,399) Accumulated contributions in excess of net periodic benefit cost (4,534) (21,445) (508,455) (478,199)

Net amount recognized (197,809)$ (332,898)$ (554,930)$ (506,598)$

(000s omitted) (000s omitted)

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The accumulated benefit obligation for all defined benefit plans was $660 million and $672 million at December 31, 2009 and 2008, respectively.

Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets

2009 2008

Projected benefit obligation 733,052$ 761,394$ Accumulated benefit obligation 660,498 672,206 Fair value of plan assets 535,243 428,496

December 31,

(000s omitted)

Components of Net Periodic Benefit Cost

2009 2008 2007 2009 2008 2007

Components of net periodic benefit cost: Service cost 24,709$ 22,654$ 22,550$ 11,818$ 9,927$ 11,297$ Interest cost 43,569 44,290 39,130 30,149 27,007 25,887 Expected return on plan assets (34,797) (45,694) (40,745) (87) (83) (80) Amortization of prior service cost 387 387 11,581 (494) (494) (494) Amortization of net gain at date of adoption (8) (8) (8) - - - Amortization of net loss (gain) 22,646 1,649 4,432 (351) (3,740) - Settlement loss recognized 7,938 3,018 17,832 - - -

Net periodic benefit cost 64,444$ 26,296$ 54,772$ 41,035$ 32,617$ 36,610$

Pension Benefits

(000s omitted)

Other Benefits

(000s omitted)

Actuarial gains (or losses) related to the postretirement benefit obligation are recognized as a component of net postretirement benefit cost by the amount the beginning of year unrecognized net gain (or loss) exceeds 7.5% of the accumulated postretirement benefit obligation.

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Changes Recognized in Other Comprehensive Income (Loss)

2009 2008 2007 2009 2008 2007

Change due to minimum liability and intangible asset recognition prior to adoption of ASC 715Decrease in additional minimum liability NA NA (11,186)$ NA NA $ - Increase in intangible asset NA NA (93) NA NA -

Other comprehensive income NA NA (11,279) NA NA -

Changes in plan assets and benefit obligations recognized in other comprehensive income

Net (gain) loss arising during the year (87,215)$ 249,181$ NA (3,832)$ 61,434$ -

New prior service cost - - 21,063 - Amounts recognized as a component of net periodic benefit cost

Amortization, settlement or curtailment recognition of net transition asset 8 8 NA - - -

Amortization or curtailment recognition of prior service (cost) credit (387) (387) NA 494 494 -

Amortization or settlement recognition of net (loss) gain (30,584) (4,667) NA 351 3,740 - Total recognized in other comprehensive (income) loss (118,178)$ 244,135$ 11,279$ 18,076$ 65,668$ $ -

Total recognized in net periodic benefit cost and other comprehensive loss (53,734)$ 270,431$ 43,493$ 59,111$ 98,285$ 36,610$

(000s omitted)

Pension Benefits Other Benefits

(000s omitted)

The amounts included in accumulated other comprehensive income as of December 31, 2009 expected to be recognized as components of net periodic benefit costs during the year ending December 31, 2010 were as follows:

Pension OtherBenefits Benefits

Estimated 2010 amortization from accumulated other comprehensive income:

Amortization of loss (11,390)$ (79)$ Amortization of prior service costs (831) (1,671) Decrease in postretirement benefit obligation (12,221)$ (1,750)$

(000s omitted)

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Additional Information

The discount rate used to determine the pension plan and other postretirement plan obligations as of December 31, 2009 was determined using a matched bond portfolio. This approach constructs a hypothetical bond portfolio whose coupon and principal cash flows settle the projected benefit cash flows. The yield on the chosen portfolio determined the discount rate. Prior to 2009, the discount rate was determined using a spot rate yield curve based on the universe of qualified bonds.

2009 2008 2009 2008

Weighted-average assumptions used todetermine benefit obligations at December 31:

Discount rate 6.30 % 6.25 % 6.37 % 6.00 % Rate of compensation increase 4.42 % 4.48 % 4.48 % 4.48 %

Pension Benefits Other Benefits

2009 2008 2009 2008

Weighted-average assumptions usedto determine net periodic benefit costsfor the years ended December 31:

Discount rate 6.25 % 6.50 % 6.00 % 6.50 % Expected long-term return on plan assets 7.95 % 8.00 % 6.00 % 6.00 % Rate of compensation increase 4.48 % 4.48 % 4.48 % 4.48 %

Pension Benefits Other Benefits

CITGO’s expected long-term rate of return on plan assets is intended to generally reflect the historical returns of the assets in its investment portfolio. The expected long-term rates of return used were determined based on the Company’s target asset allocations and long-term expected returns on capital market indices, reduced for investment and administrative expenses. The weighted average return at December 31, 2009 on indices representing CITGO’s investment portfolio is 2.87% over the past 10 years and 6.88% over the past 15 years.

For measurement purposes, an 8.50% for both pre-65 and post-65 annual rate of increase in the per capita cost of covered health care benefits was assumed for 2010. These rates are assumed to decrease to 8.10% in 2011 for both pre-65 and post-65 and then to decrease to an ultimate level of 5% by 2019, and to remain at that level thereafter.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

Point Increase Point Decrease

Increase (decrease) in total of service and interest cost 8,148$ (6,379)$ components

Increase (decrease) in postretirement benefit obligation 84,555$ (68,626)$

(000s omitted)

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In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“Medicare Reform”) was signed into law. Medicare Reform introduces a prescription drug benefit under Medicare (Medicare Part D) as well as a non-taxable federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In May 2004, the FASB Staff issued accounting guidance, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”. The guidance permits a sponsor to report the effects of Medicare Reform prospectively in the third quarter of 2004 or retrospectively to the measurement date following enactment of the legislation. CITGO chose to use the retrospective method to reflect Medicare Reform as of January 1, 2004. The net periodic benefit cost for the year ended December 31, 2009 was reduced $6.5 million for the effect of the subsidy. Under CITGO’s accounting policy for the postretirement welfare plan, actuarial (gains) and losses outside of the 7.5% corridor are recognized immediately. Due to the immediate recognition of an actuarial loss, the net periodic benefit cost for the year ended December 31, 2008 was increased $11.7 million for the effect of the subsidy.

Cash Flows

Pension Benefits

Expected employer contributions for the year ended December 31, 2010 27,302$ 19,248$

Gross Benefit Implied MedicarePayments Subsidy

Expected benefit payments for the years ended December 31: 2010 34,195$ 20,695$ 1,447$ 2011 36,043$ 23,233$ 1,680$ 2012 39,136$ 25,537$ 1,988$ 2013 42,820$ 28,175$ 2,297$ 2014 46,307$ 30,991$ 2,616$ Five years thereafter 278,583$ 196,386$ 18,887$

Other Benefits(000s omitted)

Plan Assets

CITGO's pension plan investment strategy is to achieve a rate of return that meets or exceeds the expected future benefit payments of the plans. As of December 31, 2009, the plan expects to achieve these returns and to mitigate concentration of investment risk by employing a diversified investment strategy of 30% U.S. large cap equities, 9% U.S. small cap equities, 20% non-U.S. developed market equities and 41% fixed income securities, which include corporate bonds of companies from diversified industries, mortgage securities and U.S. Treasuries.

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The qualified plans’ assets include:

TargetAllocation 2009 2008

Asset Category:Equity 54% - 64% 59.84 % 54.15 %Fixed income 36% - 46% 39.80 % 45.66 %Other 0% - 5% 0.36 % 0.19 %

100.00 % 100.00 %

as of December 31,Percentage of Plan Assets

The equity fund includes large cap and small cap, as well as international equities. The fixed income fund includes bonds, cash and short-term investments. The Company periodically reviews the asset allocation to determine whether it remains appropriate for achieving the investment return objectives. At December 31, 2009, the investment allocations were consistent with the Company’s investment allocation policy.

The following is a description of the valuation methodologies for assets measured at fair value. The various inputs that may be used to determine the value of each fund, defined as Level 1, Level 2, and Level 3, are summarized in Note 17.

Money market funds - The money market funds are valued at the closing NAV as quoted in an active market and are classified within level 1 of the valuation hierarchy.

Common/collective trust funds -These investments are valued at the NAV as reported by the issuer as a practical expedient for fair value and are classified within level 2 of the valuation hierarchy.

The following table presents the assets measured at fair value on a recurring basis as of December 31, 2009. No assets are classified within level 3 of the valuation hierarchy.

Quoted Prices in Significant SignificantActive Markets for Observable Unobservable Total

Identical Assets Inputs Inputs Fair(Level 1) (Level 2) (Level 3) Value

Money market funds 1,935$ -$ -$ 1,935$ Common/collective trust funds - 533,308 - 533,308

Total 1,935$ 533,308$ -$ 535,243$

Fair Value Measurement at December 31, 2009 Using

(000s omitted)

Contributions - CITGO’s policy is to fund the qualified pension plans in accordance with applicable laws and regulations and not to exceed the tax deductible limits. CITGO estimates that it will contribute approximately $23 million to these plans in 2010. The nonqualified plans are funded as necessary to pay retiree benefits. The Company estimates that it may contribute approximately $4 million to the nonqualified plans in 2010 due to the change in payment type from annual payments to lump sum distributions for the nonqualified plans. The plan benefits for each of the qualified pension plans are primarily based on an employee’s years of plan service and compensation as defined by each plan.

CITGO’s policy is to fund its postretirement benefits other than pension obligation on a pay-as-you-go basis. CITGO estimates that it will contribute approximately $19 million to these plans in 2010.

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13. INCOME TAXES

The provisions for income taxes are comprised of the following:

2009 2008 2007

Current: Federal (15,273)$ 308,700$ 924,316$ State 4,381 979 53,743 Foreign 1,255 - 80

(9,637) 309,679 978,139 Deferred: Federal (127,089) 124,674 (103,601) State (10,893) 9,722 3,203

(137,982) 134,396 (100,398)

(147,619)$ 444,075$ 877,741$

(000s omitted)

The federal statutory tax rate differs from the effective tax rate due to the following:

2009 2008 2007

Federal statutory tax rate 35.0 % 35.0 % 35.0 %State taxes, net of federal benefit (0.4)% 0.4 % 1.2 %Dividend exclusions 1.2 % (0.4)% (0.1)%Medicare subsidy 0.6 % 0.4 % (0.1)%Manufacturing deduction - (1.2)% (1.2)%Contributions 1.7 % - - State net operating loss 1.6 % - (0.2)%Other, net 2.6 % 1.4 % 1.0 %

Effective tax rate 42.3 % 35.6 % 35.6 %

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Deferred income taxes reflect the net tax effects of (i) temporary differences between the financial and tax basis of assets and liabilities, and (ii) loss and tax credit carryforwards. The tax effects of significant items comprising the Company’s net deferred tax liability as of December 31, 2009 and 2008 are as follows:

2009 2008(000s omitted)

Deferred tax liabilities: Property, plant and equipment 853,972$ 857,593$ Inventories 73,829 75,725 Investments in affiliates 1,042 698 Turnaround adjustments 130,406 139,243 Other 32,685 120,413

1,091,934 1,193,672

Deferred tax assets: Postretirement benefit obligations 233,206 213,622 Employee benefit accruals 50,123 78,509 Net operating loss carryforwards 37,480 33,627 Other 75,411 72,862

396,220 398,620 Valuation allowance (21,198) (22,803)

375,022 375,817 Net deferred tax liability (of which $144,257 and $73,798 is included in current liabilities at December 31, 2009 and 2008, respectively) 716,912$ 817,855$

The Company and PDV Holding are parties to a tax allocation agreement that is designed to provide PDV Holding with sufficient cash to pay its consolidated income tax liabilities. PDV Holding appointed CITGO as its agent to handle the payment of such liabilities on its behalf. As such, CITGO calculates the taxes due, allocates the payments among the members according to the agreement and bills each member accordingly. Each member records its amounts due from or payable to CITGO in a related party payable account. At December 31, 2009, CITGO had net related party payables related to federal income taxes of $31 million included in payables to affiliates. At December 31, 2008, CITGO had net related party receivables related to federal income taxes of $16 million included in due from affiliates.

At December 31, 2009, the Company has federal income tax receivable of $181 million included in current assets. At December 31, 2008, CITGO has federal income tax liability of $105 million included in current income taxes payable.

The Company’s tax years through 2000 are closed to adjustments by the Internal Revenue Service (“IRS”). During 2009, the IRS completed the examination phase of the audit of the Company’s federal income tax return for the years 2001 through 2005, and issued Revenue Agents Reports (“RAR”). Included in these RARs were proposed adjustments to disallow research and experimental expenses as well as depreciation expense. The Company filed protests of these adjustments with the Appeals office of the IRS and does not expect the ultimate disposition of these audits will result in a material change to its financial position or results of operations. The Company’s federal income tax return for the years 2006 and 2007 remain under examination by the IRS.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of temporary differences in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management

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believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 2009.

The Company has approximately $819 million of state and approximately $6 million of foreign net operating loss carryforwards that will expire between the years 2011 and 2029 and 2010 and 2014, respectively, if not utilized. Based on management’s assessment of the various state and foreign net operating losses, it was determined that it is more likely than not that the Company will not be able to realize tax benefits on a portion of the state losses and all of the foreign losses. The valuation allowance at December 31, 2009 and 2008 is attributable to the deferred tax asset related to these state and foreign net operating losses.

The Company follows the guidance of ASC 740, “Income Taxes - Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”. ASC 740 defines the criteria an individual tax position must meet for any part of the benefit of that position to be recognized in the financial statements. ASC 740 also provides guidance, among other things, on the measurement of the income tax benefit associated with uncertain tax positions, de-recognition, classification, interest and penalties and financial statement disclosures.

The adoption of this interpretation resulted in a decrease to retained earnings of approximately $7 million as of January 1, 2007 and a decrease of $3 million to net income in 2008. In addition, certain amounts previously reported in deferred income taxes were reclassified to other noncurrent liabilities in the consolidated balance sheets.

A reconciliation of the beginning and ending amount of the unrecognized tax benefits is as follows:

2009 2008 2007

Balance at January 1, 32,253$ 10,860$ 11,320$ Increase related to prior year tax position - 15,653 - Increase related to current year tax position - 6,028 854 Decrease related to current year tax position (603) - - Settlements (927) (288) (1,314) Balance at December 31, 30,723$ 32,253$ 10,860$

(000s omitted)

At December 31, 2009, unrecognized tax benefits of $31 million included $11 million in tax benefits, which if recognized, would reduce the Company’s annual effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next twelve months. The Company has elected to classify any interest expense and penalties, if any, related to unrecognized tax benefits as operating expense. As of December 31, 2009, the Company recognized approximately $0.5 million of interest expense related to uncertain tax positions and had accrued interest liability of $4 million.

The Worker, Homeownership and Business Assistance Act of 2009 provides for an extended carryback of 2008 or 2009 net operating losses for five years, instead of the general two year carryback. The Company is evaluating its 2009 carryback opportunities. The Company has taxable income available to offset the 2009 net operating losses in the extended carryback years, as well as in 2007 and 2008.

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14. COMMITMENTS AND CONTINGENCIES

Litigation and Injury Claims – Various lawsuits and claims arising in the ordinary course of business are pending against CITGO. CITGO records accruals for potential losses when, in management's opinion, such losses are probable and reasonably estimable. If known lawsuits and claims were to be determined in a manner adverse to CITGO, and in amounts greater than CITGO's accruals, then such determinations could have a material adverse effect on CITGO's results of operations in a given reporting period. The most significant lawsuits and claims are discussed below.

CITGO, along with most of the other major oil companies, is a defendant in a number of federal and state lawsuits alleging contamination of private and public water supplies by methyl tertiary butyl ether (“MTBE”), a gasoline additive. In general, the plaintiffs claim that MTBE renders the water not potable. In addition to compensatory and punitive damages, plaintiffs seek injunctive relief to abate the contamination. As of December 31, 2009, there were approximately 30 cases, the majority of which were filed by municipal authorities. Numerous cases were originally removed to federal court and at the defendants’ request consolidated in Multi-District Litigation (“MDL”) 1358. On March 16, 2004, the judge in MDL 1358 denied the plaintiffs’ motion to remand the cases to state court. Two plaintiffs appealed the denial of the remand to state court to the U.S. Court of Appeals for the Second Circuit. On May 24, 2007, the Court of Appeals reversed the trial judge’s decision to permit the removal from state court of MTBE cases filed by states (California and New Hampshire) to federal court. The appellate court held that the cases were improperly removed because none of the bases for removal (such as, federal officer, bankruptcy, pre-emption or federal question) was valid. As of July 12, 2009, a settlement agreement was executed between the defendants and New York City to resolve the City’s MTBE contamination claims for approximately $13.8 million of which CITGO’ share is approximately $1 million. Further, the defendants will be contingently liable for the clean-up of certain wells in the future if those wells would become contaminated. CITGO will continue to vigorously defend the remaining cases. CITGO management does not believe that the resolution of these matters will have a material adverse effect on its financial condition, but may have a significant effect on its financial results for a given period.

