UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
OR
Transition Report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from . . . . to . . . .
Commission file number 1-7627
WAINOCO OIL CORPORATION
(Exact name of registrant as specified in its charter)
Wyoming 74-1895085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Smith Street, Suite 2100 77002-4367
Houston, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 658-9900
Not Applicable
----------------------------------------------------------
Former name, former address and former fiscal year, if
changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No . . .
Registrant's number of common shares outstanding as of April 28, 1994:
27,237,452
WAINOCO OIL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1994
INDEX
Page
----
Part I - Financial Information
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II - Other Information 11
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WAINOCO OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share)
For the three months ended March 31, 1994 1993
- ------------------------------------ -------- --------
<S> <C> <C>
Revenues:
Refined products $ 62,298 $ 72,390
Oil and gas sales 9,398 9,892
Other 510 1,353
-------- --------
72,206 83,635
-------- --------
Costs and Expenses:
Refining operating costs 53,664 70,568
Oil and gas operating costs 3,233 3,067
Selling and general expenses 2,987 2,884
Depreciation, depletion and amortization 5,958 5,866
-------- --------
65,842 82,385
-------- --------
Operating Income 6,364 1,250
Interest Expense, Net 5,061 5,217
-------- --------
Income (Loss) Before Income Taxes 1,303 (3,967)
Provision (Benefit) for Income Taxes (172) (72)
-------- --------
Net Income (Loss) $ 1,475 $ (3,895)
======== ========
Income (Loss) Per Share $ .05 $ (.18)
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
WAINOCO OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except shares)
March 31, 1994 and December 31, 1993 1994 1993
- ------------------------------------ -------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash, including cash equivalents of
$1,901 in 1994 and $2,078 in 1993 $ 2,034 $ 3,770
Trade receivables 15,602 16,281
Joint operators and other receivables 2,767 2,790
Inventory of crude oil, products and other 24,432 21,086
Other current assets 1,710 2,331
-------- --------
Total current assets 46,545 46,258
-------- --------
Property and Equipment, at cost:
Oil and gas properties, on a full-cost basis 444,401 448,649
Refinery and pipeline 127,921 124,705
Furniture, fixtures and other equipment 5,839 5,820
-------- --------
578,161 579,174
Less - Accumulated depreciation, depletion
and amortization 337,134 334,905
-------- --------
241,027 244,269
Other Assets 5,976 6,284
-------- --------
$293,548 $296,811
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 27,593 $ 30,514
Oil and gas proceeds payable 3,894 4,095
Accrued interest 3,239 5,681
Current maturities of long-term debt 1,000 0
Accrued turnaround cost 3,478 3,741
Accrued liabilities and other 3,564 4,132
-------- --------
Total current liabilities 42,768 48,163
-------- --------
Long-Term Debt, net of current maturities:
Revolving credit facilities 23,000 18,700
12% Senior Notes 100,000 100,000
7 3/4% Convertible Subordinated Debentures 46,000 46,000
10 3/4% Subordinated Debentures 12,221 12,200
-------- --------
181,221 176,900
-------- --------
Deferred Revenue and Other 2,787 3,410
Deferred Income Taxes 2,328 2,298
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $100 par value,
500,000 shares authorized, no shares issued 0 0
Common stock, no par, 50,000,000 shares authorized,
27,297,452 shares and 27,122,177 shares issued
in 1994 and 1993, respectively 57,171 57,153
Paid-in capital 81,714 80,855
Retained earnings (deficit) (64,822) (66,297)
Commitments to issue common stock, 175,275 shares 0 883
Cumulative translation adjustment (9,322) (6,233)
Treasury stock, 60,000 shares (270) (270)
Deferred employee compensation (27) (51)
-------- --------
Total Shareholders' Equity 64,444 66,040
$293,548 $296,811
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
WAINOCO OIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
For the three months ended March 31, 1994 1993
- ------------------------------------ -------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,475 $ (3,895)
Depreciation, depletion and amortization 5,958 5,866
Deferred revenue and other (281) 357
-------- --------
7,152 2,328
Change in working capital from operations (6,317) 546
-------- --------
Net cash provided by operating activities 835 2,874
INVESTING ACTIVITIES
Additions to property and equipment (7,910) (10,371)
