CASTLE ENERGY CORP, DEF 14A, 1995-05-11

CASTLE ENERGY CORP
DEF 14A, 1995-05-11
PETROLEUM REFINING

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CASTLE LOGO
ENERGY
CORPORATION

JOSEPH L. CASTLE II
Chairman and Chief Executive Officer

May 8, 1995

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of
Castle Energy Corporation (the "Company") to be held on Monday, June 5, 1995,
at 10:00 A.M., Eastern Time, at The Radnor Hotel, 591 Lancaster Avenue, St.
Davids, Pennsylvania.

At the Annual Meeting, you will be asked to consider and vote upon several
matters, including a proposal to approve a plan (the "Refinery Plan") for the
Company to sell its Indian and Powerine Refineries on such terms and
conditions as the Board of Directors may determine, subject to certain
minimum price conditions. THE ACCOMPANYING PROXY STATEMENT PROVIDES A SUMMARY
OF THE REFINERY PLAN. PLEASE GIVE THIS INFORMATION YOUR CAREFUL ATTENTION.

A Special Committee of the Board of Directors has carefully reviewed and
considered the Refinery Plan and has unanimously recommended the Refinery
Plan to the Board of Directors. BASED IN PART ON THE UNANIMOUS RECOMMENDATION
OF THE SPECIAL COMMITTEE, THE BOARD HAS UNANIMOUSLY AUTHORIZED AND APPROVED
THE REFINERY PLAN AND RECOMMENDS YOU VOTE FOR ITS APPROVAL. A copy of the
Refinery Plan is attached as an Exhibit to the accompanying Proxy Statement.
For a further discussion of these matters, see "Proposal to Approve the
Refinery Plan" in the Proxy Statement.

Approval of the Refinery Plan requires the affirmative vote of holders of
at least a majority of the outstanding shares of the Company's common stock.
ACCORDINGLY, YOUR VOTE IS IMPORTANT, NO MATTER HOW LARGE OR SMALL YOUR
HOLDINGS MAY BE.

WHETHER OR NOT YOU ARE PERSONALLY ABLE TO ATTEND THE ANNUAL MEETING,
PLEASE COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY AS SOON AS
POSSIBLE. This action will not limit your rights to vote in person if you
wish to attend the Annual Meeting.

Sincerely,

/s/ Joseph L. Castle II
-------------------------------

One Radnor Corporate Center-Suite 250, 100 Matsonford Road, Radnor, PA 19087
o 610-995-9400 o Fax: 610-995-0409

<PAGE>

CASTLE ENERGY CORPORATION
------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 5, 1995
------

May 8, 1995

TO THE STOCKHOLDERS:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Castle Energy Corporation, a Delaware corporation (the
"Company"), will be held at The Radnor Hotel, 591 Lancaster Avenue, St.
Davids, Pennsylvania, on Monday, June 5, 1995, at 10:00 A.M., Eastern Time,
for the following purposes:

1. To elect the nominees named in the Proxy Statement as Directors to
serve for the periods indicated or until their successors have been elected.

2. To consider and take action upon a proposal to approve the First
Amendment to the Company's 1992 Executive Equity Incentive Plan, in the form
adopted by the Board of Directors of the Company on November 17, 1994.

3. To consider and take action upon a proposal to approve a plan (the
"Refinery Plan") for the Company to sell its Refinery assets, including the
Company's Indian Refinery and related assets and the Company's Powerine
Refinery and related assets, in each case on such terms and conditions as the
Board of Directors of the Company may approve, subject to certain minimum
price conditions, all as described in more detail in the accompanying Proxy
Statement.

4. To consider and take action upon a proposal to appoint Price Waterhouse
LLP as the Company's independent accountants for the fiscal year ending
September 30, 1995.

5. To transact any other business as may properly come before the Annual
Meeting.

Stockholders of record at the close of business on April 28, 1995 will be
entitled to vote at the Annual Meeting.

The Company's Annual Report to Stockholders for the fiscal year ended
September 30, 1994 (consisting of the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994, as amended) and the Company's
Quarterly Report on Form 10-Q for the period ended December 31, 1994,
accompany the enclosed Proxy Statement.