Claims have been made against CITGO in a number of asbestos, silica and benzene lawsuits pending in state and federal courts. Most of these cases involve multiple defendants and are brought by former employees or contractor employees seeking damages for asbestos, silica and benzene related illnesses allegedly caused, at least in part, from exposure at refineries owned or operated by CITGO in Lake Charles, Louisiana, Corpus Christi, Texas and Lemont, Illinois. In many of these cases, the plaintiffs’ alleged exposure occurred over a period of years extending back to a time before CITGO owned or operated the premises at issue. CITGO shall continue to vigorously defend these cases. CITGO does not believe that the resolution of any of these cases will, either individually or on an aggregate basis, have a material adverse effect on its financial condition or results of operations.

In 2007, CITGO and the former environmental manager at the Corpus Christi refinery were criminally tried for five violations of the Clean Air Act for having uncovered water equalization tanks and incorrectly computing benzene emission amounts and exceeding benzene permitted levels in waste water streams and five violations under the Migratory Bird Treaty Act for killing migratory birds. CITGO was found not guilty regarding whether CITGO had excessive benzene in uncontrolled water waste streams, guilty regarding the uncovered water equalization tanks and the count pertaining to the computation of benzene amounts in waste water streams was dismissed. At the trial for the five misdemeanor counts under the Migratory Bird Treaty Act against CITGO and the former environmental manager, the court granted directed verdicts of not guilty on two counts pertaining to 25 birds, found CITGO guilty on three counts involving 10 birds and found the former environmental manager not guilty. CITGO shall appeal the felony convictions once a sentence is pronounced. CITGO filed a motion for a not guilty verdict notwithstanding the jury verdict for the felony conviction based on a subsequent U.S. Supreme Court decision. Sentencing

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for CITGO has not yet been scheduled. CITGO does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

On November 26, 2004, the Athos I, a merchant tanker, struck a submerged anchor in the public channel of the Delaware River near Paulsboro, New Jersey and released crude oil owned by CARCO, a former subsidiary of CITGO. In a maritime limitation of liability action in federal court in Philadelphia, Pennsylvania, the owner of the Athos I counterclaimed against CARCO for over $125 million in oil spill recovery and clean up costs. On June 24, 2008, CITGO was sued in federal court in Philadelphia by the U.S. Government to recover $87 million that the National Oil Spill Fund paid to Frescati Shipping for its response costs to the crude oil released from the Athos I. The U.S. Government is alleging the same theories of liability as Frescati Shipping has alleged. The cost of the entire clean-up and damages was approximately $268 million. On December 17, 2008, CITGO accepted the U.S. Government’s proposal that in exchange for CITGO releasing the U.S. Government from liability, the U.S. Government capped CITGO’s potential liability at $123.5 million. On January 2, 2009, Lexington Insurance Company issued a reservation of rights pertaining to CITGO’s decision to accept the U.S. Government’s proposal. CITGO does not believe that CARCO has any liability and will vigorously defend itself.

Mr. and Mrs. Siegel, on behalf of gasoline purchasers throughout Illinois and the United States, filed suit against CITGO, Shell, BP, Marathon and ExxonMobil in December 2005. They are seeking damages for the increased gasoline prices in the wake of Hurricane Katrina and defendants’ alleged excessive profits. The complaint alleged violations of the Illinois Consumer Fraud and Deceptive Business Practices Act. It also alleged national consumer fraud and deceptive business practices, unjust enrichment and civil conspiracy. CITGO has filed a motion to dismiss. On March 26, 2007, the Court granted the motion in part and denied it in part. The court allowed the plaintiffs to proceed with their unjust enrichment claim and their claims of violations of the Illinois Consumer Fraud Act. On September 23, 2008, the court denied class certification. On February 23, 2009, the judge denied class certification for Illinois residents and granted CITGO’s Motion for summary judgment on September 4, 2009. The plaintiffs have filed a notice of appeal to the U.S. Court of Appeals for the 7th Circuit.

Spectrum Stores, Inc., as a purported class action representative of purchasers of refined petroleum products from CITGO, sued CITGO in federal court in Houston on November 13, 2006. The lawsuit alleged CITGO violated the antitrust laws by conspiring with and aiding and abetting PDVSA and OPEC to fix crude prices and hence refined petroleum products prices. In January 2007, CITGO filed motions to dismiss based on failure to state a claim and on the act of state doctrine. In December 2007 the Multi-District Litigation (“MDL”) Panel assigned the federal court in Houston to handle the OPEC MDL cases, including Spectrum Stores, Fast Break Foods, LLC v. Saudi Aramco Corporation, Green Oil Co. v. Saudi Arabian Oil Company, Countywide Petroleum v. CITGO, and S-Mart Petroleum v. Petróleos de Venezuela, S.A. On March 21, 2008, S-Mart Petroleum voluntarily dismissed its complaint. On January 9, 2009, the federal court in Houston granted the defendants’ motion to dismiss the OPEC cases. The plaintiffs appealed this decision, and the defendants have filed their briefs.

On June 19, 2006 torrential rain fell at CITGO’s Lake Charles, Louisiana refinery, and oil overflowed from two stormwater holding tanks and entered the Calcasieu River and Indian Marais. Further, in connection with the same event, hydrogen sulfide and sulfur dioxide were released to the air. CITGO entered a guilty plea to one misdemeanor violation of the Clean Water Act for the negligent discharge of oil, paying a $13 million fine, and entering into an Environmental Compliance Program. CITGO has settled many claims in connection with this event. Many other claims related to bodily injury, property damage, business interruption, and demurrage remain to be resolved. In addition 228 lawsuits, representing 1,815 plaintiffs and three class actions, were filed by June 19, 2007. CITGO has settled with hundreds of plaintiffs for amounts up to $2.6 thousand per plaintiff. In two federal property damage cases, the juries did not award any damages. On July 28, 2009, a state trial judge in Lake Charles entered a judgment of less than $1 million against CITGO in the Arabie trial. The plaintiffs were 14 individuals who claimed to have suffered

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personal injuries from air emissions from the oil spill and the sulfur dioxide release. Most of the judgment, $420 thousand, represents an award of punitive damages against CITGO. A plaintiff cannot recover punitive damages under Louisiana law, but the judge found that either Texas or Oklahoma law and not Louisiana law applied to this issue. This decision will be appealed. In December 2009, CITGO settled all of the Calcasieu Refining claims for $2 million. CITGO does not believe that the resolution of these remaining matters will have a material adverse effect on its financial condition or results of operations.

In 1973 predecessors to CARCO entered into a Terminal Service Agreement with Atlantic City Electricity (“ACE”). It was amended in 1986 by CARCO’s immediate predecessor. In 1997 CARCO began using a tank identified in the terminaling agreement to store sour water and reduced the monthly terminaling fee. In the spring of 2007, RC Cape May Holding purchased the ACE power plant and told CARCO it was opting to use a tank identified in the terminaling agreement for trading purposes. CARCO refused this request, and in June 2007, RC Cape May invoked arbitration. On July 1, 2009, the arbitrator issued his interim decision. He held that RC Cape May’s predecessor had transferred its right to one tank to CARCO and that under New Jersey law RC Cape May is not entitled to any damages from the loss of use of the optional 268 thousand barrel tank because it is a start-up business and therefore any lost profits would be speculative. However, he did order CARCO to provide an alternative 268 thousand barrel No. 6 fuel oil tank in the Philadelphia area for RC Cape May’s use until 2015 under the disputed Terminal Service Agreement and gave the parties 90 days to work out the details of such tank. RC Cape May is interested in a proposal by CITGO to lease tank capacity at CITGO’s Linden, New Jersey terminal in resolution of this matter. On October 15, 2009, the arbitrator affirmed his interim decision. On November 2, 2009, RC Cape May filed a petition in state court in New York City for the court to confirm the arbitrator’s award. CARCO filed a response opposing the confirmation on the basis that the arbitrator exceeded his authority in making the award. CITGO does not believe that the resolution of this matter will have a material adverse effect on its financial condition or result of operations.

On September 28, 2007, CITGO was advised that Immigration and Customs Enforcement was issuing an administrative subpoena for documents pertaining to the importation of Canadian crude and non-NAFTA condensate since June 1, 2006. When CITGO investigated the issue of imports of Canadian crude, CITGO discovered that CITGO’s customs broker had not filed import reports with U.S. Customs for over a period of many months and many of the reports that were filed contained mistakes. A “prior disclosure” filing with U.S. Customs was made on January 4, 2008 to minimize any penalties for violations that were not subject to the subpoena inquiry. CITGO has paid approximately $3 million in duties. CITGO may owe approximately $2 million in unpaid merchandise processing fees and interest and estimates $6 million will be owed in liquidated damages. CITGO does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

In January 2007, CITGO was named one of several defendants in at least nineteen cases in California, Missouri, Kansas, Oklahoma, Kentucky, Maryland, Virginia, Alabama, Mississippi, North Carolina, Nevada, New Mexico, Florida, Puerto Rico, and Tennessee. The complaints allege that the defendants sold gasoline to the plaintiffs when the temperature was greater than 60o Fahrenheit. The plaintiffs claim that they received less gasoline at the retail pump because the gasoline was not temperature corrected to 60o and that the defendants prohibited dealers from temperature correcting the gasoline at the retail pump. CITGO has filed a motion to dismiss. A California commission has found that consumers would not benefit from requiring temperature corrected gasoline at the retail pump. CITGO will continue to vigorously defend itself. CITGO does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

On June 30, 2008, Stephenson Oil Company, as a purported class action representative on behalf of all CITGO branded distributors, sued CITGO in U.S. District Court in Oklahoma for allegedly breaching the implied covenant of good faith and fair dealing in the distributor agreements through differential pricing of gasoline sold to distributors in the same market. On October 2, 2009, the judge denied CITGO’s motion to

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dismiss. In late October 2009, Stephenson filed a brief for class certification. CITGO will continue to vigorously defend itself in this case. CITGO does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

In Eres NV v. CARCO and NuStar on August 14, 2008, Eres filed under seal a maritime lawsuit against CARCO, CITGO, and NuStar for alleged breach of the contract of affreightment (“COA”) assigned by CARCO to NuStar for the transportation of asphalt. Eres alleges a $78 million value for the COA. Eres has demanded maritime arbitration for the alleged breach of the COA against NuStar, CITGO, and CARCO. CITGO has demanded indemnity from NuStar which NuStar denied. On November 5, 2008, Eres asked the federal court in New York to compel NuStar to appoint an arbitrator in the maritime arbitration case. On November 11, 2008, CITGO sued NuStar in Texas state court for a declaratory judgment that the COA was assigned to NuStar and NuStar must indemnify CITGO under the assignment and assumption. NuStar removed the state court action to federal court in Houston. On December 22, 2009, the parties filed opposing motions for summary judgment. CITGO will vigorously defend itself in this case. CITGO does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

On July 19, 2009, a serious fire occurred at the alkylation unit at the Corpus Christi refinery. An employee was seriously burned. Based on monitoring data, there appears to be no impact from hydrofluoric acid vapors on the surrounding areas. The U.S. Chemical Safety Board, Occupational Safety and Health Administration, Environmental Protection Agency, Coast Guard, and the Texas Commission on Environmental Quality (“TCEQ”) have investigated the incident. CITGO will vigorously defend itself in this case, and does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

In a letter dated, July 28, 2009, Explorer Pipeline Company filed a claim totaling over $11.2 million for indemnification under the sale and purchase agreement for the purchase of the Eagle Pipeline and related terminals from CITGO in 2007 for alleged breaches of warranties pertaining to encroachments to and failure to clear rights of way, the condition of the pipe, and condition of a tank. CITGO is investigating the allegations made in this claim. CITGO does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

On February 10, 2008, a power outage occurred at the Lake Charles refinery. As the result of the power outage, six lawsuits with 368 claimants have been filed alleging that these claimants were exposed to sulfur dioxide and hydrogen sulfide. On June 25, 2008 another power outage occurred at the Lake Charles refinery. As the result of the second power outage, 26 lawsuits with 918 claimants have been filed alleging that these claimants were exposed to hydrogen dioxide and hydrogen sulfide. The plaintiffs are limiting their damages to a maximum of $75 thousand each so that CITGO is not entitled to a jury trial. CITGO is vigorously defending itself, and does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

On August 5, 2009, a former CITGO Vice President filed a complaint with the U.S. Equal Employment Opportunity Commission (“EEOC”) in which he claims he was the alleged victim of national origin discrimination and retaliation. A supplemental denial was filed on December 2, 2009. CITGO is vigorously defending itself, and does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations. On September 30, 2009, a second former CITGO Vice President filed a complaint with the EEOC in which he claims he was the alleged victim of national origin discrimination. CITGO will vigorously defend itself in this case, and does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

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At December 31, 2009, CITGO’s noncurrent liabilities included an accrual for lawsuits and claims of $69 million compared with $66 million at December 31, 2008. CITGO estimates that an additional loss of $52 million is reasonably possible in connection with such lawsuits and claims.

Environmental Compliance and Remediation – CITGO is subject to the federal Clean Air Act (“CAA”), which includes the New Source Review (“NSR”) program as well as the Title V air permitting program; the federal Clean Water Act, which includes the National Pollutant Discharge Elimination System program; the Toxic Substances Control Act; and the federal Resource Conservation and Recovery Act and their equivalent state programs. CITGO believes it is in material compliance with the requirements of all of these environmental regulatory programs. CITGO does not have any material Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) liability because the former owners of many of CITGO’s assets have by explicit contractual language assumed all or the material portion of CERCLA obligations related to those assets. This includes the Lake Charles refinery and the Lemont refinery.

The U.S. refining industry is required to comply with increasingly stringent product specifications under the 1990 Clean Air Act Amendments for reformulated gasoline and low sulfur gasoline and diesel fuel that require additional capital and operating expenditures.

In addition, CITGO is subject to various other federal, state and local environmental laws and regulations that may require CITGO to take additional compliance actions and also actions to remediate the effects on the environment of prior disposal or release of petroleum, hazardous substances and other waste and/or pay for natural resource damages. Maintaining compliance with environmental laws and regulations could require significant capital expenditures and result in additional operating costs. Also, numerous other factors, such as pending federal climate change legislation, could affect CITGO’s plans with respect to environmental compliance and related expenditures.

CITGO's accounting policy establishes environmental reserves as probable site restoration and remediation obligations become reasonably capable of estimation. Environmental liabilities are recorded at their undiscounted current value and without consideration of potential recoveries from third parties which are recorded in other noncurrent assets. Subsequent adjustments to estimates, to the extent required, are made as more refined information becomes available. CITGO believes the amounts provided in its consolidated financial statements, as prescribed by generally accepted accounting principles, are adequate in light of probable and estimable liabilities and obligations. However, there can be no assurance that the actual amounts required to discharge alleged liabilities and obligations and to comply with applicable laws and regulations will not exceed amounts provided for or will not have a material adverse affect on CITGO’s consolidated results of operations, financial condition and cash flows.

In 1992, CITGO reached an agreement with the Louisiana Department of Environmental Quality (“LDEQ”) to cease usage of certain surface impoundments at the Lake Charles refinery by 1994. A mutually acceptable closure plan was filed with the LDEQ in 1993. The remediation commenced in December 1993. CITGO is complying with a June 2002 LDEQ administrative order about the development and implementation of a corrective action or closure plan. CITGO and the former owner of the refinery are participating in the closure and sharing the related costs based on estimated contributions of waste and ownership periods.

In June 1999, CITGO and numerous other industrial companies received notice from the United States Environmental Protection Agency (“U.S. EPA”) that the U.S. EPA believes these companies have contributed to contamination in the Calcasieu Estuary, near Lake Charles, Louisiana and are potentially responsible parties ("PRPs") under CERCLA. The U.S. EPA made a demand for payment of its past investigation costs from CITGO and other PRPs and since 1999 has been conducting a remedial investigation/feasibility study ("RI/FS") under its CERCLA authority. While CITGO disagrees with many

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of the U.S. EPA’s earlier allegations and conclusions, CITGO and other industrial companies signed in December 2003, a Cooperative Agreement with the LDEQ on issues relative to the Bayou D’Inde tributary section of the Calcasieu Estuary, and the companies are proceeding with a Feasibility Study Work Plan. CITGO will continue to deal separately with the LDEQ on issues relative to its refinery operations on another section of the Calcasieu Estuary. The Company still intends to contest this matter if necessary.