Sales of oil and gas properties 803 801
Net cash distributed as operator of properties (1,049) (473)
-------- --------
Net cash used in investing activities (8,156) (10,043)
FINANCING ACTIVITIES
Long-term bank borrowings 8,300 8,400
Payments of long-term bank debt (3,000) (700)
Other 268 1
-------- --------
Net cash provided by financing activities 5,568 7,701
Effect of exchange rate changes on cash 17 67
-------- --------
Increase (decrease) in Cash and Cash Equivalents (1,736) 599
Cash and Cash Equivalents, beginning of period 3,770 3,710
-------- --------
Cash and Cash Equivalents, end of period $ 2,034 $ 4,309
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
WAINOCO OIL CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
March 31, 1994
(Unaudited)
1. Financial statement presentation and earnings per share
Financial statement presentation
The condensed consolidated financial statements include the accounts of
Wainoco Oil Corporation, a Wyoming Corporation, and its wholly owned
subsidiaries, including Wainoco Oil & Gas Company and Frontier Holdings Inc.
("Frontier" or the "Refinery"), collectively referred to as Wainoco or the
Company. These financial statements have been prepared by the registrant
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and include all adjustments (comprised of only
normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although Wainoco believes that the
disclosures are adequate to make the information presented not misleading.
It is suggested that the financial statements included herein be read in
conjunction with the financial statements and the notes thereto included in
Wainoco's annual report on Form 10-K for the year ended December 31, 1993.
Nonrecurring transactions
During the first quarter of 1993, the Company received payments of
insurance proceeds, as reimbursement for losses incurred, resulting in
nonrecurring income of $1.0 million, which has been classified as other
income in the consolidated statement of operations.
Earnings per share
Primary and fully diluted earnings per share have been computed on the
weighted average number of common shares outstanding and assume the exercise
of stock option shares for the three months ended March 31, 1994. The effect
of dilution for the fully diluted computation was immaterial. No effect was
given for the addition of dilutive stock options for the three months ended
March 31, 1993 as a loss was incurred. The primary and fully diluted average
shares outstanding for the three months ended March 31, 1994 and 1993 were
27,330,353 and 22,062,177, respectively.
2. Schedule of major components of inventory
<TABLE>
<CAPTION>
March 31, December 31,
--------- -----------
1994 1993
---- ----
<S> <C> <C>
Crude oil $ 3,951 $ 2,803
Unfinished products 5,533 4,487
Finished products 8,779 7,435
Chemicals and in-transit inventory 1,439 1,589
Repairs and maintenance supplies and other 4,730 4,772
-------- --------
$ 24,432 $ 21,086
======== ========
</TABLE>
3. Accounting policy for oil and gas properties
Wainoco follows the accounting policy (commonly referred to as "full-
cost" accounting) of capitalizing costs incurred in the acquisition,
exploration and development of oil and gas reserves. No gains or losses are
recognized upon the sale or disposition of oil and gas properties, except for
significant transactions.
Wainoco computes the provision for depreciation, depletion and
amortization of oil and gas properties, by country, on a quarterly basis
using the composite unit-of-production method based on future gross revenue
attributable to proved reserves.
4. Securities offering
In July, 1993, the Company sold five million shares of common stock
through a public offering. The net proceeds of $20.8 million were used to
pay down borrowings under its revolving credit facilities and to retire $5
million principal amount of its 10 3/4% Subordinated Debentures which were
applied to its 1993 and 1994 sinking fund requirements.
5. Canadian drilling program
In July 1993, the Company's Canadian oil and gas division entered into a
drilling program with a third party and received $883,000 in exchange for a
commitment to issue 175,275 shares of its common stock and distribute
Canadian tax deductions attributable to certain of the Company's exploration
and development activities in Canada. The shares were issued March 8, 1994.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 1994 compared with the same period in 1993
The Company had net income for the three months ended March 31, 1994 of
$1,475,000, or $.05 per share, compared to a net loss of $3,895,000, or $.18
per share, for the same period in 1993.