A complete list of Stockholders entitled to vote at the Annual Meeting
will be kept at the office of the Company, One Radnor Corporate Center, Suite
250, 100 Matsonford Road, Radnor, Pennsylvania 19087, for examination by any
Stockholder, during ordinary business hours, for a period of not less than
ten days prior to the Annual Meeting.

By Order of the Board of Directors

Joseph L. Castle II
Chairman and Chief Executive Officer

IMPORTANT: PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN
THE SELF-ADDRESSED RETURN ENVELOPE FURNISHED FOR THAT PURPOSE AS PROMPTLY AS
POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. IF YOU LATER
DESIRE TO REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER
DESCRIBED IN THE ATTACHED PROXY STATEMENT.

<PAGE>
PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
JUNE 5, 1995

INTRODUCTION

The accompanying Proxy is solicited by the Board of Directors of Castle
Energy Corporation, a Delaware corporation (the "Company"), to be voted at
the Annual Meeting of Stockholders to be held on June 5, 1995 and any
adjournment or adjournments thereof (the "Annual Meeting"). When such Proxy
is properly executed and returned, the shares of the Company's Common Stock,
par value $.50 per share ("Common Stock"), it represents will be voted at the
Annual Meeting as directed. If no specification is indicated, the shares will
be voted "FOR" the election of the nominees to serve as Directors for the
terms designated; "FOR" the adoption of the First Amendment (the "Amendment")
to the Company's 1992 Executive Equity Incentive Plan (the "Incentive Plan");
"FOR" the approval of a plan for the Company to sell its Refinery assets, as
described below (the "Refinery Plan"); and "FOR" the appointment of Price
Waterhouse LLP as the Company's independent accountants for the fiscal year
ending September 30, 1995. Any Stockholder granting a Proxy has the power to
revoke it at any time prior to its exercise by notice of revocation to the
Company in writing, by voting in person at the Annual Meeting, or by
execution of a later dated Proxy; provided, however, that such action is
taken in sufficient time to permit the necessary examination and tabulation
of the subsequent Proxy or revocation before the vote is taken.

The Refinery Plan provides for the sale of the Company's Indian and
Powerine Refineries and related assets, in one or more transactions, on such
terms and conditions as the Board of Directors of the Company may approve,
subject to certain minimum price conditions described in this Proxy
Statement. Although the Company is currently engaged in certain discussions
with potential purchasers for the sale of one or both of the Refineries,
which may include the sale of the Indian Refinery and related assets to CORE
Refining Corporation ("CORE"), a corporation formed by William S. Sudhaus,
President, Chief Operating Officer, and a Director of the Company (a "CORE
Transaction"), the Company has not as of the date of this Proxy Statement
entered into any definitive agreements with respect to any such transaction.
The sale of the Indian Refinery and related assets, pursuant to a CORE
Transaction or otherwise, and the sale of the Powerine Refinery and related
assets, in each case pursuant to the Refinery Plan, are collectively referred
to as the "Refinery Transactions."

The shares entitled to vote at the Annual Meeting consist of shares of
Common Stock, with each holder of record as of the close of business on April
28, 1995 (the "Record Date") entitled to one vote for each such share held.
As of the Record Date there were 6,668,646 shares of Common Stock outstanding
and entitled to vote at the Annual Meeting. This Proxy Statement and
accompanying Proxy are being sent to Stockholders of the Company on or about
May 10, 1995.

The address of the Company's principal executive offices is One Radnor
Corporate Center, Suite 250, 100 Matsonford Road, Radnor, Pennsylvania 19087,
and the telephone number is (610) 995-9400.

Copies of the Company's Annual Report on Form 10-K for the year ended
September 30, 1994, as amended (the "Form 10-K"), and the Company's Quarterly
Report on Form 10-Q for the period ended December 31, 1994 (the "Form 10-Q")
accompany this Proxy Statement. See "Incorporation by Reference."

Information concerning CORE contained in this Proxy Statement has been
furnished to the Company by CORE.