In January and July 2001, CITGO received notices of violation (“NOVs”) from the U.S. EPA alleging violations of the CAA. The NOVs are an outgrowth of an industry-wide and multi-industry U.S. EPA enforcement initiative alleging that many refineries, electric utilities and other industrial sources modified air emission sources without proper limits. Without admitting any violation CITGO executed a Consent Decree with the United States and the states of Louisiana, Illinois, New Jersey, and Georgia. The Consent Decree requires the implementation of control equipment at CITGO’s refineries and a Supplemental Environment Project at CITGO’s Corpus Christi, Texas refinery. Approximately $427 million in capital costs were incurred over a period of time, primarily between 2006 and 2008. An additional $33 million in capital costs is expected to be incurred through the end of 2011.

CITGO has granted to the New Jersey Natural Lands Trust a conservation easement covering the 592 acre Petty’s Island, which is located in the Delaware River in Pennsauken, New Jersey and owned by CITGO. Petty’s Island contains a closed CITGO petroleum terminal and other industrial facilities, but it is also the habitat for the bald eagle and other wildlife. The granting of the conservation easement will mitigate the amount of remediation that CITGO would have to perform on Petty’s Island. On April 22, 2009, CITGO entered into, with the New Jersey Department of Environment Protection, an Agreed Consent Order to remediate the hydrocarbon contamination on Petty’s Island and a release to CITGO from natural resource damages for all of CITGO’s former and current facilities in New Jersey. Further, CITGO granted a conservation easement encumbering Petty’s Island to the New Jersey Natural Lands Trust which prevents development of Petty’s Island. Additionally, in November 2009 CITGO transferred a small parcel of land on the mainland to Pennsauken Township, entered into a tax agreement with the Township in December 2009 to continue to pay real estate taxes at the current levels until 2017 when the rent from the Crowley Marine lease expires, and granted an easement to the Township for a guard shack at the bridge between the mainland and Petty’s Island.

On June 19, 2006, as the result of torrential rainfall, multiple sulfur dioxide and hydrogen sulfide releases occurred and two stormwater storage tanks at CITGO’s Lake Charles refinery overflowed to the tanks' secondary containment area that was under construction. Due to a failure in the integrity of the containment, approximately 53 thousand barrels of oil in stormwater were discharged into the Indian Marais and Calcasieu River. The U.S. EPA and the LDEQ commenced enforcement actions. The Natural Resource Damage Assessment (“NRDA”) studies have been completed and submitted to the state and federal trustees for review. On April 9, 2007, the LDEQ issued a Consolidated Compliance Order & Notice of Potential Penalty to CITGO with regards to the June 19, 2006 event and several other alleged violations over a five-year period. Currently, the estimate of the high end of the penalty sought by LDEQ is approximately $155 thousand. On May 14, 2007, CITGO filed an appeal of this order. On November 5, 2007 the federal government proposed a partial NDRA assessment for loss of recreational use of the Calcasieu and Intercoastal Waterway of $486 thousand which was later reduced to $316 thousand. CITGO has accepted that assessment; however payment is deferred until completion of the entire NDRA process. On June 24, 2008, the U.S. EPA and the LDEQ sued CITGO for the release of 53 thousand barrels of slop oil into the Indian Marais and Calcasieu River. The U.S. EPA can seek penalties up to $1,100 per barrel released for ordinary negligence and up $4,300 per barrel for gross negligence. Further, the LDEQ is seeking reimbursement for its response costs. The U.S. EPA wants injunctive relief to prevent a recurrence of this release. In connection with the NRDA, the National Oceanic and Atmospheric Administration (“NOAA”) in February 2009 submitted a reimbursement request for $901 thousand for their investigative costs up through December 2007. The U.S. EPA has been granted a motion for partial summary judgment based on CITGO’s admission of liability in the criminal case. CITGO filed an opposing motion. CITGO shall

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continue to vigorously defend these matters. CITGO does not believe that the resolution of these matters will have a material adverse effect on its financial condition, but may have a significant effect on its financial results for a given period.

CITGO self-reported that it shipped 83 thousand barrels of off-specification fuel on March 17, 2007, from the Lake Charles refinery, and the U.S. EPA followed up by issuing an NOV dated January 27, 2009. On October 7, 2009, the U.S. EPA agreed to a proposed civil penalty of $70 thousand.

On April 16 and September 3, 2009, representatives from the Lemont refinery met with representatives from the U.S. EPA about flaring technology and flaring operations at the Lemont refinery. According to the U.S. EPA, the NOV issued to the Lemont refinery in February 2009 is the beginning of a nationwide effort by the U.S. EPA to improve flaring operations in the industry (three other refineries in the Midwest have since received similar NOVs) by requiring continuous monitoring and control equipment that will record steam-to-waste gas ratios during flaring events. The U.S. EPA contends that only through conducting such monitoring can refineries determine whether the flares are maintained in conformance with their design and conform to good air pollution control practices. The purported goal is to control these ratios in an automated fashion as well as create a new body of operations and monitoring records. The U.S. EPA envisions refining companies entering into agreements similar to the NSR consent decrees. CITGO has informed the U.S. EPA that its proposed remedy is neither required nor necessary and has provided records that the operations conform to the design for these flares.

On July 19, 2009, a serious fire occurred at the alkylation unit at the Corpus Christi refinery. Based on monitoring data, there appears to be no impact from hydrofluoric acid vapors on the surrounding areas. Because all appropriate storage areas, including dike areas, at the refinery were used on an emergency basis to store fire water, the refinery was compelled to release fire water that exceeded some of the permit limits of the refinery’s discharge permit to the ship channel. The U.S. Chemical Safety Board, Occupational Safety and Health Administration (“OSHA”), Environmental Protection Agency, Coast Guard, and the TCEQ are investigating the incident. On December 18, 2009, the TCEQ issued a notice of enforcement for the alleged water discharges following the July 19, 2009 fire at the unit. The TCEQ is demanding an administrative civil penalty of $963 thousand for alleged exceedances to the Texas Pollution Discharge Elimination System limitations for fluoride, discharge of industrial waste into waters of the state, unauthorized discharge of contact fire water and vapor suppression water from outfalls as well as the discharge of process wastewater from tanks to the unlined containment berm area surrounding those tanks. In February 2010, the civil penalty was increased to $1 million to include the alleged violations discovered during an air investigation. On January 15, 2010, OSHA cited CITGO for 15 alleged serious, two alleged willful, and one alleged repeat violations of OSHA’s regulations arising from OSHA’s inspections of the Corpus Christi refinery after the July 19, 2009 fire. The total amount of the citation is $237 thousand. CITGO will vigorously defend itself, and does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

At December 31, 2009, CITGO’s noncurrent liabilities included an environmental accrual of $83 million compared with $81 million at December 31, 2008. CITGO estimates that an additional loss of $24 million is reasonably possible in connection with environmental matters.

Various regulatory authorities have the right to conduct, and from time to time do conduct, environmental compliance audits or inspections of CITGO and its subsidiaries’ facilities and operations. Those compliance audits or inspections have the potential to reveal matters that those authorities believe represent non-compliance in one or more respects with regulatory requirements and for which those authorities may seek corrective actions and/or penalties in an administrative or judicial proceeding. Based upon current information, CITGO does not believe that any such prior compliance audit or inspection or any resulting proceeding will have a material adverse effect on its future business and operating results, other than matters described above.

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Conditions which require additional expenditures may exist with respect to CITGO’s various sites including, but not limited to, its operating refinery complexes, former refinery sites and crude oil and petroleum product storage terminals. Based on currently available information, CITGO cannot determine the amount of any such future expenditures.

Supply and Other Agreements – The Company purchases the crude oil processed at its refineries and also purchases refined products to supplement the production from its refineries to meet marketing demands and resolve logistical issues. In addition to supply agreements with various affiliates (Notes 3 and 4), the Company has various other crude oil, refined product and feedstock purchase agreements with unaffiliated entities with terms ranging from monthly to annual renewal. The Company believes these sources of supply are reliable and adequate for its current requirements. The Company has other agreements for utilities and other hydrocarbon products used in the refinery process with various entities and terms.

Commodity Derivative Activity – The Company has certain binding agreements associated with its commodity derivative contracts (Note 16).

Guarantees - As of December 31, 2009, the Company has guaranteed the debt of others including bank debt of an equity investment as shown in the following table:

ExpirationDate

(000s omitted)

Bank debt Equity investment 5,500$ 2012

If the debtor fails to meet its obligation, CITGO could be obligated to make the required payment. The Company has not recorded any amounts on the Company’s balance sheet relating to this guarantee. In the event of debtor default on the equity investment bank debt, CITGO has no recourse. CITGO has granted indemnities to the buyers in connection with past sales of product terminal facilities. These indemnities provide that CITGO will accept responsibility for claims arising from the period in which CITGO owned the facilities. Due to the uncertainties in this situation, the Company is not able to estimate a liability relating to these indemnities. The Company has not recorded a liability on its balance sheet relating to product warranties because historically, product warranty claims have not been significant.

Other Credit and Off-Balance Sheet Risk Information as of December 31, 2009 - The Company has outstanding letters of credit totaling approximately $612 million issued against the Company’s secured revolving credit facility, which includes $513 million related to CITGO’s tax-exempt and taxable revenue bonds (Note 11).

The Company has also acquired surety bonds totaling $104 million primarily due to requirements of various government entities. The Company does not expect liabilities to be incurred related to such letters of credit or surety bonds.

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15. LEASES

The Company leases certain of its Corpus Christi refinery facilities under a capital lease. The basic term of the lease expired on January 1, 2004; however, the Company renewed the lease for a two-year term and will continue to renew the lease until January 31, 2011, the date of its option to purchase the facilities for a nominal amount. The Company gave notice during 2009 of its intention to exercise this option. A portion of an operating unit at the Corpus Christi refinery is also considered a capital lease. The basic term of the lease was set to expire on February 1, 2009 at which time the Company could have purchased the leased unit for a nominal amount; however, under a new agreement on April 1, 2008, the ownership of the plant facilities was transferred to the Company. As the new agreement superseded all prior existing agreements, the remaining lease payments prior to the expiration date were forgone. A pipeline at the Corpus Christi refinery is considered a capital lease. The lease expires on December 31, 2011. A portion of the Lemont refinery’s assets are under two separate capital leases. One lease expired on July 1, 2008 and the other will expire on August 1, 2023. When the lease expired in July 2008, the Company took the ownership of the asset. Vehicles at various company locations are considered capital leases. The leases expire at various dates from February 2010 to May 2013. The Company has a master lease agreement for the use of terminal automation systems at multiple locations with various start dates which expire on December 31, 2014.

In 2007, CITGO entered into two separate hydrogen supply agreements with BOC Americas (PGS), Inc (“BOC”) and MarkWest Blackhawk, L.P. (“MarkWest”). Linde Gas North America, LLC, the successor to BOC, and MarkWest were to construct two new hydrogen production plants to produce high purity hydrogen and high pressure steam for use by the Lemont and Corpus Christi refineries. The agreements will be recorded as capital leases in March 2010. The hydrogen supply agreements at each plant are for a twenty-year period.

Capitalized costs included in property, plant and equipment related to the leased assets were approximately $236 million and $237 million at December 31, 2009 and 2008, respectively. Accumulated amortization related to the leased assets was approximately $202 million and $192 million at December 31, 2009 and 2008, respectively.

The Company also has various noncancelable operating leases, primarily for product storage facilities, office space, marine vessels, computer equipment and various facilities and equipment used to store and transport feedstocks and refined products.. Operating lease expense totaled $171 million, $266 million and $261 million in 2009, 2008, and 2007, respectively. Future minimum lease payments for the capital leases and noncancelable operating leases are as follows:

Capital OperatingLease Leases Total

Year (000s omitted)

2010 8,395$ 120,180$ 128,575$ 2011 2,352 36,616 38,968 2012 2,143 12,796 14,939 2013 2,001 10,929 12,930 2014 1,930 8,311 10,241 Thereafter 17,052 20,263 37,315

Total minimum lease payments 33,873 209,095$ 242,968$ Amount representing interest (9,484) Present value of minimum lease payments 24,389 Current portion (6,746)

17,643$

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16. DERIVATIVE INSTRUMENTS

The Company has exposure to price fluctuations of crude oil and refined products and changes in interest rate associated with its variable rate debt. The fluctuations in future prices create risk to the Company as its activities involve commitments to pay or receive fixed prices in the future. To manage and reduce exposures in connection with the commodity price, management enters into certain derivative instruments. The Company’s petroleum commodity derivatives, comprised of physical and financial derivatives, include exchange-traded futures contracts, forward purchase and sale contracts, exchange-traded and over-the-counter (“OTC”) options, and OTC swaps. The Company does not utilize any derivative instruments to manage its interest rate risk.

The Company has risk management policies in place to identify and analyze the risks faced by the Company. The Company does not attempt to manage the price risk related to all of its inventories of crude oil and refined products. As a result, at December 31, 2009, the Company was exposed to the risk of broad market price volatility with respect to a substantial portion of its crude oil and refined product inventories. As of December 31, 2009, the Company’s total crude and refined products inventory was 26 million barrels. Aggregate commodity derivative positions entered into for price risk management purposes at that date totaled 4 million barrels.

Fair values of derivatives are recorded in other current assets or other current liabilities, as applicable, and changes in the fair value of derivatives not designated in hedging relationships are recorded in cost of sales on the statement of income (loss). The Company does not designate any of its derivative instruments as hedges as these derivative instruments are designed to hedge risk associated with the market price fluctuations or for trading purposes. At December 31, 2009 and 2008, amounts included in other current assets and other current liabilities related to the fair values of open commodity derivatives are as follows:

2009 2008

Balance Sheet Location

Prepaid expense and other current asset 10,995$ 138,609$ Other current liabilities 13,248 154,761

(000s omitted)

At December 31, 2009, gains or losses from commodity derivatives held for trading, whether realized or unrealized, were recorded in cost of sales on the statement of income (loss) as indicated in the following table:

Amount of (Gain)/LossRecognized in

Net Income on Derivatives

Statement of Income (Loss) Location (000s omitted)

Cost of sales (includes realized losses of $162 million) $ 148,134

The trading activities expose the Company to certain credit risks. The credit risk associated with futures contracts is negligible as they are traded on the New York Mercantile Exchange (“NYMEX”). Exchange-traded futures contracts settled through broker margin accounts at NYMEX generally require a cash deposit, which are subject to change based on market price movement. When a particular market participant goes bankrupt, the NYMEX will cover any potential losses with no effect on the Company’s trades. OTC derivative contracts, on the other hand, expose the Company to counterparty credit-related losses in the event of nonperformance by counterparties. Neither the Company nor the counterparties are required to

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collateralize their obligations under OTC derivative commodity agreements. None of the Company’s derivatives agreements contain contingent features provisions.

To manage the counterparty risk, the Company monitors the creditworthiness of its counterparties through formal credit policies. Additionally, the Company has a master netting agreement which permits net settlement with its counterparties. As of December 31, 2009, the fair value of derivative instruments in a net receivable position due from counterparties was immaterial. The Company does not anticipate nonperformance by the counterparties, which consists primarily of major financial institutions.

Management considers the credit risk to the Company related to its commodity derivatives to be immaterial during the periods presented.

17. FAIR VALUE INFORMATION

The Company measured some of its financial assets and liabilities at fair value on a recurring basis. To estimate fair value, the Company utilizes observable market data when available, or models that utilize observable market data in the absence of identical assets or liabilities. In addition to market information, the Company incorporates transaction-specific details that, in management's judgment, market participants would utilize in a fair value measurement.

In accordance to ASC 820, “Fair Value Measurements and Disclosures”, disclosure is required surrounding the various inputs that are used in determining the fair value of the Company’s assets and liabilities and the degree to which they are observable. These inputs are summarized into a hierarchy of three broad levels listed below.

Level 1: Quoted prices in active markets for identical assets or liabilities. Level 1 inputs include derivative assets and liabilities. In forming fair value estimates, the Company utilizes the most observable inputs available for the valuation. The fair value of the Company’s certain commodity futures and options contracts are based on quoted prices in active markets for identical assets or liabilities from the NYMEX.

Level 2: Other significant observable inputs. Level 2 inputs include quoted prices for similar assets and liabilities in active markets. The Company’s OTC swaps use both Level 1 and Level 2 inputs. Valuation for OTC swaps are based on NYMEX pricing, a Level 1 input, and pricing obtained from Platts, where the values are based on similar assets or liabilities that were recently traded or transferred between external entities, a Level 2 input. If a fair value measurement reflects inputs of different levels within the hierarchy, the measurement is categorized based upon the lowest level of input that is significant to the fair value measurement. The valuation of physical delivery purchase and sale agreements, over-the-counter financial swaps, three-way collars and deferred compensation arrangements are based on similar transactions observable in active markets or industry standard models that primarily rely on market observable inputs. Substantially all of the assumptions for industry standard models are observable in active markets throughout the full term of the instrument. The Company categorizes these measurements as Level 2.

Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources. The Company’s valuation models for derivative contracts are based on internally developed market and third-party pricing assumptions. Level 3 instruments primarily include commodity derivative instruments such as forward purchases and sales of refined products. Although third party broker quotes are utilized to assess the reasonableness of our prices and valuation techniques, we do not have sufficient corroborating market evidence to support classifying these assets and liabilities as Level 2.

Estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in

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interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The following table summarizes the valuation of the Company’s financial instruments measured at fair value on a recurring basis as of December 31, 2009:

Quoted Prices in Significant SignificantActive Markets for Observable Unobservable TotalIdentical Assets Inputs Inputs Fair

(Level 1) (Level 2) (Level 3) Value

(000s omitted)ASSETS: Derivatives 9,124$ 2,547$ 1,341$ 13,012$ Pensions plan 1,935 533,308 - 535,243

Total 11,059$ 535,855$ 1,341$ 548,255$ LIABILITIES: Derivatives 246$ 5,481$ 9,539$ 15,266$

Fair Value Measurement at December 31, 2009 Using

The table below presents a reconciliation of changes in the fair value of the net derivative assets (liabilities) classified as level 3 in the fair value hierarchy and summarizes gains and losses due to changes in fair value.

2009

(000s omitted)

Beginning balances as of January 1, 118,554$ Total gains (losses), realized and unrealized included in cost of sales (126,752) Purchases, issuances and settlements - Transfers in and/or out of level 3 -

Ending balance as of December 31, (8,198)$

Nonfinancial assets are measured at fair value on a nonrecurring basis. Fair value is used to measure nonfinancial assets such as impaired property, plant and equipment when implementing lower of cost or market accounting or when adjusting carrying values. Fair value is determined primarily using the anticipated net cash flows discounted at a rate commensurate with the risk involved. The carrying value of a long-lived asset or asset group is considered impaired when the separately identifiable anticipated undiscounted net cash flow from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset or asset group. The Company’s nonfinancial liability related to asset retirement obligations approximates fair value.

The Company has the option to report certain financial assets and liabilities at fair value. The Company has reviewed the eligible items and determined not to elect the fair value option for any of these assets and liabilities.

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The following table presents the Company’s other financial instruments that are not measured on a recurring basis. The carrying amounts and estimated fair values are as follows:

2009 2008Carrying Fair Carrying FairAmount Value Amount Value

(000s omitted) (000s omitted)LIABILITIES: Short-term bank loan 406,357$ 368,357$ 6,357$ 6,357$ Long-term debt 1,771,586 1,731,856 2,191,649 2,179,870 OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - UNREALIZED LOSSES: Guarantees of debt - (227) - (926) Letters of credit - (8,981) - (39,206) Surety bonds - (763) - (227)

Financial assets and liabilities for which the carrying value approximates fair value were not presented in the above summary. For financial assets, these include cash and cash equivalents, due from affiliates, accounts receivable, and notes receivable from ultimate parent. For financial liabilities, these include accounts payable and payables to affiliates. For nonfinancial liabilities, this includes asset retirement obligations.

The following assets and liabilities were analyzed for fair value measurement:

Short-term bank loans – The carrying amounts of the short-term bank loans, excluding the revolving credit facility, approximate fair value due to the short maturities of the financial instruments. The fair value of the revolving credit facility is based on prices obtained from a third party for an amount the Company would pay to transfer the liability to a market participant in an orderly transaction at the measurement date.

Long-term debt - The fair value of long-term debt is based on prices obtained from a third party for an amount the Company would pay to transfer the liability to a market participant in an orderly transaction at the measurement date.

Derivatives – The fair value of the Company’s derivative and other financial instruments are measured using an in-exchange valuation premise and using a market approach to the valuation technique.

Pensions and Post-retirement benefit – The carrying value of the Company’s pension plan assets is based on information reviewed and approved by management and prepared by the plan asset administrator. The carrying value of the plan assets approximate fair value. Pension plan liabilities are a present value discounted measure of the Company’s estimated future pension costs. Since these liabilities are valued at a present value discounted measure, which approximates fair value, no additional fair value measurement is required. Post-retirement benefits are also reported as a present-value discounted estimate of the Company’s future post-retirement benefit obligations.

Guarantees, letters of credit and surety bonds - The estimated fair value of contingent guarantees of third-party debt, letters of credit and surety bonds is based on fees currently charged for similar agreements or on the estimated cost to terminate them or to transfer the liabilities to a market participant in an orderly transaction at the measurement date.

The fair value estimates presented herein are based on pertinent information available to management as of the reporting dates. Although management is not aware of any factors that would significantly affect the

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estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein.

18. INSURANCE RECOVERIES

On July 19, 2009, a fire occurred at an alkylation unit at the Corpus Christi refinery. The alkylation unit which makes high-octane blending components for gasoline was shut down following the fire. The cost of repairs and claims related to the incident have not been completely determined, but it is expected that a substantial portion of the cost, net of deductible, will be covered by insurance recoveries.

On June 19, 2006, the Lake Charles refinery experienced an environmental incident due to torrential rainfall in the area.

On July 22, 2005, a fire occurred at a coker unit at the Lake Charles refinery.

The Company recognizes property damage insurance recoveries under existing insurance coverage up to the amount of recorded losses and related expenses, as management believes it is probable such amounts will be recovered from insurance carriers. The property damage insurance recoveries are recorded as an offset to cost of sales. Business interruption insurance recoveries are recorded in revenues when such amounts are realized. During the years ended December 31, 2009, 2008, and 2007, the Company recorded $48 million, $71 million, and $46 million, respectively, of insurance recoveries. There was no insurance recovery received for business interruption in 2009. In 2008, insurance recoveries of $71 million included $34 million insurance proceeds related to business interruption from Hurricane Rita damage at the Lake Charles refinery. Included in the insurance recoveries in 2007 is $29 million received from Houston Refining LP for insurance proceeds related to business interruption from Hurricane Rita damage at the LYONDELL-CITGO refinery in 2005, an equity investment which was subsequently sold in 2006. These business interruption insurance recoveries were classified separately in revenues on the consolidated statements of income. The Company also received $1 million and $16 million for the years ended December 31, 2009 and 2008, respectively, reimbursed by one of its excess insurance carriers to recover MTBE litigation settlement costs as describe in Note 14 above.

During the years ended December 31, 2009, 2008, and 2007, the Company recorded $49 million, $27 million, and $15 million, respectively, of losses related to the alkylation unit fire at the Corpus Christi refinery, and the rainfall event and Hurricane Rita damage at the Lake Charles refinery. The Company received $72 million and $9 million in cash proceeds during the years ended December 31, 2009 and 2008, respectively, associated with these three events. At December 31, 2009 and 2008, total receivables related to insurance recoveries of $23 million and $31 million, respectively, were recorded in current assets and $2 million and $20 million, respectively, were recorded in other non-current assets.

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19. SUBSEQUENT EVENTS

On February 2, 2010, the Company restructured its note receivable from its ultimate parent, PDVSA, originally in the amount of $1 billion, to provide for the amortization of the remaining outstanding amount of the note during 2010 through continued offset of amounts payable by the Company for crude oil to be delivered by PDVSA under the crude supply agreement. In connection with the restructuring, the existing note was replaced with a new note evidencing the outstanding principal amount of the note at February 2, 2010 of $529 million, which will mature on the date all outstanding amounts of the note are paid in full through the offset mechanism. The remaining outstanding balance would become due no later than December 31, 2010 if the offset arrangement were to be terminated for any reason (Note 4).

On February 4, 2010, CITGO entered into a third amendment, waiver and consent to the credit agreement associated with its $1.85 billion senior secured credit facility (Note 11).

The Company is in the process of drafting a Procurement Services Agreement (“the agreement”) in order to manage and administer the procurement and delivery of specified equipment to its ultimate parent, PDVSA. The Company’s relationship with PDVSA under this agreement is one of independent contractor and not that of partner, agent, employee, joint venture partner or otherwise. The agreement states that the Company will provide payment of all or any portion of the purchase price of specified equipment and all other costs and expenses incurred in connection with the services when they are due. Prior to the processing of any such payments, PDVSA will have provided sufficient funds to the Company by offset of amounts otherwise payable by the Company to a PDVSA affiliate under the long-term crude oil supply agreement (Note 4). PDVSA will also pay a fee to the Company for the services performed under this agreement.

The Company has evaluated subsequent events through March 31, 2010, the date the financials statements were available to be issued.

* * * * * *

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CITGO PETROLEUM CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)

March 31, December 31,2010 2009

(Unaudited)

ASSETSCURRENT ASSETS: Cash and cash equivalents 3,247$ 352,705$ Current restricted cash 23,208 - Accounts receivable, net 1,047,415 737,967 Due from affiliates 114,636 97,233 Note receivable from ultimate parent, PDVSA 388,442 611,195 Inventories 964,478 594,949 Current income tax receivable 233,773 190,293 Prepaid expenses and other 181,678 186,553

Total current assets 2,956,877 2,770,895

PROPERTY, PLANT AND EQUIPMENT - Net 4,609,747 4,313,454

RESTRICTED CASH 25,183 25,190 INVESTMENTS IN AFFILIATES 83,381 78,126

NOTE RECEIVABLE FROM ULTIMATE PARENT, PDVSA 65,205 65,205

OTHER ASSETS 258,631 276,453

7,999,024$ 7,529,323$ LIABILITIES AND SHAREHOLDER’S EQUITYCURRENT LIABILITIES: Accounts payable 1,312,590$ 863,328$ Payables to affiliates 647,939 690,011 Taxes other than income 145,427 158,177 Current income tax payable 1,130 1,313 Current deferred income taxes 126,886 144,257 Derivative liabilities 5,780 13,249 Other current liabilities 172,768 175,762 Note payable - product financing arrangement 41,000 - Secured financing arrangement 277,605 - Current portion of long-term debt 206,357 406,357 Current portion of capital lease obligation 8,840 6,746 Total current liabilities 2,946,322 2,459,200 LONG-TERM DEBT 1,569,998 1,771,586 CAPITAL LEASE OBLIGATION 298,447 17,643 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 545,032 535,682 OTHER NONCURRENT LIABILITIES 455,268 453,800 DEFERRED INCOME TAXES 592,865 572,655 COMMITMENTS AND CONTINGENCIESSHAREHOLDER’S EQUITY: Common stock - $1.00 par value, 1,000 shares authorized, issued and outstanding 1 1 Additional capital 1,659,698 1,659,698 Retained earnings 83,275 210,940 Accumulated other comprehensive loss (151,882) (151,882) Total shareholder’s equity 1,591,092 1,718,757

7,999,024$ 7,529,323$

See notes to condensed consolidated financial statements.

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CITGO PETROLEUM CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE LOSS (Unaudited)(Dollars in Thousands)

2010 2009

REVENUES: Net sales 7,181,060$ 4,778,660$ Sales to affiliates 110,015 58,226

7,291,075 4,836,886 Equity in earnings of affiliates 8,263 3,296 Other (expense) income - net 33,254 16,441

7,332,592 4,856,623

COST OF SALES AND EXPENSES: Cost of sales and operating expenses (including purchases from affiliates of $2,590,197 in 2010 and $2,012,924 in 2009) 7,365,982 4,743,895 Selling, general and administrative expenses 113,537 135,409 Interest expense, excluding capital lease 22,224 12,557 Capital lease interest charge 1,170 593 Insurance recoveries (3,777) (1,499)

7,499,136 4,890,955

LOSS BEFORE INCOME TAXES BENEFIT (166,544) (34,332)

INCOME TAXES BENEFIT (38,879) (13,677)

NET LOSS (127,665) (20,655)

OTHER COMPREHENSIVE INCOME - -

COMPREHENSIVE LOSS (127,665)$ (20,655)$

See notes to condensed consolidated financial statements.

Three MonthsEnded March 31,

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CITGO PETROLEUM CORPORATIONCONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (Unaudited)(Dollars and Shares in Thousands)

AccumulatedOther

Additional Retained ComprehensiveShares Amount Capital Earnings Loss Total

BALANCE, DECEMBER 31, 2009 1 1$ 1,659,698$ 210,940$ (151,882)$ 1,718,757$

Net loss - - - (127,665) - (127,665)

BALANCE, MARCH 31, 2010 1 1$ 1,659,698$ 83,275$ (151,882)$ 1,591,092$

See notes to condensed consolidated financial statements.

Common Stock

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CITGO PETROLEUM CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)(Dollars in Thousands)

Three MonthsEnded March 31,

2010 2009CASH FLOWS FROM OPERATING ACTIVITIES: Net loss (127,665)$ (20,655)$ Depreciation and amortization 112,704 107,713 Gain on sale of assets (31,263) - Other adjustments to reconcile net income (loss) to net cash provided by operating activities (1,088) 2,105 Changes in operating assets and liabilities 141,124 98,249 Net cash provided by operating activities 93,812 187,412

CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (120,735) (221,331) Proceeds from sale of assets 9 4 Decrease (increase) in restricted cash 7 (121) Investments in and advances to affiliates - (4,500) Net cash used in investing activities (120,719) (225,948)

CASH FLOWS FROM FINANCING ACTIVITIES: (Payments on) proceeds from revolving credit facilities (400,000) 24,488 Proceeds from secured financing arrangement 51,335 - Payments on senior secured term loan (1,589) (1,589) Payments on capital lease obligations (608) (584) Financing fees and debt issuance costs (12,689) - Proceeds from product financing arrangement 41,000 - Net cash (used in) provided by financing activities (322,551) 22,315

DECREASE IN CASH AND CASH EQUIVALENTS (349,458) (16,221) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 352,705 23,925

CASH AND CASH EQUIVALENTS, END OF PERIOD 3,247$ 7,704$

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for:

Interest, net of amounts capitalized 14,764$ 12,190$

Income taxes (net of refunds of $3,014 in 2010 and $2,959 in 2009) (2,352)$ 184,526$

SUPPLEMENTAL DISCLOSURE OF NONCASH FLOW INFORMATION:

Capital expenditures (25,265)$ (55,581)$

Capital leases 283,506$ $ -

Indirect non-cash dividends $ - (39,677)$

Crude payable offsets against note receivable from ultimate parent, PDVSA 222,752$ $ -

Crude payable offsets against procurement services receivable from ultimate parent, PDVSA 149,872$ $ -

Interest income on note receivable from ultimate parent, PDVSA 1,900$ $ -

See notes to condensed consolidated financial statements.

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CITGO PETROLEUM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE-MONTHS ENDED MARCH 31, 2010 AND 2009

1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

CITGO Petroleum Corporation (“CITGO” or the “Company”) and its subsidiaries are engaged in the refining, marketing and transportation of petroleum products including gasoline, diesel fuel, jet fuel, petrochemicals and lubricants, mainly within the continental United States east of the Rocky Mountains. The Company does not own any crude oil reserves or crude oil exploration or production facilities. It operates as a single segment. It is an indirect wholly-owned subsidiary of Petróleos de Venezuela, S.A. (“PDVSA,” which may also be used herein to refer to one or more of its subsidiaries), the national oil company of the Bolivarian Republic of Venezuela.

The unaudited condensed consolidated financial statements include the accounts of CITGO and its subsidiaries. All consolidated subsidiaries are wholly owned. All material intercompany transactions and accounts have been eliminated. The Company’s investments in less than majority-owned affiliates are primarily accounted for by the equity method.

The unaudited condensed consolidated financial statements have been prepared by management in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. However, management believes that the disclosures presented herein are adequate to make the information not misleading. The condensed consolidated balance sheet as of December 31, 2009 has been derived from the audited financial statements as of that date. The accompanying condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2009.