Revenues decreased 14% as compared to the same period in 1993, primarily
the result of refined products revenues decreasing 14%. The decrease in
refined product revenues results from the 13% decrease in average product
sales prices, primarily reflecting a decrease in the price of crude oil.
Oil and gas revenues decreased 5% as a result of decreased oil prices in
the United States and decreased natural gas production in the United States
and Canada. Natural gas production declined 13% and oil production decreased
a modest 3% in 1994 in part as a result of compressor repairs at two large
fields in Canada and reduced drilling in 1992 and 1993 due to the large
capital requirements of the refinery. The price of oil was $5.03/bbl, or
30%, lower in the 1994 three-month period as compared to the same period in
1993. However, these decreases were offset by increases in the average price
for natural gas in Canada of 33% and in the United States of 11%. The
average price for natural gas in Canada in Canadian dollars actually rose
42%, to C$1.93/mcf from C$1.36/mcf, but the Canadian/United States dollar
exchange rate fell from last year's first quarter average of .7934 to .7455,
resulting in the smaller 33% price increase in United States dollars.
Refining operating costs decreased 24% in 1994 due to declines in crude
oil prices (material costs) as operating expenses excluding depreciation were
higher primarily the result of a 4% increase in product yields and costs
related to increased asphalt sales.
Oil and gas operating costs increased 5% in 1994 primarily as a result
of higher workover costs, pipeline repairs and facility overhaul costs.
The Refinery had good operations on a comparative basis as yields
increased 4% and operating margins increased $1.97/bbl in the quarter ended
March 31, 1994 as compared to the same period in 1993. Crack spreads for
unleaded gasoline and diesel were significantly wider than in the 1994
period.
Depreciation, depletion and amortization increased 2% in the 1994 three-
month period as compared to the same period in 1993. Refining DD&A increased
32% in the three-month period ended March 31, 1994 as a result of the
Refinery capital plant improvement program completed in late 1993. Oil and
gas operations DD&A decreased 5% primarily the result of lower oil and gas
sales. As a percentage of oil and gas sales, the DD&A rate remained at 44%
in the 1994 three-month period.
OPERATING EARNINGS BY SEGMENT
The following (in thousands) presents the operating income (loss) by
operating segment, by country for the three months ended March 31, 1994 and
1993. Operating income (loss) is income (loss) before net interest expense
and provision for income taxes and does not include unallocated net corporate
expense of $661,000 and $704,000 in the three months ended March 31, 1994 and
1993, respectively.
<TABLE>
<CAPTION>
Oil and Gas
Exploration and Production
----------------------------
United
Refining States Canada Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Three Months Ended March 31,
1994 - Operating margin $ 8,779 $ 1,633 $ 4,897 $ 6,530
Selling and general expenses 1,128 593 605 1,198
Depreciation, depletion
and amortization 1,835 1,653 2,470 4,123
-------- -------- -------- --------
Operating income (loss) $ 5,816 $ (613) $ 1,822 $ 1,209
======== ======== ======== ========
1993 - Operating margin $ 3,083 $ 2,577 $ 4,356 $ 6,933
Selling and general expenses 1,213 528 592 1,120
Depreciation, depletion
and amortization 1,388 1,946 2,395 4,341
-------- -------- -------- --------
Operating income $ 482 $ 103 $ 1,369 $ 1,472
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
REFINING OPERATING STATISTICAL INFORMATION
Three Months Ended
March 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
Raw material input (bpd)
Sweet crude 6,885 7,131
Sour crude 24,904 24,967
Other feed and blend stocks 4,653 3,103
-------- --------
Total 36,442 35,201
Manufactured product yields (bpd)
Gasoline 16,029 14,458
Distillates 12,860 12,268
Asphalt and other 6,210 7,116
-------- --------
Total 35,099 33,842
Total product sales (bpd)
Gasoline 18,573 18,256