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
--------
<S> <C>
INTRODUCTION ................................................................................ 1

SUMMARY ..................................................................................... 4
Time, Date, and Place of the Annual Meeting ................................................ 4
Purpose of the Annual Meeting .............................................................. 4
Record Date; Shares Entitled to Vote ....................................................... 4
Election of Directors ...................................................................... 4
Amendment to the Incentive Plan ............................................................ 5
The Refinery Plan - Assets To Be Sold and Minimum Purchase Price ........................... 5
Status of the Refinery Transactions ........................................................ 6
Background of the Refinery Plan ............................................................ 7
Recommendations of the Special Committee and the Board of Directors ........................ 9
Interests of Certain Persons in the Refinery Transactions; Conflicts of Interest ........... 10
Plans for the Company After the Refinery Transactions ...................................... 11
Risks That the Refinery Transactions Will Not be Consummated; Plans for the Company if the
Refinery Transactions Are Not Consummated ................................................ 11
Tax Matters ................................................................................ 11
Appraisal Rights ........................................................................... 11
Certain Considerations ..................................................................... 12
Vote Required .............................................................................. 12

PRINCIPAL HOLDERS OF VOTING SECURITIES ...................................................... 13

SECURITY OWNERSHIP OF MANAGEMENT ............................................................ 14

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES ............................................. 16

EXECUTIVE COMPENSATION ...................................................................... 18
Summary Compensation ..................................................................... 18
Option Grants in Last Fiscal Year ........................................................ 19
Option/SAR Exercises And Option/SAR Values ............................................... 19
Employment Agreements .................................................................... 19
1992 Executive Equity Incentive Plan ..................................................... 21
Retention Bonus Program .................................................................. 21
Pension Plans ............................................................................ 22
Section 16 Compliance .................................................................... 23
Compensation Committee Interlocks and Insider Participation .............................. 24
Board Compensation Committee Report on Executive Compensation ............................ 24
Performance Graph ........................................................................ 27

BOARD OF DIRECTORS AND BOARD COMMITTEES ..................................................... 28
1994 Board Meetings ...................................................................... 28
Board Committees ......................................................................... 28
Compensation of Directors ................................................................ 28

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .............................................. 29
MG AND ITS AFFILIATES .................................................................... 29
Indian Refinery Operations ............................................................ 29
Powerine Refinery Operations .......................................................... 31
Natural Gas Operations ................................................................ 32
Financing ............................................................................. 33
TRANSACTIONS WITH OTHER RELATED PARTIES .................................................. 36
Stockholder Loans ..................................................................... 36
Loan to Officer ....................................................................... 36
Terrapin Agreement .................................................................... 36

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Page
--------
PROPOSAL TO ELECT DIRECTORS ................................................................. 37

PROPOSAL TO APPROVE THE FIRST AMENDMENT TO THE COMPANY'S 1992 EXECUTIVE EQUITY INCENTIVE PLAN 38
The Amendment ............................................................................ 39
Reasons for Adopting the Amendment ....................................................... 39
New Incentive Plan Benefits .............................................................. 39
Other Terms of the 1992 Executive Equity Incentive Plan .................................. 40

PROPOSAL TO APPROVE THE REFINERY PLAN ....................................................... 42
TERMS OF THE REFINERY PLAN ............................................................... 42
STATUS OF THE REFINERY TRANSACTIONS ...................................................... 44
SPECIAL FACTORS .......................................................................... 45
The Refineries ........................................................................ 45
Background of the Refinery Plan ....................................................... 46
Recommendations of the Special Committee and the Board of Directors ................... 50
Interests of Certain Persons in the Refinery Transactions; Conflicts of Interest ...... 51
Plans for the Company After the Refinery Transactions ................................. 52
Risks That the Refinery Transactions Will Not be Consummated; Plans for the Company if
the Refinery Transactions Are Not Consummated ....................................... 53
Certain Tax and Accounting Matters .................................................... 53
Appraisal Rights ...................................................................... 54
CERTAIN CONSIDERATIONS ................................................................... 54
Status of Potential Refinery Transactions ............................................. 54
Minimum Price Condition ............................................................... 54
Uncertainty of Identity of Potential Purchasers ....................................... 55
Conflicts of Interest ................................................................. 55
Financing ............................................................................. 55
Shell Litigation ...................................................................... 55
MG Credit Facilities .................................................................. 55
Assumption of Liabilities by Purchasers and Contingent Payments ....................... 56
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF THE COMPANY .......................... 57
Balance Sheet Data .................................................................... 58
Statement of Operations Data .......................................................... 58
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY ............................... 59
Pro Forma Consolidated Balance Sheet as of December 31, 1994 .......................... 60
Pro Forma Consolidated Statement of Operations for Fiscal Quarter Ended December 31,
1994 ................................................................................ 62
Pro Forma Consolidated Statement of Operations for Year Ended September 30, 1994 ...... 64