The financial information for CITGO subsequent to December 31, 2009 and with respect to the interim three months ended March 31, 2010 and 2009 is unaudited. In management’s opinion, such interim information contains all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of such periods. The results of operations for any interim period are not necessarily indicative of results for the full year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

2. NEW ACCOUNTING PRONOUNCEMENTS

In December 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2009-16, “Transfers and Servicing - Accounting for Transfer of Financial Assets”. ASU 2009-16 amends Accounting Standards Codification (“ASC”) 860-10 for the issuance of Statement of Financial Accounting Standards (“SFAS”) No. 166, “Accounting for Transfers of Financial Assets - an amendment of FASB Statement No. 140”, in June 2009. ASU 2009-16 is to improve the relevance and comparability of the information that a reporting entity provides in its financial statements about (i) a transfer of financial assets, (ii) the effects of the transferred financial assets on the entity’s financial statements, and (iii) a transferor’s continuing involvement in transferred assets. SFAS No. 166 eliminates the concept of a qualifying special-purpose entity. The statement limits circumstances in which a transferor derecognizes a financial asset. It clarifies the requirement that a transferred financial asset be legally

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isolated from the transferor. ASU 2009-16 requires enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. The guidance is effective for annual reporting periods that begin after November 15, 2009, for interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter, with early adoption prohibited. The Company adopted this standard effective January 1, 2010. The adoption of this standard had a material impact on the Company’s financial position. (Note 3)

In December 2009, the FASB issued ASU 2009-17, “Consolidation – Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities”. ASU 2009-17 amends ASC 810-10 for the issuance of SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”, in June 2009. The amendment requires a company to perform an analysis to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity. The primary beneficiary of a variable interest entity is the company that has (a) the power over the significant activities of the variable interest entity and (b) an obligation to absorb losses or the right to receive benefits that could potentially be significant to the variable interest entity. The revised guidance requires ongoing reassessments of whether a company is the primary beneficiary and eliminates the quantitative approach previously required for determining the primary beneficiary. The guidance is effective for annual reporting periods that begin after November 15, 2009, for interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter, with early adoption prohibited. The Company adopted this standard effective January 1, 2010. The adoption of this standard had no material impact on the Company’s financial position and results of operations.

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements”. ASU 2010-06 amended ASC 820-10 with new disclosure requirements that companies should disclose separately the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. In the reconciliation for the Level 3 fair value measurements, companies should present separately information about purchases, sales, issuances, and settlements on a gross basis. The amendments also require companies to disclose each class of assets and liabilities measured at fair value, the inputs used and the valuation techniques. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company adopted this standard effective January 1, 2010. Except for the required presentation and disclosure, the adoption of this standard had no material impact on the Company’s financial position and results of operations.

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3. ACCOUNTS RECEIVABLE

Sales are made on account, based on pre-approved unsecured credit terms established by CITGO management. Allowances for uncollectible accounts are established based on several factors that include, but are not limited to, analysis of specific customers, historical trends and other information. The carrying value of accounts receivable approximates fair value due to (i) a short average collection cycle for such trade receivables, (ii) CITGO’s positive collection history, and (iii) the characteristics of such trade accounts receivables

March 31, December 31,2010 2009

(Unaudited)

Trade 922,236$ 623,861$ Credit card 48,561 47,664 Other 98,194 85,248

1,068,991 756,773 Allowance for uncollectible accounts (21,576) (18,806)

1,047,415$ 737,967$

(000s omitted)

The Company has a limited purpose consolidated subsidiary, CITGO AR2008 Funding Company, LLC (“AR Funding”), which in June 2008 established a non-recourse agreement to transfer an undivided interest in specified trade accounts receivables (the “pool”) to independent third parties. The 364-day agreement was renewed in June 2009. Under the terms of the agreement, new receivables are added to the pool as collections (administered by CITGO) reduce previously transferred receivables. CITGO pays specified fees related to its transfer of receivables under the program. The maximum interest that may be held by third parties at any one time under the trade accounts receivable transfer agreement cannot exceed $450 million. The Company intends to renew this facility again upon its expiration in June 2010. In the event this facility is not renewed, management believes that the Company has sufficient other sources of liquidity to maintain ongoing operations.

As of March 31, 2010 and December 31, 2009, $946 million and $887 million, respectively, of CITGO’s accounts receivable comprised the designated pool of trade receivables owned by AR Funding. Effective January 1, 2010, with the adoption of ASU 2009-16, the Company’s transactions with AR Funding do not qualify for sale treatment and are considered a secured financing arrangement. As of March 31, 2010, $278 million of receivables in the designated pool that were held by third parties are included in accounts receivable, net with an offset in secured financing arrangement in the condensed consolidated balance sheet. As of December 31, 2009, prior to the adoption of ASU 2009-16, $226 million of undivided interests in the receivables in the designated pool were held by third parties and the remainder of the pool was retained by AR Funding.

CITGO recorded no gains or losses associated with the transfers other than the fees incurred by CITGO related to this facility. For the three-month period ended March 31, 2010, such fees were $4 million and, as a result of adopting ASU 2009-16, included in interest expense in the condensed consolidated statement of income (loss). Such fees were $1 million for the three-month period ended March 31, 2009 and included in other income (expense), net in the condensed consolidated statement of income (loss), prior to the adoption of ASU 2009-16. The undivided interests held by third parties in CITGO trade accounts receivable were never in excess of the sales facility limits at any time under this program.

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CITGO is responsible for servicing the transferred receivables, for which it receives a monthly servicing fee equal to 1% per annum times the average outstanding amount of receivables in the program for the prior month. The servicing fee is an intercompany obligation from AR Funding to CITGO. CITGO does not believe that it incurs incremental costs associated with the activity and has not, on a consolidated basis, recorded any servicing assets or liabilities related to this servicing activity.

4. INVENTORIES

March 31, December 31,

2010 2009(Unaudited)

Refined product 562,633$ 328,386$ Crude oil 308,785 173,736 Materials and supplies 93,060 92,827

964,478$ 594,949$

(000s omitted)

At March 31, 2010 and December 31, 2009, estimated net market values exceeded historical LIFO inventory cost by approximately $1.8 billion and $1.5 billion, respectively.

5. PROPERTY, PLANT AND EQUIPMENT

March 31, December 31,2009 2009

(Unaudited)

Land 117,971$ 117,971$ Buildings and leaseholds 684,141 683,636 Machinery and equipment 6,574,375 6,275,021 Vehicles 35,602 35,624 Construction in process 635,064 567,091

8,047,153 7,679,343 Accumulated depreciation and amortization (3,437,406) (3,365,889)

4,609,747$ 4,313,454$

(000s omitted)

Depreciation expense for each of the three months ended March 31, 2010 and 2009 was $72 million.

In March 2010, the Company sold platinum, utilized as catalyst in refinery units, with a net book value of $11 million for approximately $42 million, which is included in accounts receivable at March 31, 2010. The Company has leased back the platinum from the purchaser under operating lease agreements with terms from nine to twenty-one months. The Company has recorded the leaseback under the treatment for a minor leaseback and accordingly has recorded the entire net gain realized on the sale as other income in the statement of income (loss).

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6. LONG-TERM DEBT AND FINANCING ARRANGEMENTS

March 31, December 31,

2010 2009(Unaudited)

Secured Revolving Credit Facility with variable interest rate - $ 400,000$

Senior Secured Term Loan B, due 2012 with variable interest rate 608,697 610,286

Senior Secured Term Loan A, due 2012 with variable interest rate 515,000 515,000

Tax-Exempt Bonds, due 2023 to 2043 with variable and fixed interest rates 592,658 592,657

Taxable Bonds, due 2026 with variable interest rates 60,000 60,000

1,776,355 2,177,943

Current portion of long-term debt (206,357) (406,357)

Total long-term debt 1,569,998$ 1,771,586$

(000s omitted)

Senior Secured Credit Facility – On November 15, 2005, the Company entered into an agreement for a $1.85 billion senior secured credit facility, which consists of the five-year secured revolving credit facility in the amount of up to $1.15 billion and the seven-year senior secured term loan B of $700 million. This agreement was amended in 2007 to provide for a $1 billion bridge term loan. The bridge term loan was replaced in June 2008 with a senior secured term loan A of $515 million and a non-recourse agreement to sell an undivided interest of up to $450 million in specified accounts receivable (Note 3). These agreements are collectively referred to as the “senior secured credit facility”. The credit facility is secured by CITGO’s interests in its Lake Charles, Louisiana, Corpus Christi, Texas and Lemont, Illinois refineries, its trade accounts receivable and its inventories and is subject to covenants typical for senior secured financings. Effective with the execution of an amendment to the senior secured credit facility on February 4, 2010, the revolver credit facility will bear interest at LIBOR plus the applicable margin. The interest rate for the term loans is the higher of LIBOR or 2.00%, plus the applicable margin. The applicable margin, currently set at 325 basis points, is determined based upon the Company’s senior secured debt rating at the effective date of the amendment and is subject to changes in the Company’s senior secured debt rating.

Secured Revolving Credit Facility – The $1.15 billion, five-year secured revolving credit facility matures in November 2010. There was no amount outstanding under this secured revolving credit facility at March 31, 2010, compared to $400 million outstanding at December 31, 2009. The interest rate on the secured revolving credit facility was LIBOR plus 125 basis points, or 1.49% at December 31, 2009. The unused portion of the secured revolving credit facility, less letters of credit issued under the facility (Note 7), is subject to a quarterly commitment fee ranging from 50 to 125 basis points, or 62.5 basis points at March 31, 2010. The Company’s plan is to refinance the secured revolving credit facility and restructure its debt portfolio in 2010. The Company has begun discussions with existing lenders and other banks and expects to refinance the secured revolving credit facility and restructure its debt portfolio during the second quarter of 2010. In the event the Company is unable to refinance its current secured revolving credit facility, the Company would consider optimizing working capital, monetizing non-strategic assets and working with its ultimate parent to ensure payments of its obligations.

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Senior Secured Term Loan B – The Company entered into a seven-year $700 million senior secured term loan agreement in November 2005. The proceeds from the loan were used to redeem certain senior notes. The senior secured term loan B matures in November 2012 and has a variable interest rate based on the Company’s senior secured debt rating. The interest rate at March 31, 2010 was 2.00% LIBOR floor plus 325.0 basis points, or 5.25%.

Senior Secured Term Loan A – The Company entered into a $515 million senior secured term loan agreement in June 2008. The senior secured term loan A amortizes in scheduled amounts of $200 million in February 2011 and $100 million in February 2012 and has a final maturity date of November 15, 2012. The senior secured term loan A has a variable interest rate based on the Company’s senior secured debt rating. The senior secured term loan A had a principal balance of $515 million outstanding as of March 31, 2010. The interest rate at March 31, 2010 was 2.00% LIBOR floor plus 325.0 basis points, or 5.25%.

The ratings on the senior secured credit facility, as currently assessed by the three major debt rating agencies, are as follows:

Secured

Standard & Poor's Ratings Group BB+Moody's Investors Service Ba1Fitch Investors Services, Inc. BBB-

In the event of a downgrade in the ratings on the senior secured credit facility, the interest rate on the facility would increase by 25 basis points for both term loans and the revolving credit facility.

Covenants – The Company executed an amendment and waiver to the senior secured credit facility on February 4, 2010. The amendment:

� permits the Company to refinance existing indebtedness in whole or in part;

� modifies certain covenants under the existing credit agreement;

� permits the Company to issue up to $400 million of secured indebtedness in connection with industrial revenue bond financings;

� restricts the Company from declaring and paying dividends so long as the covenant waivers remain in effect and thereafter the payment of dividends will be subject to a minimum liquidity requirement of $500 million, after giving effect to such dividends, and to a maximum debt to capitalization ratio of 0.55 to 1. A declaration or payment of dividends during the waiver period would, in effect, terminate the covenant waivers. In addition, the dividend calculation was revised to include 100% of net income arising after January 1, 2009;

� waives the interest coverage ratio through September 30, 2010 and revises it to 1.5 to 1 at December 31, 2010. The interest coverage ratio requirement will increase each quarter until it returns to 3 to 1 at December 31, 2011;

� waives the capitalization ratio for December 31, 2009 and revises it to 0.60 to 1 thereafter;

� includes a minimum liquidity requirement of $300 million at March 31, 2010, increasing to $400 million at June 30, 2010, which will remain in effect through September 30, 2011; and

� revises the security to include the Company’s interest in the Lemont, Illinois refinery.

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The various credit agreements under the senior secured credit facility described above reflect the same covenants based on the senior secured credit facility agreement originally executed in 2005, as amended in 2007, as supplemented in 2008 and as further amended in 2010 as discussed above. Material covenant provisions include:

� aggregate proceeds of a disposition of assets cannot exceed $4 billion other than certain permitted exceptions, including inventory in the normal course of business;

� other indebtedness not otherwise expressly permitted by the senior secured credit facility cannot exceed an aggregate principal amount of $200 million or 10% of net worth;

� the Company may declare and pay cash dividends out of the sum of 100% of net income arising after January 1, 2009, plus an additional amount of up to $4 billion dollars of net cash proceeds, net of taxes and certain other transaction costs received from permitted sales of assets (amended as stated above for the waiver period);

� the Company must maintain a capitalization ratio to be more than 0.55 to 1 (amended as stated above for the waiver period);

� the Company must maintain a ratio of EBITDA to interest expense of less than 3 to 1 (amended as stated above for the waiver period);

� indebtedness owed by the Company to, and guarantees by the Company of, any obligations of an affiliate cannot exceed an aggregate principal amount of $75 million; and

� permitted indebtedness, in the combined principal amount of receivables financing indebtedness and additional indebtedness, cannot at any time exceed $1 billion in aggregate.

The Company’s debt instruments described above do not contain any covenants that trigger prepayment as a result of a change in its debt ratings and do not contain any covenants that restrict amendment to or termination of its long-term crude supply agreements. The Company covenants that all transactions with affiliates will be structured as arms-length transactions. The Company was in compliance with the debt covenants at March 31, 2010, except for the interest coverage ratio requirement, which was waived under the amendment and waiver dated February 4, 2010 as noted above.

Tax-Exempt Bonds - At March 31, 2010, through state entities, CITGO has outstanding $454 million of industrial development revenue bonds for certain Lake Charles, Corpus Christi and Lemont port facilities and pollution control equipment and $139 million of environmental revenue bonds to finance a portion of the Company’s environmental facilities at its Lake Charles, Corpus Christi and Lemont refineries. The bonds bear interest at various fixed and floating rates, which ranged from 1.1% to 8.0% at March 31, 2010 and ranged from 1.0% to 8.0% at December 31, 2009. Additional credit support for the variable rate bonds is provided through letters of credit issued under the Company’s secured revolving credit facility.

Taxable Bonds - At March 31, 2010, through a state entity, the Company has outstanding $60 million of taxable environmental revenue bonds to finance a portion of the environmental facilities at the Lake Charles refinery. Such bonds are secured by letters of credit issued under the Company’s secured revolving credit facility and have a floating interest rate (weighted average 1.4% and 1.6% at March 31, 2010 and December 31, 2009, respectively). At the option of the Company and upon the occurrence of certain specified conditions, all or any portion of such taxable bonds may be converted to tax-exempt bonds. There were no taxable bonds converted to tax-exempt bonds during 2010 or 2009.

Debt Maturities – Future maturities of long-term debt as of March 31, 2010 are: 2010- $5 million, 2011- $206 million, 2012- $913 million, 2013 - $-0-, 2014 - $-0-, and $652 million thereafter.

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7. COMMITMENTS AND CONTINGENCIES

Litigation and Injury Claims – Various lawsuits and claims arising in the ordinary course of business are pending against CITGO. CITGO records accruals for potential losses when, in management’s opinion, such losses are probable and reasonably estimable. If known lawsuits and claims were to be determined in a manner adverse to CITGO, and in amounts greater than CITGO’s accruals, then such determinations could have a material adverse effect on CITGO’s results of operations in a given reporting period. The most significant lawsuits and claims are discussed below.

CITGO, along with most of the other major oil companies in the United States, is a defendant in a number of federal and state lawsuits alleging contamination of private and public water supplies by methyl tertiary butyl ether (“MTBE”), a gasoline additive. In general, the plaintiffs, which include individuals and businesses as well as state and local governments and governmental authorities, claim that MTBE renders the water not potable. In addition to compensatory and punitive damages, plaintiffs seek injunctive relief to abate the contamination. The first MTBE cases were file in 2001. CITGO and some of the other defendants previously settled 60 of the MTBE cases, with CITGO’s share of the settlement being $34 million ($16 million of which CITGO recovered from its insurance carriers). In addition, the defendants are responsible for any future claims for cleanup costs for any new MTBE-contamination in certain wells, with CITGO’s share being 5.76% of any such costs. As of July 12, 2009, a settlement agreement was executed with the City of New York City to resolve the City’s MTBE claims for approximately $14 million, of which CITGO’s share is approximately $1 million. CITGO and the other defendants are also contingently liable for the future cleanup of certain wells if those wells become contaminated. On April 15, 2010, CITGO and most of the other MTBE defendants entered into a settlement agreement with 47 plaintiffs in New York and Florida. The total settlement is for $35 million, of which CITGO’s share is approximately $2 million. As of March 31, 2010, there were approximately 30 cases pending, the majority of which were filed by municipal authorities. Many of the remaining cases are pending in federal court and are consolidated for pre-trial proceedings in the U.S. District Court for the Southern District of New York in Multi-District Litigation (“MDL”) No. 1358. Six cases are also pending against CITGO in state courts in New York, New Hampshire, New Jersey, California and the Commonwealth of Puerto Rico. While CITGO’s management does not believe that the resolution of these matters will have a material adverse effect on its financial condition, a significant adverse effect on its financial results for a given period is possible.