Distillates 12,258 12,159
Asphalt and other 4,954 5,739
-------- --------
Total 35,785 36,154
Operating margin information (per sales bbl)
Average sales price $ 19.34 $ 22.25
Material costs
(under FIFO inventory accounting) 12.80 17.82
Product spread 6.54 4.43
Operating expenses excluding depreciation 3.87 3.87
Depreciation .55 .41
-------- --------
Operating margin $ 2.12 $ .15
Manufactured product margin
before depreciation (per bbl) $ 2.68 $ .59
Purchase product margin (per purchased product bbl) $ 0 $ (.77)
Sweet/sour spread (per bbl) $ 3.99 $ 4.76
Average sales price (per sales bbl)
Gasoline $ 21.72 $ 25.24
Distillates 20.90 24.03
Asphalts and other 6.56 8.98
</TABLE>
<TABLE>
<CAPTION>
OIL AND GAS EXPLORATION AND PRODUCTION STATISTICAL INFORMATION
Three Months Ended
March 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
Revenue (in thousands)
Net oil and condensate sales
Canada $ 624 $ 816
United States 2,151 3,214
-------- --------
2,775 4,030
-------- --------
Net gas sales
Canada 5,301 4,591
United States 1,322 1,271
-------- --------
6,623 5,862
-------- --------
$ 9,398 $ 9,892
======== ========
Production
Net oil and condensate (bbls)
Canada 60,000 58,000
United States 172,000 180,000
-------- --------
232,000 238,000
======== ========
Net gas (mmcf)
Canada 3,677 4,269
United States 607 650
-------- --------
4,284 4,919
======== ========
Price
Average oil and condensate sales (per bbl)
before deduction for production taxes
Canada $ 10.36 $ 14.14
United States 12.52 17.90
Weighted average 11.96 16.99
Average gas sales (per mcf) before
deduction for production taxes
Canada $ 1.44 $ 1.08
United States 2.18 1.96
Weighted average 1.55 1.19
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $835,000 and $2,874,000
for the three months ended March 31, 1994 and 1993, respectively. Cash from
financing activities in the three months ended March 31, 1994 and 1993 was
provided primarily by the Company's bank lines of credit of $5,300,000 and
$7,700,000 net of repayments of bank debt and production loans of $3,000,000
and $700,000, respectively.
In July 1993, the Company raised $21,346,000, before offering expenses
of approximately $500,000, from a 5,000,000 share equity offering which was
used to make long-term debt repayments against its bank lines of credit.
Subsequently, the Company reborrowed $5,000,000 to retire an equal principal
amount of its 10 3/4% Subordinated Debentures.
At March 31, 1994, the Company had $25,206,000 available under its oil
and gas lines of credit and $15,000,000 under the Frontier line of credit.
The estimated five-year maturities of long-term debt are $2,500,000 in 1995,
1996 and 1997 and $5,000,000 in 1998 assuming that the oil and gas reserved-
based credit facilities are extended. As of March 31, 1994, there is a
$1,000,000 current maturity on the United States credit facility. However,
the Company is finalizing a new United States credit agreement which it
anticipates to complete in the second quarter of 1994. The new revolving
loan would convert to a five-year term loan in 1995 with payments commencing
in December 1996.
Net cash used in investing activities was $8,156,000 and $10,043,000 for
the three months ended March 31, 1994 and 1993, respectively. Capital
expenditures of approximately $23,200,000 are currently budgeted for 1994, of
which $6,540,000 had been accrued as of March 31, 1994. The Company has been
engaged in a capital improvement program for the Refinery which commenced in
1992 and was completed in September 1993. This program, among other things,
enables the Company to produce new products required under the Clean Air Act
Amendments of 1990, increases the amount of sour crude processed, increases
the amount of low sulfur diesel produced and improves operating reliability.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings -
None, which in the opinion of management, would have a material
impact on the registrant.
ITEM 2. Changes in Securities -
There have been no changes in the constituent instruments defining
the rights of the holders of any class of registered securities during the
current quarter.