PROPOSAL TO APPOINT INDEPENDENT ACCOUNTANTS ................................................. 66

OTHER MATTERS ............................................................................... 66

VOTE REQUIRED ............................................................................... 66

STOCKHOLDER PROPOSALS ....................................................................... 66

EXPENSES OF SOLICITATION .................................................................... 66

INCORPORATION BY REFERENCE .................................................................. 67

CASTLE ENERGY CORPORATION 1992 EXECUTIVE EQUITY
INCENTIVE PLAN, AS PROPOSED TO BE AMENDED ............................................... EXHIBIT A

THE REFINERY PLAN ........................................................................ EXHIBIT B

</TABLE>
3

<PAGE>
SUMMARY

The following is a summary of the more detailed information contained in
this Proxy Statement and the Exhibits hereto. STOCKHOLDERS ARE URGED TO READ
THIS PROXY STATEMENT, THE EXHIBITS, AND THE FORM 10-K AND 10-Q IN THEIR
ENTIRETY.

TIME, DATE, AND PLACE OF THE ANNUAL MEETING

The annual meeting (the "Annual Meeting") of Stockholders of Castle Energy
Corporation, a Delaware corporation (the "Company"), will be held on June 5,
1995 at 10:00 A.M., Eastern Time, at The Radnor Hotel, 591 Lancaster Avenue,
St. Davids, Pennsylvania.

PURPOSE OF THE ANNUAL MEETING

At the Annual Meeting, holders of shares of the Company's Common Stock,
par value $.50 per share ("Common Stock"), will be asked to consider and vote
upon (i) election of four Directors; (ii) the approval of the First Amendment
(the "Amendment") to the Company's 1992 Executive Equity Incentive Plan (the
"Incentive Plan"); (iii) a plan for the Company to sell its Refinery assets,
described below (the "Refinery Plan"); and (iv) the appointment of Price
Waterhouse LLP as the Company's independent accountants for the fiscal year
ending September 30, 1995.

The Refinery Plan provides for the sale of the Company's Indian and
Powerine Refineries and related assets, in one or more transactions, on such
terms and conditions as the Board of Directors of the Company may approve,
subject to certain minimum price conditions described in this Proxy
Statement. Although the Company is currently engaged in certain discussions
with potential purchasers for the sale of one or more of the Refineries,
which may include the sale of the Indian Refinery and related assets to CORE
Refining Corporation ("CORE"), a corporation formed by William S. Sudhaus,
President, Chief Operating Officer, and a Director of the Company (a "CORE
Transaction"), the Company has not as of the date of this Proxy Statement
entered into any definitive agreements with respect to any such transaction.
The sale of the Indian Refinery and related assets, pursuant to a CORE
Transaction or otherwise, and the sale of the Powerine Refinery and related
assets, in each case pursuant to the Refinery Plan, are collectively referred
to as the "Refinery Transactions."

The Board of Directors of the Company, based in part upon the unanimous
recommendation of a special committee of directors (the "Special Committee"),
has unanimously recommended that Stockholders vote FOR the approval of the
Refinery Plan. See "Proposal to Approve the Refinery Plan -- Special Factors
- -- Recommendations of the Special Committee and the Board of Directors."