Claims have been made against CITGO in a number of asbestos, silica and benzene lawsuits pending in state and federal courts. Most of these cases involve multiple defendants and are brought by former employees or contractor employees seeking damages for asbestos, silica and benzene related illnesses allegedly caused, at least in part, from exposure at refineries owned or operated by CITGO in Lake Charles, Louisiana, Corpus Christi, Texas and Lemont, Illinois. In many of these cases, the plaintiffs’ alleged exposure occurred over a period of years extending back to a time before CITGO owned or operated the premises at issue. CITGO will continue to vigorously defend these cases. CITGO does not believe that the resolution of any of these cases will, either individually or on an aggregate basis, have a material adverse effect on its financial condition or results of operations.

In 2007, CITGO was tried in the U.S. District Court for the Southern District of Texas for five criminal violations of the Clean Air Act for having uncovered water equalization tanks and incorrectly computing benzene emission amounts and exceeding benzene permitted levels in waste water streams and CITGO and the former environmental manager at its Corpus Christi refinery were tried for five criminal violations under the Migratory Bird Treaty Act for killing migratory birds. CITGO was found guilty under the Clean Air Act on felony charges regarding the uncovered water equalization tanks, the charges pertaining to the computation of benzene emission levels were dismissed and CITGO was found not guilty on the charges relating to the benzene level in waste water streams. With respect to the five misdemeanor counts under the Migratory Bird Treaty Act, the court granted directed verdicts of not guilty for CITGO on two counts pertaining to 25 birds, found CITGO guilty on three counts involving 10 birds and found CITGO’s former environmental manager not guilty. CITGO intends to appeal the felony convictions once a sentence is

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pronounced. CITGO filed a motion for a not guilty verdict notwithstanding the jury verdict for the felony conviction based on a subsequent U.S. Supreme Court decision. Sentencing for the 2007 convictions has not yet been scheduled. CITGO does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

In November 2004, the Athos I, a merchant tanker, struck a submerged anchor in the public channel of the Delaware River near Paulsboro, New Jersey and released crude oil owned by CITGO Asphalt Refining Company (“CARCO”), a former wholly-owned subsidiary of CITGO. Frescati Shipping Company Ltd. (“Frescati”), the owner of the Athos I, filed suit against CARCO in the U.S. District Court for the Eastern District of Pennsylvania for over $125 million in oil spill recovery and cleanup costs. In 2008, CITGO was also sued in the same court by the federal government, which is seeking to recover $87 million it paid out of the Oil Spill Liability Trust Fund to Frescati for its costs in responding to the oil spill. The cost of the entire cleanup and damages was approximately $268 million. CITGO does not believe CARCO has any liability for the oil spill; however, it has entered into an agreement with the government to cap CITGO’s potential damages at $124 million if it were to lose the Frescati lawsuit. CITGO will vigorously defend itself in a trial scheduled for the fall of 2010.

Mr. and Mrs. Siegel, on behalf of gasoline purchasers throughout Illinois and the United States, filed suit against CITGO, Shell, BP, Marathon and ExxonMobil in December 2005. They are seeking damages for the increased gasoline prices in the wake of Hurricane Katrina and defendants’ alleged excessive profits. The complaint alleged violations of the Illinois Consumer Fraud and Deceptive Business Practices Act. It also alleged national consumer fraud and deceptive business practices, unjust enrichment and civil conspiracy. CITGO has filed a motion to dismiss. On March 26, 2007, the Court granted the motion in part and denied it in part. The court allowed the plaintiffs to proceed with their unjust enrichment claim and their claims of violations of the Illinois Consumer Fraud Act. On September 23, 2008, the court denied class certification. On February 23, 2009, the judge denied class certification for Illinois residents and granted CITGO’s motion for summary judgment on September 4, 2009. The plaintiffs have filed a notice of appeal to the U.S. Court of Appeals for the 7th Circuit.

Spectrum Stores, Inc., as a purported class action representative of purchasers of refined petroleum products from CITGO, sued CITGO in the U.S. District Court for the South District of Texas on November 13, 2006. The lawsuit alleged CITGO violated the antitrust laws by conspiring with and aiding and abetting PDVSA and OPEC to fix crude prices and hence refined petroleum products prices. In January 2007, CITGO filed motions to dismiss based on failure to state a claim and on the act of state doctrine. In December 2007 the Multi-District Litigation (“MDL”) Panel assigned the U.S. District Court for the South District of Texas to handle the OPEC MDL cases, including Spectrum Stores, Fast Break Foods, LLC v. Saudi Aramco Corporation, Green Oil Co. v. Saudi Arabian Oil Company, Countywide Petroleum v. CITGO, and S-Mart Petroleum v. Petróleos de Venezuela, S.A. On March 21, 2008, S-Mart Petroleum voluntarily dismissed its complaint. On January 9, 2009, the U.S. District Court for the South District of Texas granted the defendants’ motion to dismiss the OPEC cases. The plaintiffs appealed this decision to the U.S. Fifth Circuit Court of Appeals, which heard the appeal in March 2010, and the parties are awaiting a decision.

On June 19, 2006 torrential rain fell at CITGO’s Lake Charles, Louisiana refinery, and oil overflowed from two stormwater holding tanks and entered the Calcasieu River and Indian Marais. Further, in connection with the same event, hydrogen sulfide and sulfur dioxide were released to the air. CITGO entered a guilty plea to one misdemeanor violation of the Clean Water Act for the negligent discharge of oil, paying a $13 million fine, and entering into an Environmental Compliance Program. CITGO has settled many claims in connection with this event. Many other claims related to bodily injury, property damage, business interruption, and demurrage remain to be resolved. In addition 228 lawsuits, representing 1,815 plaintiffs and three class actions, were filed by June 19, 2007. CITGO has settled with hundreds of plaintiffs for amounts up to $2,600 per plaintiff. In two federal property damage cases, the juries did not award any damages. On July 28, 2009, a state trial judge in Lake Charles entered a judgment of approximately

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$560,000 against CITGO in the Arabie trial. The plaintiffs were 14 individuals who claimed to have suffered personal injuries from air emissions from the oil spill and the sulfur dioxide release. Most of the judgment, $420,000, represents an award of punitive damages against CITGO. A plaintiff cannot recover punitive damages under Louisiana law, but the judge found that either Texas or Oklahoma law and not Louisiana law applied to this issue. This decision will be appealed. CITGO does not believe that the resolution of these remaining matters will have a material adverse effect on its financial condition or results of operations.

In 1973 predecessors to CARCO entered into a Terminal Service Agreement with Atlantic City Electricity (“ACE”). It was amended in 1986 by CARCO’s immediate predecessor. In 1997 CARCO began using a tank identified in the terminaling agreement to store sour water and reduced the monthly terminaling fee. In the spring of 2007, RC Cape May Holding purchased the ACE power plant and told CARCO it was opting to use a tank identified in the terminaling agreement for trading purposes. CARCO refused this request, and in June 2007, RC Cape May invoked arbitration. On July 1, 2009, the arbitrator issued his interim decision. He held that RC Cape May’s predecessor had transferred its right to one tank to CARCO and that under New Jersey law RC Cape May is not entitled to any damages from the loss of use of the optional 268,000 barrel tank because it is a start-up business and therefore any lost profits would be speculative. However, he did order CARCO to provide an alternative 268,000 barrel No. 6 fuel oil tank in the Philadelphia area for RC Cape May’s use until 2015 under the disputed Terminal Service Agreement and gave the parties 90 days to work out the details of such tank. RC Cape May is interested in a proposal by CITGO to lease tank capacity at CITGO’s Linden, New Jersey terminal in resolution of this matter. On October 15, 2009, the arbitrator affirmed his interim decision. On November 2, 2009, RC Cape May filed a petition in state court in New York City for the court to confirm the arbitrator’s award. CARCO filed a response opposing the confirmation on the basis that the arbitrator exceeded his authority in making the award. CITGO does not believe that the resolution of this matter will have a material adverse effect on its financial condition or result of operations.

On September 28, 2007, CITGO was advised that Immigration and Customs Enforcement was issuing an administrative subpoena for documents pertaining to the importation of Canadian crude and non-NAFTA condensate since June 1, 2006. When CITGO investigated the issue of imports of Canadian crude, CITGO discovered that CITGO’s customs broker had not filed import reports with U.S. Customs for over a period of many months and many of the reports that were filed contained mistakes. A “prior disclosure” filing with U.S. Customs was made on January 4, 2008 to minimize any penalties for violations that were not subject to the subpoena inquiry. CITGO has paid approximately $3 million in duties. CITGO may owe approximately $2 million in unpaid merchandise processing fees and interest and estimates $6 million will be owed in liquidated damages. CITGO does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

In January 2007, CITGO was named one of several defendants in at least nineteen cases in California, Missouri, Kansas, Oklahoma, Kentucky, Maryland, Virginia, Alabama, Mississippi, North Carolina, Nevada, New Mexico, Florida, Puerto Rico, and Tennessee. The complaints allege that the defendants sold gasoline to the plaintiffs when the temperature was greater than 60o Fahrenheit. The plaintiffs claim that they received less gasoline at the retail pump because the gasoline was not temperature corrected to 60o and that the defendants prohibited dealers from temperature correcting the gasoline at the retail pump. CITGO has filed a motion to dismiss. A California commission has found that consumers would not benefit from requiring temperature corrected gasoline at the retail pump. CITGO will continue to vigorously defend itself. CITGO does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

On June 30, 2008, Stephenson Oil Company, as a purported class action representative on behalf of all CITGO branded distributors, sued CITGO in U.S. District Court in Oklahoma for allegedly breaching the implied covenant of good faith and fair dealing in the distributor agreements through differential pricing of gasoline sold to distributors in the same market. On October 2, 2009, the judge denied CITGO’s motion to

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dismiss. In late October 2009, Stephenson filed a brief for class certification which CITGO opposed. CITGO will continue to vigorously defend itself in this case. CITGO does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

In Eres NV v. CARCO and NuStar on August 14, 2008, Eres filed under seal a maritime lawsuit against CARCO, CITGO, and NuStar for alleged breach of the contract of affreightment (“COA”) assigned by CARCO to NuStar for the transportation of asphalt. Eres alleges a $78 million value for the COA. Eres has demanded maritime arbitration for the alleged breach of the COA against NuStar, CITGO, and CARCO. CITGO has demanded indemnity from NuStar which NuStar denied. On November 5, 2008, Eres asked the U.S. District Court for the Southern District of New York to compel NuStar to appoint an arbitrator in the maritime arbitration case. On November 11, 2008, CITGO sued NuStar in Texas state court for a declaratory judgment that the COA was assigned to NuStar and NuStar must indemnify CITGO under the assignment and assumption. NuStar removed the state court action to the U.S. District Court for the Southern District of Texas. On December 22, 2009, the parties filed opposing motions for summary judgment. CITGO will vigorously defend itself in this case. CITGO does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

On July 19, 2009, a serious fire occurred at the alkylation unit at the Corpus Christi refinery. An employee was seriously burned. Based on monitoring data, there appears to be no impact from hydrofluoric acid vapors on the surrounding areas. The U.S. Chemical Safety Board, Occupational Safety and Health Administration (“OSHA”), U.S. Environmental Protection Agency (“U.S. EPA”), U.S. Coast Guard, and the Texas Commission on Environmental Quality (“TCEQ”) have investigated the incident. CITGO will vigorously defend itself in this case, and does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

In a letter dated July 28, 2009, Explorer Pipeline Company filed a claim totaling over $11.2 million for indemnification under the sale and purchase agreement for the purchase of the Eagle Pipeline and related terminals from CITGO in 2007 for alleged breaches of warranties pertaining to encroachments to and failure to clear rights of way, the condition of the pipe, and condition of a tank. CITGO is investigating the allegations made in this claim. CITGO does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

On February 10, 2008, a power outage occurred at the Lake Charles refinery. As a result of the power outage, six lawsuits with 368 claimants have been filed alleging that these claimants were exposed to sulfur dioxide and hydrogen sulfide. On June 25, 2008 another power outage occurred at the Lake Charles refinery. As a result of the second power outage, 26 lawsuits with 918 claimants have been filed alleging that these claimants were exposed to sulfur dioxide and hydrogen sulfide. The plaintiffs are limiting their damages to a maximum of $75,000 each so that CITGO is not entitled to a jury trial. CITGO is vigorously defending itself, and does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

On August 5, 2009, a former CITGO Vice President filed a complaint with the U.S. Equal Employment Opportunity Commission (“EEOC”) in which he claims he was the alleged victim of national origin discrimination and retaliation. A supplemental denial was filed on December 2, 2009. On September 30, 2009, a second former CITGO Vice President filed a complaint with the EEOC in which he claims he was the alleged victim of national origin discrimination. CITGO will vigorously defend itself in these cases, and does not believe that the resolution of these matters will have a material adverse effect on its financial condition or results of operations.

On or about October 2, 2006, Messrs. Bland, Houser, and McPartlan were employed operating cranes at the Lemont refinery and allegedly suffered injuries by inhaling toxic hydrofluoric acid. The plaintiffs sued CITGO and other defendants and claimed that the defendants failed to ensure a pipeline was properly maintained by inspecting the pipeline’s valves, joints, and flanges, and to block the flow of liquefied

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petroleum gas containing hydrofluoric acid. In July 2009 a judge granted Bland’s motion for partial summary judgment on the liability issue. CITGO will vigorously defend itself in these cases and does not believe that the resolution of these matters will have a material adverse effect on its financial condition or results of operations.

At both March 31, 2010 and December 31, 2009, CITGO’s noncurrent liabilities included an accrual for lawsuits and claims of $69 million. CITGO estimates that an additional loss of $52 million as of March 31, 2010, is reasonably possible in connection with such lawsuits and claims.

Environmental Compliance and Remediation – CITGO is subject to the federal Clean Air Act (“CAA”), which includes the New Source Review (“NSR”) program as well as the Title V Air Permitting Program; the federal Clean Water Act, which includes the National Pollution Discharge Elimination System program; the Toxic Substances Control Act; and the federal Resource Conservation and Recovery Act and their equivalent state programs. CITGO is required to obtain permits under all of these programs and believes it is in material compliance with the terms of these permits. CITGO is subject to liability under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) for remediation of contamination at its refineries. Such liability is potentially limited because the former owners of many of CITGO’s assets have assumed all or the material portion of the CERCLA obligations related to those assets. CITGO is currently incurring costs to remediate certain sites under CERCLA. CITGO does not expect these costs to be material if indemnifying parties continue to indemnify CITGO for a significant portion of these costs. However, CITGO could incur significant costs if the former owners are unwilling or unable to pay their shares.

The U.S. refining industry is required to comply with increasingly stringent product specifications under the 1990 Clean Air Act Amendments for reformulated gasoline and low sulfur gasoline and diesel fuel that require additional capital and operating expenditures.

In addition, CITGO is subject to various other federal, state and local environmental laws and regulations that may require CITGO to take additional compliance actions and also actions to remediate the effects on the environment of prior disposal or release of petroleum, hazardous substances and other waste and/or pay for natural resource damages. Maintaining compliance with environmental laws and regulations could require significant capital expenditures and result in additional operating costs. Also, numerous other factors, such as pending federal climate change legislation, could affect CITGO’s plans with respect to environmental compliance and related expenditures.

CITGO’s accounting policy establishes environmental reserves as probable site restoration and remediation obligations become reasonably capable of estimation. Environmental liabilities are recorded at their undiscounted current value and without consideration of potential recoveries from third parties which are recorded in other noncurrent assets. Subsequent adjustments to estimates, to the extent required, are made as more refined information becomes available. CITGO believes the amounts provided in its consolidated financial statements, as prescribed by generally accepted accounting principles, are adequate in light of probable and estimable liabilities and obligations. However, there can be no assurance that the actual amounts required to discharge alleged liabilities and obligations and to comply with applicable laws and regulations will not exceed amounts provided for or will not have a material adverse affect on CITGO’s consolidated results of operations, financial condition and cash flows.

In 1992, CITGO reached an agreement with the Louisiana Department of Environmental Quality (“LDEQ”) to cease usage of certain surface impoundments at the Lake Charles refinery by 1994. A mutually acceptable closure plan was filed with the LDEQ in 1993. The remediation commenced in December 1993. CITGO is implementing the plan pursuant to a June 2002 LDEQ administrative order. CITGO and the former owner of the refinery are sharing the related closure costs based on estimated contributions of waste and ownership periods.