ITEM 3. Defaults Upon Senior Securities -
None.
ITEM 4. Submission of Matters to a Vote of Security Holders -
None.
ITEM 5. Other Information -
None.
ITEM 6. Exhibits and Reports on Form 8-K -
10.1 Engagement Contract between the Company and John B. Ashmun.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WAINOCO OIL CORPORATION
By: /s/ George E. Aldrich
---------------------------
George E. Aldrich
Vice President - Controller
Date: April 28, 1994
AGREEMENT
THIS AGREEMENT dated effective as of the 1 st day of April,
1992, by and between Wainoco Oil Corporation, a Wyoming
corporation (the "Company"), and John B. Ashmun ("Ashmun");
R E C I T A L S:
Ashmun has served as Chairman of the Board and Chief
Executive Officer of the Company for many years and will cease to
be Chief Executive Officer of the Company as of April 1, 1992.
The Company desires to retain the services of Ashmun for
five years following the date hereof to have access to his
knowledge of the Company's business and to permit the orderly
transition of management. Ashmun is willing to be engaged by the
Company pursuant to the terms of this Agreement set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein contained, Ashmun and the Company agree as
follows:
1. Engagement
The Company hereby engages Ashmun to serve the Company
as described in Section 3 hereof for the compensation and on the
terms hereinafter expressed, and Ashmun hereby agrees faithfully
and diligently to render said services and generally conduct
himself in a manner consistent with the interests of the Company,
all upon the terms and for the consideration hereinafter
provided. Ashmun shall not be an employee or officer of the
Company, however, it is intended that Ashmun will serve as the
Chairman of the Board of Directors at the will of the Company's
Board of Directors, so long as Ashmun is a duly elected director
of the Company during the Engagement Period (as defined in
Section 2 hereof).
2. Term
The term of Ashmun's engagement under this Agreement
shall be for the period beginning April 1, 1992 through and
including March 31, 1997 unless sooner terminated as herein
provided (the "Engagement Period").
3. Duties
During the Engagement Period, Ashmun agrees to render
to the Company such services of an advisory or consultative
nature as the Board of Directors may reasonably request so that
the Company may have the benefit of his experience and knowledge
of the affairs of, and his support for, the Company, and of his
reputation and contacts in the oil and gas industry. Relative to
his activities on the Company's behalf, Ashmun shall report to
the Chief Executive Officer. Any duties assigned to Ashmun shall
be duties appropriate to Ashmun's previous position with the
Company and to the position of the Chairman of the Board of
Directors. The Company agrees that Ashmun shall not be required
to relocate his residence from Houston, Texas, in connection with
the performance of his duties hereunder, provided that the
foregoing shall not prevent Ashmun from relocating his residence
at his own initiative. The Company agrees that, so long as this
Agreement is in effect, it will undertake to nominate Ashmun to
the Board of Directors and, if Ashmun is elected, to recommend to
the Board of Directors that said Board elect Ashmun to be
Chairman of the Board and to have the duties specified in Section
3.14 of the Company's Bylaws.
4. Compensation
The Company shall pay to Ashmun during the Engagement
Period annual compensation of $250,000, payable monthly on the
first day of each month, subject to any withholding or deductions
required under any change in law after the date hereof. During
the Engagement Period so long as Ashmun is a director of the
Company, Ashmun shall be paid all fees and other benefits made
available to non-employee directors of the Company.
5. Club and Organization Dues. Expenses
During the Engagement Period, the Company shall pay
dues for Ashmun's memberships in the Calgary Golf & Country Club,
the Bayou Club, The Brook, the Maidstone Club, Houston Country
Club, the Tejas Club and the Calgary Petroleum Club. During the
Engagement Period, the Company shall pay Ashmun's dues in the
All-American Wildcatters, the Texas Mid-Continent Oil & Gas
Association and the National Petroleum Council. The Company shall
pay all expenses incurred by Ashmun during the Engagement Period
in furtherance of the business of the Company, including travel
and business entertainment expenses, consistent with the
Company's policies as of the date hereof
6. Office
During the Engagement Period, the Company will provide
Ashmun with (i) office facilities commensurate with his duties
and position and (ii) such secretarial assistance as is necessary
in the performance of his duties under Section 3 hereof. The
Company agrees that all office furnishings currently in Ashmun's
office shall be and remain the property of Ashmun.