RECORD DATE; SHARES ENTITLED TO VOTE

ELECTION OF DIRECTORS

At the Annual Meeting, Stockholders will be asked to elect four Directors
in two of the three classes of Directors. Among the nominees is William S.
Sudhaus, President, Chief Operating Officer, and a current Director of the
Company. Mr. Sudhaus is also the Chairman, President, and Chief Operating
Officer of CORE. Mr. Sudhaus has informed the Company that he will resign as
a Director and officer of the Company if a CORE Transaction is consummated.
See "Election of Directors." THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR
EACH OF THE NOMINEES TO SERVE IN THE CLASS INDICATED.

<PAGE>

AMENDMENT TO THE INCENTIVE PLAN

The Amendment amends the Incentive Plan to provide for limited annual
grants of options to purchase Common Stock to Directors of the Company who
are not employees of the Company or its subsidiaries. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" THE PROPOSAL TO ADOPT THE AMENDMENT. See "Executive
Compensation -- 1992 Executive Equity Incentive Plan" and "Proposal to
Approve the First Amendment to the Company's 1992 Executive Equity Incentive
Plan."

THE REFINERY PLAN - ASSETS TO BE SOLD AND MINIMUM PURCHASE PRICES

The Refinery Plan provides for the Company and its subsidiaries to sell
certain assets, including the Company's 86,000 barrel per day refinery
located in Lawrenceville, Illinois (the "Indian Refinery"), and the Company's
49,500 barrel per day refinery located in Santa Fe Springs, California (the
"Powerine Refinery" and, together with the Indian Refinery, the
"Refineries"). The Refinery Plan permits the Company to sell the Refineries
in one or more transactions, by sale of assets, sale of capital stock of or
partnership interests in subsidiaries of the Company which own the Refineries
or related assets, by mergers involving subsidiaries of the Company, or any
combination thereof or in such other manner as the Board of Directors of the
Company may approve. The Refinery Plan permits the sale of one of the
Refineries, regardless of whether any transaction for the sale of the other
Refinery has been entered into or consummated.

The Refinery Plan provides (the "Minimum Price Condition") that the value
of the consideration received by the Company (the "Consideration Paid") in
any Refinery Transaction must equal or exceed certain minimum levels (the
"Minimum Considerations"). The Minimum Considerations are $5 million plus, to
the extent sold in a Refinery Transaction, the market value of the working
capital, platinum and certain other assets (the market value of such assets
for either Refinery, to the extent sold in a Refinery Transaction, being
hereinafter referred to as the "Working Capital Market Value") for the Indian
Refinery and related assets and $10 million plus the Working Capital Market
Value for the Powerine Refinery and related assets.

The Consideration Paid may be cash, securities or other assets, assumption
of environmental or other liabilities (including environmental or other
liabilities of subsidiaries of the Company acquired by a purchaser, but
excluding liabilities included in working capital), or other consideration,
or any combination thereof. In addition, the Consideration Paid in any
Refinery Transaction will also include the amount of any severance or other
shutdown expenses (net of salvage cost recoveries) avoided as a result of
such Refinery Transaction. For example, if a purchaser were to propose to
acquire the stock of the subsidiary which owns the Powerine Refinery for $1
plus the Working Capital Market Value, the Consideration Paid (for purposes
of determining whether the Minimum Consideration has been received) in such
transaction would include the value of such subsidiary's liabilities (the
book value of which was approximately $27.9 million at December 31, 1994,
excluding working capital liabilities) and the net amount of shutdown
expenses avoided by such transaction (approximately $900,000 at December 31,
1994). Accordingly, if such a transaction had occurred on December 31, 1994,
the value of the Consideration Paid in such transaction would have been
approximately $28.8 million plus the Working Capital Market Value, which
would have exceeded the Minimum Consideration for the Powerine Refinery by
approximately $18.8 million. Similarly, if a purchaser were to propose to
acquire the assets and assume all of the liabilities of the Indian Refinery
for $1 plus the Working Capital Market Value, the Consideration Paid (for
purposes of determining whether the Minimum Consideration has been received)
in such transaction would include the value of such liabilities (the book
value of which was approximately $3.0 million at December 31, 1994, excluding
working capital liabilities) and the net amount of shutdown expenses avoided
by such transaction (approximately $18.7 million at December 31, 1994).
Accordingly, if such a transaction had occurred on December 31, 1994, the
value of the Consideration Paid in such transaction would have been
approximately $21.7 million plus the Working Capital Market Value, which
would have exceeded the Minimum Consideration for the Indian Refinery by
approximately $16.7 million. The excess of the liabilities and estimated net
5
<PAGE>
shutdown costs of each Refinery over the respective Minimum Consideration ($18.8
million for the Powerine Refinery and $16.7 million for the Indian Refinery) is
shown on the pro forma financial statements included in this Proxy Statement as
the "maximum stipulated reduction." See "Pro Forma Consolidated Financial
Statements of the Company."