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In June 1999, CITGO and numerous other industrial companies received notice from the U.S. EPA that the U.S. EPA believes these companies have contributed to contamination in the Calcasieu Estuary, near Lake Charles, Louisiana and are potentially responsible parties (“PRPs”) under CERCLA. The U.S. EPA made a demand for payment of its past investigation costs from CITGO and other PRPs and since 1999 has been conducting a remedial investigation/feasibility study (“RI/FS”) under its CERCLA authority. The LDEQ has also made similar allegations against CITGO and other industrial companies. While CITGO disagrees with many of the U.S. EPA’s and LDEQ’s earlier allegations and conclusions, CITGO and other industrial companies signed in December 2003 a Cooperative Agreement with the LDEQ on issues relative to the Bayou D’Inde tributary section of the Calcasieu Estuary, and the companies are proceeding with a Feasibility Study Work Plan. CITGO will continue to deal separately with the LDEQ on issues relative to its refinery operations on another section of the Calcasieu Estuary. The Company still intends to contest this matter if necessary.

In January and July 2001, CITGO received notices of violation (“NOVs”) from the U.S. EPA alleging violations of the CAA. The NOVs are an outgrowth of an industry-wide and multi-industry U.S. EPA enforcement initiative alleging that many refineries, electric utilities and other industrial sources modified air emission sources without complying with the new source review provisions of the CAA. Without admitting any violations, CITGO executed a Consent Decree with the United States and the states of Louisiana, Illinois, New Jersey, and Georgia. The Consent Decree requires the implementation of pollution control equipment at CITGO’s refineries and a Supplemental Environment Project at CITGO’s Corpus Christi refinery. CITGO has incurred approximately $434 million in capital costs related to the Consent Decree, primarily between 2006 and 2008. CITGO expects to incur an additional $26 million in related capital costs through the end of 2011.

CITGO has granted to the New Jersey Natural Lands Trust a conservation easement covering the 592 acre Petty’s Island, which is located in the Delaware River in Pennsauken, New Jersey and owned by CITGO. Petty’s Island contains a closed CITGO petroleum terminal and other industrial facilities, but it is also the habitat for the bald eagle and other wildlife. The granting of the conservation easement will mitigate the amount of remediation that CITGO would have to perform on Petty’s Island. On April 22, 2009, CITGO entered into, with the New Jersey Department of Environment Protection, an Agreed Consent Order to remediate the hydrocarbon contamination on Petty’s Island and a release of CITGO from natural resource damages for all of CITGO’s former and current facilities in New Jersey.

On June 19, 2006, as the result of torrential rainfall, multiple sulfur dioxide and hydrogen sulfide releases occurred and two stormwater storage tanks at CITGO’s Lake Charles refinery overflowed to the tanks’ secondary containment area that was under construction. Due to a failure in the integrity of the containment, approximately 53,000 barrels of oil in stormwater were discharged into the Indian Marais and Calcasieu River. The U.S. EPA and the LDEQ commenced enforcement actions. The Natural Resource Damage Assessment (“NRDA”) studies have been completed and submitted to the state and federal trustees for review. On April 9, 2007, the LDEQ issued a Consolidated Compliance Order & Notice of Potential Penalty to CITGO with regards to the June 19, 2006 event and several other alleged violations over a five-year period. Currently, the estimate of the high end of the penalty sought by LDEQ is approximately $155,000. On May 14, 2007, CITGO filed an appeal of this order. On November 5, 2007 the federal government proposed a partial NRDA assessment for loss of recreational use of the Calcasieu and Intercoastal Waterway of $486,000 which was later reduced to $316,000. CITGO has accepted that assessment; however payment is deferred until completion of the entire NRDA process. On June 24, 2008, the U.S. EPA and the LDEQ sued CITGO for the release of 53,000 barrels of slop oil into the Indian Marais and Calcasieu River. The U.S. EPA can seek penalties up to $1,100 per barrel released for ordinary negligence and up $4,300 per barrel for gross negligence or willful misconduct. Further, the LDEQ is seeking reimbursement for its response costs. The U.S. EPA wants injunctive relief to prevent a recurrence of this release. In connection with the NRDA, the National Oceanic and Atmospheric Administration (“NOAA”) in February 2009 submitted a reimbursement request for $901,000 for their investigative costs up through December 2007. The U.S. EPA has been granted a motion for partial summary judgment

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based on CITGO’s admission of liability in the criminal case. CITGO will continue to vigorously defend these matters. CITGO does not believe that the resolution of these matters will have a material adverse effect on its financial condition, but may have a significant effect on its financial results for a given period.

In February 2009, the U.S. EPA issued an NOV to CITGO’s Lemont refinery for alleged violations of the CAA resulting from the combusting of pollutants in its refinery flares. According to the U. S. EPA, the Lemont NOV was the beginning of a nationwide effort to improve flaring operations in the industry by requiring continuous monitoring and control equipment that will record steam-to-waste gas ratios during flaring events. The U.S. EPA contends that only through conducting such monitoring can refineries determine whether the flares are maintained in conformance with their design and conform to good air pollution control practices. The purported goal is to control these ratios in an automated fashion as well as create a new body of operations and monitoring records. The U.S. EPA envisions refining companies entering into agreements with the U.S. EPA similar to the NSR Consent Decree CITGO executed concerning alleged modifications of air emission sources. CITGO has informed the U.S. EPA that its proposed program is neither required nor necessary and has provided it with the records indicating that CITGO’s flare operations conform to recommended design standards.

On July 19, 2009, a serious fire occurred at the alkylation unit at CITGO’s Corpus Christi refinery. Based on monitoring data, there appears to be no impact from hydrofluoric acid vapors on the surrounding areas. Because all appropriate storage areas, including dike areas, at the refinery were used on an emergency basis to store fire water, the refinery was compelled to release fire water that exceeded some of the permit limits of the refinery’s discharge permit to the ship channel. The U.S. Chemical Safety Board, OSHA, U.S. EPA, U.S. Coast Guard, and the TCEQ have investigated the incident. On December 18, 2009, the TCEQ issued a notice of enforcement for the alleged water discharges following the July 19, 2009 fire at the unit. The TCEQ is demanding an administrative civil penalty of $963,000 for alleged exceedances to the Texas Pollution Discharge Elimination System limitations for fluoride, discharge of industrial waste into waters of the state, unauthorized discharge of contact fire water and vapor suppression water from outfalls as well as the discharge of process wastewater from tanks to the unlined containment berm area surrounding those tanks. In February 2010, the TCEQ increased the amount of its civil penalty to $1 million to include additional alleged violations discovered during an air investigation. On April 19, 2010, CITGO and the TCEQ reached a tentative settlement agreement. The terms include CITGO’s payment of a $300,000 civil penalty and potential commitment to install an enhanced vapor recovery system on six storage tanks that store benzene or benzene contaminated wastewater; if the system is installed, the penalty may be reduced by another 25 to 30%. On January 15, 2010, OSHA cited CITGO for 15 alleged serious, two alleged willful, and one alleged repeat violations of OSHA’s regulations arising from OSHA’s inspections of the Corpus Christi refinery after the July 19, 2009 fire. The total amount of the citation is $237,000. Mandatory settlement discussions have been scheduled for the end of June 2010 at which CITGO will vigorously defend itself. CITGO does not believe that the resolution of this matter will have a material adverse effect on its financial condition or results of operations.

At March 31, 2010, CITGO’s noncurrent liabilities included an environmental accrual of $81 million compared with $83 million at December 31, 2009. CITGO estimates that an additional loss of $23 million as of March 31, 2010, is reasonably possible in connection with environmental matters.

Various regulatory authorities have the right to conduct, and from time to time do conduct, environmental compliance audits or inspections of CITGO and its subsidiaries’ facilities and operations. Those compliance audits or inspections have the potential to reveal matters that those authorities believe represent non-compliance in one or more respects with regulatory requirements and for which those authorities may seek corrective actions and/or penalties in an administrative or judicial proceeding. Based upon current information, CITGO does not believe that any such prior compliance audit or inspection or any resulting proceeding will have a material adverse effect on its future business and operating results, other than matters described above.

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Conditions which require additional expenditures may exist with respect to CITGO’s various sites including, but not limited to, its operating refinery complexes, former refinery sites and crude oil and petroleum product storage terminals. Based on currently available information, CITGO cannot determine the amount of any such future expenditures.

Supply and Other Agreements – The Company purchases the crude oil processed at its refineries and also purchases refined products to supplement the production from its refineries to meet marketing demands and resolve logistical issues. In addition to supply agreements with various affiliates (Note 8), the Company has various other crude oil, refined product and feedstock purchase agreements with unaffiliated entities with terms ranging from monthly to annual renewal. The Company believes these sources of supply are reliable and adequate for its current requirements. The Company has other agreements for utilities and other hydrocarbon products used in the refinery process with various entities and terms.

Commodity Derivative Activity – The Company has certain binding agreements associated with its commodity derivative contracts (Note 11).

Guarantees - As of March 31, 2010, the Company has guaranteed the debt of others including bank debt of an equity investment as shown in the following table:

ExpirationDate

(000s omitted)

Bank debt Equity Investment 5,500$ 2012

If the debtor fails to meet its obligation, CITGO could be obligated to make the required payment. The Company has not recorded any amounts on the Company’s balance sheet relating to this guarantee. In the event of debtor default on the equity investment bank debt, CITGO has no recourse.

CITGO has granted indemnities to the buyers in connection with past sales of product terminal facilities. These indemnities provide that CITGO will accept responsibility for claims arising from the period in which CITGO owned the facilities. Due to the uncertainties in this situation, the Company is not able to estimate a liability relating to these indemnities.

The Company has not recorded a liability on its balance sheet relating to product warranties because historically, product warranty claims have not been significant.

Other Credit and Off-Balance Sheet Risk Information as of March 31, 2010 - The Company has outstanding letters of credit totaling approximately $537 million issued against the Company’s secured revolving credit facility, which includes $513 million related to CITGO’s tax-exempt and taxable revenue bonds (Note 6).

The Company has also acquired surety bonds totaling $102 million primarily due to requirements of various government entities. The Company does not expect liabilities to be incurred related to such letters of credit or surety bonds.

8. RELATED PARTY TRANSACTIONS

During the three months ended March 31, 2010 and 2009, the Company purchased approximately 37% and 53%, respectively, of the crude oil processed in its refineries from PDVSA under long-term supply agreements and spot purchases. On December 1, 2008, the Company entered into an agreement with PDVSA which combines all crude oil purchases for the Lake Charles refinery and Corpus Christi refinery

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in a single agreement that extends through March 31, 2012 and can be extended further under the terms of the agreement. Either party may provide notice of cancellation of their current crude oil supply agreement at the end of the term or any renewal term at least one year prior to the expiration date. The Company’s crude oil purchase commitment under the agreement is approximately 250 MBPD.

The long-term crude oil supply agreement requires PDVSA to supply minimum quantities of crude oil to CITGO. The crude oil supply agreement pertaining to the Lake Charles and Corpus Christi refineries incorporates formulas based on the spot market values of widely traded crudes and other hydrocarbons plus an adjustment for market change.

The feedstock supply agreement (“FSA”) for the supply of naphtha, which remains in effect for the Corpus Christi refinery through 2012, incorporates a formula price based on the market value of a slate of refined products deemed to be produced from each particular grade of feedstock, less (i) specified deemed refining costs; (ii) specified actual costs, including transportation charges, actual cost of natural gas and electricity, import duties and taxes; and (iii) a deemed margin. Under the FSA, deemed margins and deemed costs are adjusted periodically by a formula primarily based on the rate of inflation. Because deemed operating costs and the slate of refined products deemed to be produced for a given barrel of feedstock do not necessarily reflect the actual costs and yields in any period, the actual refining margin earned by CITGO under the FSA will vary depending on, among other things, the efficiency with which CITGO conducts its operations during such period.

The Company purchased $1.7 billion and $1.3 billion of crude oil, feedstocks, and other products from PDVSA and its wholly-owned subsidiaries during the three months ended March 31, 2010 and 2009, respectively, under these and other purchase agreements. At March 31, 2010 and December 31, 2009, $428 million and $459 million, respectively, were included in payables to affiliates as a result of these transactions.

The Company also purchases refined products from various other affiliates including HOVENSA and Mount Vernon Phenol Plant Partnership, under long-term contracts. These agreements incorporate various formula prices based on published market prices and other factors. Such purchases totaled $919 million and $722 million for the three month periods ended March 31, 2010 and 2009, respectively. Any portion of the HOVENSA purchases that were donated are reflected in the statement of income (loss) as selling, general and administrative expense. At March 31, 2010 and December 31, 2009, $136 million and $150 million, respectively, were included in payables to affiliates as a result of these and related transactions.

The Company had refined product, feedstock, and other product sales to affiliates, primarily at market-related prices, of $110 million and $58 million during the three months ended March 31, 2010 and 2009, respectively. At March 31, 2010 and December 31, 2009, $77 million and $61 million, respectively, were included in due from affiliates as a result of these and related transactions.

In December 2007, CITGO entered into a one-year, $1 billion note receivable from PDVSA. The original note bore interest at 3.82% per annum paid quarterly. The note was extended in December 2008 to a maturity date of December 17, 2009 and bore interest at 1.36% per annum paid quarterly. The Company and PDVSA entered into a letter of intent in October 2009 to extend the note past the December 17, 2009 maturity date and agreed to the terms of the amortization of the balance of the note. The definitive agreement, including an offset payment agreement and the new promissory note, was executed on February 2, 2010. The note will be amortized by offset of two designated cargoes of crude oil delivered to CITGO by PDVSA each month commencing in August 2009 and continuing until the note is paid in full. The remaining outstanding balance would become due no later than December 31, 2010 if the offset arrangement were to be terminated for any reason. Under the definitive agreement, the note will continue to bear interest at 1.36% per annum. At March 31, 2010 and December 31, 2009, the outstanding principal balance of the note was $384 million and $607 million, respectively. The Company recorded interest

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income of approximately $2 million and $3 million related to the note in the condensed consolidated statements of income (loss) for the three month periods ended March 31, 2010 and 2009, respectively.

Under a separate guarantee of rent agreement, PDVSA has guaranteed payment of rent, stipulated loss value and terminating value due under the lease of the Corpus Christi refinery facilities. The Company has also guaranteed debt of certain affiliates (Note 7).

The Company and PDV Holding are parties to a tax allocation agreement that is designed to provide PDV Holding with sufficient cash to pay its consolidated income tax liabilities. PDV Holding appointed CITGO as its agent to handle the payment of such liabilities on its behalf. As such, CITGO calculates the taxes due, allocates the payments among the members according to the agreement and bills each member accordingly. Each member records its amounts due from or payable to CITGO in a related party payable account. At March 31, 2010 and December 31, 2009, CITGO had net related party payable related to federal income taxes of $35 million and $31 million, respectively, which is included in payable to affiliates.

At March 31, 2010 and December 31, 2009, CITGO has federal income taxes prepayments of $227 million and $181 million, respectively, included in current income tax receivable.

The Company has $14 million in payables to affiliates relating to insurance policies obtained through a subsidiary of its ultimate parent at both March 31, 2010 and December 31, 2009.

CITGO, from time to time, provides services for and makes payments on behalf of its ultimate parent company for various items such as medical expenses, travel and accommodations, advertising and transportation. In addition, the Company transferred certain non-operating assets to its ultimate parent during 2009. In order to settle these payments, indirect non-cash dividends of approximately $100 million were declared in 2009.

In November 2009, we sold certain non-operating assets and related spare parts to PDVSA for an aggregate price of $69 million, which is payable to us on a deferred basis. No gain or loss was recorded by the Company as a result of this transaction. Interest income of $1 million for the three months ended March 31, 2010 was recorded in the condensed consolidated statement of income (loss). As of March 31, 2010 and December 31, 2009, $4 million of current notes receivable and $65 million of noncurrent notes receivable are included in the condensed consolidated balance sheets related to this transaction. Interest receivable of $2 million and $1 million due from affiliates was recorded in the condensed consolidated balance sheets at March 31, 2010 and December 31, 2009, respectively.

During the period ended March 31, 2010, the Company entered into agreements with PDVSA under which it manages and administers the procurement of equipment and other goods and services on PDVSA’s behalf. Under these agreements, the Company provides all services required for the procurement and delivery to PDVSA or its affiliate of the specified equipment, goods or services. The Company arranges payment for all or any portion of the purchase price or service fee to the vendor and all other costs and expenses incurred in connection with the procurement as and when they become due. Before the Company processes any such payments, PDVSA is required to provide the Company with the requisite funds by offsetting amounts otherwise payable by the Company under the long-term crude oil supply agreement. Under the agreements, PDVSA is required to indemnify the Company for any liabilities, costs or expenses incurred in connection with the agreements and the provision of services thereunder and to pay the Company a fee for its services, which is intended to cover the Company’s internal costs incurred in providing the services and provide additional compensation to the Company. At March 31, 2010, total payments of $150 million related to the specified equipment purchased under the agreements were offset against the Company’s crude purchases from PDVSA. As of March 31, 2010, the Company has $379,000 for services fees in due from affiliates in connection with these agreements.