7. Stock Options
Ashmun shall remain eligible to participate in the
Company's stock option plans (the "Plans") on the same basis as
if he remained an employee of the Company during the Engagement
Period with the title of Chairman of the Board and the annual
compensation set forth in Section 4. All of the existing options
and restricted stock awards held by Ashmun will be amended to
provide that the arrangements under this Agreement do not
constitute the retirement of Ashmun for purposes of such options
and awards. If participants in the Plans are offered the
opportunity to amend their existing options in any way and if
officers of the Company would be eligible to amend their existing
options, Ashmun shall be offered the same opportunity. The
foregoing shall not limit Ashmun's right to receive any stock
options or stock awards that are made to directors of the Company
who are not employees of the Company.
8. Medical Plan, Pension
It is understood that Ashmun will apply for Medicare
coverage to be effective as soon as possible after April 1, 1992.
The Company will continue Ashmun's medical coverage under the
current plan until Medicare coverage is in place. After such time
the Company will reimburse Ashmun the cost of a Medicare
supplement plan as well as a Medicare Part B plan for him and his
wife. The Company will pay for any increased costs of the above
coverage during the Engagement Period.
Commencing April 1, 1992, Ashmun shall be eligible for
and shall receive annual benefits of $23,852 in accordance with
the Company's Retirement Benefit Restoration Plan.
9. Termination of Agreement
This Agreement shall terminate the first to occur of
(a) March 31, 1997 or (b) the death of Ashmun.
10. Conflicting Interests
(a) It is understood and acknowledged that Ashmun may
engage from time to time in the oil and gas exploration,
development and production business, including the acquisition,
operation and management of oil and gas properties.
Notwithstanding the foregoing, Ashmun agrees that, during the
term of this Agreement, prior to engaging in any such activities
he will first offer ("Offer") in writing each opportunity that he
has to acquire or participate in the ownership, operation or
management of any oil and gas properties or otherwise engage in
oil and gas activities to the Company on the same terms that such
opportunities are available to Ashmun. Any such Offer provided by
Ashmun to the Company shall set forth, as may be applicable in
the circumstances, the price or other consideration for the
transaction, the identity of the other party to the transaction,
the closing date for the transaction and such other information
respecting the transaction which Ashmun reasonably believes would
be material to the exercise of the Company's rights hereunder.
For greater certainty, Ashmun shall be under no obligation to
present opportunities to the Company in which Ashmun does not
intend to participate as an investor. Ashmun makes no
representation or warranty that the other parties to the
transaction will permit the Company to participate in the
transaction, whether on the same terms as Ashmun or otherwise.
(b) If, after receipt of an Offer:
(i) the Company elects to not accept such
opportunity for its corporate account in full or in part, then
Ashmun shall thereafter be free to acquire and exploit such
opportunity to its full extent, including any and all activities
that may thereafter arise that directly relate to the opportunity
all activities that may thereafter arise that directly relate to
the opportunity offered to and rejected by the Company, provided
that the acquisition of such opportunity by Ashmun is completed
within 120 days of receipt of the Offer by the Company and is not
on terms that are more favorable to Ashmun than those offered to
the Company. If Ashmun shall not acquire such opportunity within
120 days of receipt of the offer by the Company then the
provisions of this section shall again apply to the acquisition
of or participation in such opportunity by Ashmun;
(ii) the Company elects to participate in full
in such opportunity, then Ashmun shall take all reasonable
efforts (but Ashmun shall not be required to incur any
out-of-pocket expense in doing so) to assist the Company in
acquiring or participating in such opportunity and Ashmun shall
not otherwise acquire or participate, directly or indirectly, in
such opportunity without the prior written consent of the Company
which consent shall not be unreasonably withheld; and
(iii) the Company elects to participate in part
only in such opportunity, then Ashmun shall take all reasonable
efforts (but Ashmun shall not be required to incur any
out-of-pocket expense in doing so) to assist the Company in
acquiring or participating in such opportunity and Ashmun shall
be entitled to acquire or participate in such opportunity to the
extent to which the Company does not do so.