Except for the determination of the Working Capital Market Value, the
Minimum Considerations will not be apportioned among portions of the assets
of either Refinery. If a purchaser offers to purchase only certain assets of
a Refinery, the Consideration Paid must equal or exceed the Minimum
Consideration with respect to such Refinery for such Transaction to be
considered authorized by the Refinery Plan (unless one or more additional
transactions are also consummated at or prior to such time for total
Consideration Paid at least equal to such Minimum Consideration).

At December 31, 1994, the estimated maximum Working Capital Market Value
of the Indian Refinery of approximately $37.9 million exceeded the maximum
stipulated reduction of the Indian Refinery by approximately $21.2 million
and the maximum stipulated reduction of the Powerine Refinery exceeded the
estimated maximum Working Capital Market Value of the Powerine Refinery of
approximately $12.6 million by approximately $6.2 million. If, at the time of
a Refinery Transaction, the Working Capital Market Value for the Refinery or
Refineries involved in such Refinery Transaction were less than the maximum
stipulated reduction(s), and if the purchaser in such Refinery Transaction
directly or indirectly assumed all of the liabilities of such Refinery or
Refineries, the Company could make a net payment to such purchaser and still
satisfy the Minimum Price Condition. The Company anticipates that the maximum
Working Capital Market Values will continue to decrease as a result of the
negative cash flow being experienced by the Refineries. At March 31, 1995,
the maximum stipulated reduction of the Powerine Refinery exceeded the
estimated maximum Working Capital Market Value of the Powerine Refinery of
approximately $9.1 million by approximately $9.6 million. If, as of such
date, the purchaser of the Powerine Refinery directly or indirectly assumed
all of the liabilities of such Refinery, the Company could make a net payment
to such purchaser of $9.6 million and still satisfy the Minimum Price
Condition.

The value of any non-cash consideration, including assumption of
liabilities and avoidance of shutdown expenses, will be determined by the
Board of Directors. Accordingly, the Board of Directors will have
considerable discretion in determining whether a particular transaction
satisfies the Minimum Price Condition.

Whether or not the Refinery Plan is approved by Stockholders, the Board of
Directors will retain the authority to approve and consummate any sale of one
or both of the Refineries or all or part of their assets if such sale does
not constitute a sale of all or substantially all of the Company's assets
under Delaware law. Accordingly, if a proposed sale of all or any part of the
assets of one or both of the Refineries does not satisfy the Minimum Price
Condition, the Board of Directors may approve and consummate such transaction
if it believes such transaction is not a sale of all or substantially all of
the Company's assets. The Board of Directors will make such determination
based on the terms of any such proposed transaction and the facts and
circumstances pertaining at the time such determination is made.

See "Proposal to Approve the Refinery Plan -- Terms of the Refinery Plan."

STATUS OF THE REFINERY TRANSACTIONS

<PAGE>
Minimum Price Condition. The Company is currently negotiating definitive
agreements for such transaction and Ampton is seeking financing for the
purchase. Wickland Oil Company, which is not affiliated with the Company and
which Ampton anticipates will provide certain of such financing, has provided
certain interim financing for the Powerine Refinery. See "Proposal to Approve
the Refinery Plan -- Special Factors -- Background of the Refinery Plan -- MG
Credit Facilities." There can be no assurance that definitive agreements for
such purchase will be entered into or that any transaction with Ampton will be
consummated. The Company had agreed that if, prior to April 30, 1995, the
Company entered into an agreement to sell the Powerine Refinery to a party other
than Ampton and certain of its associates, the Company would pay a break-up fee
of $500,000. In addition, the Company had agreed that if it terminated
negotiations for such sale prior to April 30, 1995, and such fee was not
payable, the Company would reimburse Ampton for its out-of-pocket expenses. Both
of such provisions have expired without the Company incurring any liability. The
letter of intent also provides that, after execution of definitive agreements,
the Company will be permitted to accept higher offers, but will be obligated to
pay a fee of $1,000,000 if it does so.