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9. EMPLOYEE BENEFIT PLANS

The following table presents the components of the net periodic benefit cost with respect to pension and other postretirement benefits:

Pension Benefits Other Benefits

2010 2009 2010 2009(Unaudited)

(000s omitted)

Service cost 5,738$ 6,177$ 2,958$ 2,954$ Interest cost 11,277 10,892 8,684 7,537 Expected return on plan assets (10,659) (8,699) - (21) Amortization of Transition Obligation (Asset) - (2) - - Amortization of prior service cost 208 97 418 (123) Amortization of net loss 2,847 5,661 20 (88) Settlement loss - 1,767 - -

Net periodic benefit cost 9,411$ 15,893$ 12,080$ 10,259$

Three Months Ended March 31,

The Company has contributed $5 million to the qualified pension plans through March 31, 2010 in accordance with applicable laws and regulations. The Company estimates that it will contribute approximately $15 million to these plans over the remainder of 2010. This includes an estimate of the amount the Company will contribute in September 2010 as a final contribution for the 2009 plan year. The nonqualified plans are funded as needed to pay retiree benefits. The Company has contributed $1 million to the nonqualified plans through March 31, 2010. The company estimates that it will contribute approximately $3 million to the nonqualified plans over the remainder of 2010.

The Company’s policy is to fund its postretirement benefits other than pension obligation on a pay-as-you-go basis. The Company has contributed $4 million to these plans as of March 31, 2010. The Company estimates that it will contribute approximately $15 million to these plans over the remainder of 2010.

During March 2010, Congress passed and the President signed new healthcare legislation. While the new law may impact certain of the Company’s healthcare plans, the Company currently believes this impact will not be material. The Company will continue to review the impact of the new law as governmental agencies issue interpretations regarding its meaning and scope. The Company recorded an adjustment to income taxes as a result of the new healthcare legislation. (Note 10)

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10. INCOME TAXES

The federal statutory tax rate differs from the effective tax rate due to the following:

March 31, March 31,2010 2009

Federal statutory tax rate 35.0 % 35.0 % State taxes, net of federal benefit 0.8 % 1.2 % Dividend exclusions 3.1 % (0.4)% Medicare subsidy (15.4)% (0.5)% Manufacturing deduction - (1.0)% Deferred state rate (law enactments) - 5.5 % Other (0.2)% -

Effective tax rate 23.3 % 39.8 %

The effective tax rates were 23.3% and 39.8% for the three months ended March 31, 2010 and 2009, respectively. The decrease in the effective tax rate as compared with the prior year was primarily due to an income tax charge of $28 million recorded during the three months ended March 31, 2010 as a result of the Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act (“the Health Care Acts”). The Health Care Acts, enacted by Congress in March 2010, included a provision to reduce the amount of retiree medical costs that will be deductible after December 31, 2012. The deferred tax asset associated with the tax treatment of these retiree medical costs was reduced as a result of this legislation. Beginning in 2013, the Company will no longer be able to claim an income tax deduction related to prescription drug benefits provided to retirees and reimbursed under the Medicare Part D retiree drug subsidy.

In 2010 the Company expects there will be no benefit for the manufacturing deduction due to an anticipated net operating loss for 2010.

11. DERIVATIVE INSTRUMENTS

The Company has exposure to price fluctuations of crude oil and refined products and changes in interest rate associated with its variable rate debt. The fluctuations in future prices create risk to the Company as its activities involve commitments to pay or receive fixed prices in the future. To manage and reduce exposures in connection with the commodity price, management enters into certain derivative instruments. The Company’s petroleum commodity derivatives, comprised of physical and financial derivatives, include exchange-traded futures contracts, forward purchase and sale contracts, exchange-traded and over-the-counter (“OTC”) options, and OTC swaps. The Company does not utilize any derivative instruments to manage its interest rate risk.

The Company has risk management policies in place to identify and analyze the risks faced by the Company. The Company does not attempt to manage the price risk related to all of its inventories of crude oil and refined products. As a result, at March 31, 2010, the Company was exposed to the risk of broad market price volatility with respect to a substantial portion of its crude oil and refined product inventories. As of March 31, 2010, the Company’s total crude and refined products inventory was 30 million barrels. Aggregate commodity derivative positions entered into for price risk management purposes at that date totaled 5 million barrels.

Fair values of derivatives are recorded in other current assets or other current liabilities, as applicable, and changes in the fair value of derivatives not designated in hedging relationships are recorded in cost of sales in the condensed consolidated statement of income (loss). The Company does not designate any of its

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derivative instruments as hedges as these derivative instruments are designed to hedge risk associated with the market price fluctuations or for trading purposes. At March 31, 2010 and December 31, 2009, amounts included in other current assets and other current liabilities related to the fair values of open commodity derivatives are as follows:

March 31, December 31,2010 2009

(Unaudited)

Balance Sheet Location

Prepaid expense and other $ 6,373 $ 10,995Other current liabilities 5,780 13,248

(000s omitted)

For the three month periods ended March 31, 2010 and 2009, gains or losses from commodity derivatives held for trading, whether realized or unrealized, were recorded in cost of sales in the condensed consolidated statement of income (loss) as indicated in the following table:

2010 2009

Statement of Income (Loss) Location

Cost of sales (includes realized (gains) losses of $(1) million and $109 million, respectively) (3,798)$ $ 91,093

(000s omitted)

Amount of (Gain)/Loss Recognized inNet Loss on Derivatives for the Three Months Ended March 31,

(Unaudited)

The trading activities expose the Company to certain credit risks. The credit risk associated with futures contracts is negligible as they are traded on the New York Mercantile Exchange (“NYMEX”). Exchange-traded futures contracts settled through broker margin accounts at NYMEX generally require a cash deposit, which are subject to change based on market price movement. When a particular market participant goes bankrupt, the NYMEX will cover any potential losses with no effect on the Company’s trades. OTC derivative contracts, on the other hand, expose the Company to counterparty credit-related losses in the event of nonperformance by counterparties. Neither the Company nor the counterparties are required to collateralize their obligations under OTC derivative commodity agreements. None of the Company’s derivatives agreements contain contingent features provisions.

To manage the counterparty risk, the Company monitors the creditworthiness of its counterparties through formal credit policies. Additionally, the Company has a master netting agreement which permits net settlement with its counterparties. As of March 31, 2010, the fair value of derivative instruments in a net receivable position due from counterparties was immaterial. The Company does not anticipate nonperformance by the counterparties, which consists primarily of major financial institutions.

Management considers the credit risk to the Company related to its commodity derivatives to be immaterial during the periods presented.

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12. FAIR VALUE INFORMATION

The Company measured some of its financial assets and liabilities at fair value on a recurring basis. To estimate fair value, the Company utilizes observable market data when available, or models that utilize observable market data in the absence of identical assets or liabilities. In addition to market information, the Company incorporates transaction-specific details that, in management’s judgment, market participants would utilize in a fair value measurement.

In accordance to ASC 820, “Fair Value Measurements and Disclosures”, disclosure is required surrounding the various inputs that are used in determining the fair value of the Company’s assets and liabilities and the degree to which they are observable. These inputs are summarized into a hierarchy of three broad levels listed below.

Level 1: Quoted prices in active markets for identical assets or liabilities. Level 1 inputs include derivative assets and liabilities. In forming fair value estimates, the Company utilizes the most observable inputs available for the valuation. The fair value of the Company’s certain commodity futures and options contracts are based on quoted prices in active markets for identical assets or liabilities from the NYMEX.

Level 2: Other significant observable inputs. Level 2 inputs include quoted prices for similar assets and liabilities in active markets. The Company’s OTC swaps use both Level 1 and Level 2 inputs. Valuation for OTC swaps are based on NYMEX pricing, a Level 1 input, and pricing obtained from Platts, where the values are based on similar assets or liabilities that were recently traded or transferred between external entities, a Level 2 input. If a fair value measurement reflects inputs of different levels within the hierarchy, the measurement is categorized based upon the lowest level of input that is significant to the fair value measurement. The valuation of physical delivery purchase and sale agreements, OTC financial swaps, three-way collars and deferred compensation arrangements are based on similar transactions observable in active markets or industry standard models that primarily rely on market observable inputs. Substantially all of the assumptions for industry standard models are observable in active markets throughout the full term of the instrument. The Company categorizes these measurements as Level 2.

Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources. The Company valuation models for derivative contracts are based on internally developed market and third-party pricing assumptions. Level 3 instruments primarily include commodity derivative instruments such as forwards purchases and sales of refined products. Although third party broker quotes are utilized to assess the reasonableness of our prices and valuation techniques, we do not have sufficient corroborating market evidence to support classifying these assets and liabilities as Level 2.

Estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

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The following table summarizes the valuation of the Company’s financial instruments measured at fair value on a recurring basis as of March 31, 2010:

Quoted Prices in Significant SignificantActive Markets for Observable Unobservable TotalIdentical Assets Inputs Inputs Fair

(Level 1) (Level 2) (Level 3) Value

(000s omitted)ASSETS: Derivatives 5,185$ 2,528$ 168$ 7,881$ Pensions plan Money Market funds 3,215 - - 3,215 Common/collective trust funds - 548,095 - 548,095 Total pensions plan 3,215 548,095 - 551,310

Total Assets 8,400$ 550,623$ 168$ 559,191$ LIABILITIES: Derivatives 1,606$ 2,976$ 2,705$ 7,287$

Fair Value Measurement at March 31, 2010 Using

(Unaudited)

There were no significant transfers between Levels 1 and 2 for the three month period ended March 31, 2010.

The table below presents a reconciliation of changes in the fair value of the net derivative assets (liabilities) classified as level 3 in the fair value hierarchy and summarizes gains and losses due to changes in fair value.

2010

(Unaudited)(000s omitted)

Beginning balances as of January 1, (8,198)$ Total gains, realized and unrealized included in Cost of sales 5,661 Purchases, issuances and settlementsTransfers in and/or out of level 3 -

Ending balance as of March 31, (2,537)$

Nonfinancial assets are measured at fair value on a nonrecurring basis. Fair value is used to measure nonfinancial assets such as impaired property, plant and equipment when implementing lower of cost or market accounting or when adjusting carrying values. Fair value is determined primarily using the anticipated net cash flows discounted at a rate commensurate with the risk involved. The carrying value of a long-lived asset or asset group is considered impaired when the separately identifiable anticipated undiscounted net cash flow from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset or asset group. The Company’s nonfinancial liability related to asset retirement obligations approximates fair value.

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The Company has the option to report certain financial assets and liabilities at fair value. The Company has reviewed the eligible items and determined not to elect the fair value option for any of these assets and liabilities

The following table presents the Company’s other financial instruments that are not measured on a recurring basis. The carrying amounts and estimated fair values are as follows:

Carrying Fair Carrying FairAmount Value Amount Value

(000s omitted) (000s omitted)LIABILITIES: Current portion of long-term debt 206,357$ 206,357$ 406,357$ 368,357$ Long-term debt 1,569,998 1,569,300 1,771,586 1,731,856 OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - UNREALIZED LOSSES: Guarantees of debt - (579) - (227) Letters of credit - (22,856) - (8,981) Surety bonds - (776) - (763)

March 31, 2010 December 31, 2009(Unaudited)

Financial assets and liabilities for which the carrying value approximates fair value were not presented in the above summary. For financial assets, these include cash and cash equivalents, due from affiliates, accounts receivable (including receivables sold at December 31, 2009), and notes receivable from ultimate parent. For financial liabilities, these include accounts payable, payables to affiliates, note payable due under product financing arrangement, and amounts under the secured financing arrangement at March 31, 2010. For nonfinancial liabilities, this includes asset retirement obligations.

The following assets and liabilities were analyzed for fair value measurement:

Current portion of long-term debt – The carrying amounts of the current portion of long-term debt, excluding the revolving credit facility, approximate fair value due to the short maturities of the financial instruments. The fair value of the revolving credit facility is based on prices obtained from a third party for an amount the Company would pay to transfer the liability to a market participant in an orderly transaction at the measurement date.

Long-term debt – The fair value of long-term debt is based on prices obtained from a third party for an amount the Company would pay to transfer the liability to a market participant in an orderly transaction at the measurement date.

Derivatives – The fair value of the Company’s derivative and other financial instruments are measured using an in-exchange valuation premise and using a market approach to the valuation technique.

Pensions and Post-retirement benefit – The carrying value of the Company’s pension plan assets is based on information reviewed and approved by management and prepared by the plan asset administrator. The carrying value of the plan assets approximate fair value. Pension plan liabilities are a present value discounted measure of the Company’s estimated future pension costs. Since these liabilities are valued at a present value discounted measure, which approximates fair value, no additional fair value measurement is required. Post-retirement benefits are also reported as a present-value discounted estimate of the Company’s future post-retirement benefit obligations.

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Guarantees, letters of credit and surety bonds - The estimated fair value of contingent guarantees of third-party debt, letters of credit and surety bonds is based on fees currently charged for similar agreements or on the estimated cost to terminate them or to transfer the liabilities to a market participant in an orderly transaction at the measurement date.

The fair value estimates presented herein are based on pertinent information available to management as of the reporting dates. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein.

13. OTHER INFORMATION

In 2007, CITGO entered into two separate hydrogen supply agreements with BOC Americas (PGS), Inc. (“BOC”) and MarkWest Blackhawk, L.P. (“MarkWest”). Linde Gas North America, LLC, the successor to BOC, and MarkWest were to construct two new hydrogen production plants to produce high purity hydrogen and high pressure steam for use by the Lemont and Corpus Christi refineries. These hydrogen supply agreements are treated as capital leases. As a result, the Company recorded assets, and corresponding capital lease obligations, of $284 million in March 2010 under these agreements. The agreements include a minimum monthly charge for the commitment of the facilities, services, and the availability of hydrogen and any corresponding steam production in accordance with the terms of the agreements. The current minimum monthly charge is $3.5 million. The hydrogen supply agreements at each plant are for a twenty-year period and will expire in 2030.

In March 2010, the Company entered into a product financing arrangement in which the Company sold product to a third party and agreed to repurchase the same quantity of product from that third party at the same price with an adjustment for risk-based interest. The product was not delivered to the purchaser and no sale or inventory reduction was recorded in accordance with ASC 470-40. Cash received as a result of this transaction and prior to payment for the repurchased product from that third party of $41 million was recorded as a liability at March 31, 2010.

14. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through May 12, 2010, the date the financial statements were available to be issued. Any material subsequent events that occurred during this time have been properly recognized or disclosed in the Company’s financial statements.

* * * * * *

ISSUER

CITGO Petroleum Corporation1293 Eldridge Parkway

Houston, TX 77077United States

JOINT BOOKRUNNING MANAGERS

RBS Securities Inc.600 Washington Blvd.Stamford, CT 06901

United States

UBS Investment Bank299 Park Avenue

New York, NY 10171United States

BNP ParibasSecurities Corp.

787 Seventh AvenueNew York, NY 10019

United States

Credit AgricoleSecurities (USA) Inc.

1301 Avenue of theAmericas

New York, NY 10019United States

AUDITORS OF THE ISSUER

KPMG LLP700 Louisiana, Suite 3100

Houston, TX 77002United States

TRUSTEE, REGISTRAR, PAYING AGENT

Wilmington Trust FSB50 South Sixth Street, Suite 1290

Minneapolis, MN 55402-1544United States

LUXEMBOURG LISTING AGENT, PAYING AGENT AND TRANSFER AGENT

Deutsche Bank Luxembourg S.A.IB Operations

2, Boulevard Konrad AdenauerL-1115 Luxembourg

Luxembourg

LEGAL ADVISORS

To the Issuer as to United States Law To the Initial Purchasers as to United States Law

Curtis, Mallet-Prevost, Colt & Mosle LLP101 Park Avenue

New York, NY 10178-0061United States

Cahill Gordon & Reindel LLP

Eighty Pine StreetNew York, NY 10005-1702

United States

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$1,500,000,000

CITGO Petroleum Corporation% Senior Secured Notes due 2017% Senior Secured Notes due 2020

OFFERING MEMORANDUM

RBSUBS Investment Bank

BNP PARIBASCredit Agricole CIBDnB NOR Markets

Natixis Bleichroeder LLCUniCredit Capital Markets

, 2010