(c) The time period in which the Company may accept
or reject any Offer shall be not greater than 30 days from
receipt of the Offer, but may be such lesser time period as shall
be reasonable under the circumstances related to such opportunity
and as is specified in the Offer. Any notice by the Company
accepting or rejecting any such opportunity shall be effective if
executed on behalf of the Company by the President or any
Vice-President.
(d) Ashmun agrees that the rights associated with and
benefits of any opportunity acquired by him otherwise than in
compliance with the terms hereof shall be held by him in trust
for the benefit of the Company subject to the terms of this
Agreement and the Company shall have the right to participate in
such opportunity in full or in part upon payment to Ashmun of a
pro rata share of the consideration and related acquisition costs
and/or assumption of the liabilities and obligations directly
associated with such opportunity, as may be applicable in the
circumstances.
(e) Subject to applicable law, the Company shall not
by reason only of the relationship between the Company and Ashmun
created by this Agreement prohibit or disqualify Ashmun from
participating in the acquisition of any oil and gas properties
disposed of by the Company; provided that the Company shall be
under no obligation to notify Ashmun of any proposed disposition
or to accept any offer from Ashmun.
11. Indemnification
The Company has entered into a separate indemnification
agreement dated as of January 1, 1992 with Ashmun and nothing in
this Agreement shall affect the terms and provisions of such
indemnification agreement.
12. Assignment
This Agreement shall not be assignable by either party
without the consent of the other party. Any assignment of this
Agreement in violation of this Section 12 shall be null and void.
13. Waiver of Default
Any waiver by either party of a breach of any provision
of this Agreement by the other party shall not operate, or be
construed, as a waiver of any subsequent breach.
14. Governing Law
This Agreement shall be construed in accordance with
the laws of the State of Texas.
15. Jurisdiction
The parties hereto agree that in the event that any
legal suits, actions or proceedings arising out of this Agreement
are instituted by any party hereto, such suits, actions or
proceedings shall be instituted only in the state or federal
courts in the County of Harris in the State of Texas. The parties
hereto hereby consent to the jurisdiction of such courts and
waive any objection which they may now or hereafter have to the
venue of any such suits, actions or proceedings; provided,
however, that any party hereto shall have the right to institute
proceedings in another jurisdiction if the purpose of such
proceedings is to enforce or realize upon any final court
judgment arising out of this Agreement.
16. Construction of Agreement
The headings in this Agreement are inserted for
convenience of reference only and shall not be a part of, or
control or affect the meaning of, this Agreement. This Agreement
contains the entire agreement of the parties and no party shall
be liable or bound except as expressly provided herein. In the
event any one or more of the provisions contained in this
Agreement shall, for any reason, be judicially declared to be
invalid, illegal, unenforceable or void in any respect, such
declaration shall not have the effect of invalidating or voiding
the remainder of this Agreement, and the parties hereto agree
that the part or parts of this Agreement so held to be invalid,
illegal, unenforceable or void will be deemed to have been
stricken herefrom and the remainder will have the same force and
effectiveness as if such part had never been included herein.
17. Notice
All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given if
delivered personally or sent by certified mail, return receipt
requested, postage prepaid, or by telex or other telegraphic
means:
(a) If to the Company as follows:
Wainoco Oil Corporation
1200 Smith Street, Suite 1500
Houston, Texas 77002
Attention: James R. Gibbs, Chief Executive Officer
(b) If to Ashmun as follows:
John B. Ashmun
Wainoco Oil Corporation
1200 Smith Street, Suite 1500
Houston, Texas 77002
IN WITNESS WHEREOF, this Agreement has been executed as of
the date first above written.
WAINOCO OIL CORPORATION
By /s/ J. R. Gibbs
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/s/ John B. Ashmun
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