In December 1994, the Company entered into an agreement to sell both
Refineries to CORE. Such agreement was terminated in February 1995.
Subsequently, CORE indicated interest in acquiring the Indian Refinery and
related assets for an amount equal to the adjusted working capital of the
Indian Refinery plus a royalty of up to $20 million based on deliveries of
Caroline condensate by Shell Canada Limited and one of its subsidiaries under
a long-term supply agreement (the "Shell Contract") (see "Certain
Considerations -- Shell Litigation") plus the assumption of all of the
environmental liabilities relating to the Indian Refinery and certain other
liabilities. CORE is currently exploring sources of financing for such a
transaction. Because CORE's payment for the adjusted working capital would be
expected to approximate the Working Capital Market Value, and the
Consideration Paid would include the amount of the environmental liabilities
of the Indian Refinery (the book value of which liabilities was approximately
$3.0 million at December 31, 1994) and the net shutdown costs avoided
(approximately $18.7 million at December 31, 1994), the Consideration Paid by
CORE would exceed the Minimum Consideration for the Indian Refinery even if
the royalty payments were valued at zero. Accordingly, a CORE Transaction on
substantially the foregoing terms would satisfy the Minimum Price Condition.
The Company has not entered into any agreements or letter of intent with CORE
for such a transaction.

The Company has to date received one other proposal to purchase the
equipment of the Indian Refinery for $16 million, the Powerine Refinery for
$27 million, or both Refineries for an aggregate of $44 million, and another
proposal to purchase the equipment of the Powerine Refinery for $21 million.
Both proposals require the Company to retain responsibility for substantially
all liabilities and would require the Company to pay for certain costs of
removing the equipment from the Refineries, including asbestos removal costs
in at least one of the proposals. The Company believes that such costs may be
substantial. The Company is continuing discussions with such offerors but has
not yet determined whether either offer is acceptable in whole or in part.
The expiration date of both offers has passed.

There can be no assurance that any transaction with either Ampton or CORE
will be consummated, on the terms described herein or at all. See "Proposal
to Approve the Refinery Plan -- Status of the Refinery Transactions" and "--
Special Factors -- Background of the Refinery Plan."

BACKGROUND OF THE REFINERY PLAN

The MG Settlement. From October 1990 to the present, the Company and its
subsidiaries have been party to a number of agreements and transactions with
Metallgesellschaft Corp. and certain of its subsidiaries ("MG"). These
transactions included (i) offtake agreements (the "Offtake Agreements")
pursuant to which MG agreed to purchase substantially all of the Refineries'
production at fixed formula prices and (ii) credit or loan agreements
pursuant to which MG provided working capital loans for the Refineries. In
addition, until October 14, 1994, MG was a principal stockholder of the
Company.

In December 1993, the Company was informed that MG and its parent
corporation, Metallgesellschaft AG ("MG AG"), had incurred substantial cash
expenditures and losses related in part to margin payments required by the New

<PAGE>
York Mercantile Exchange and various over-the-counter derivatives trading
counterparties as a result of a decline in oil prices. Thereafter, MG AG
announced a substantial consolidated net deficit (net loss) for fiscal 1993. As
a result, the Company became concerned that MG and its affiliates would be
unable to perform their obligations or might seek to avoid performance.
Accordingly, on August 31, 1994, the Company entered into two agreements with MG
and certain of its affiliates (the "MG Settlement"). On September 9, 1994, MG
transferred 3.6 million shares of Common Stock to the Company in exchange for
approximately $39.8 million of participations the Company held in debt
obligations of the Company and its affiliates to MG. On October 14, 1994, MG (a)
cancelled certain debt obligations owed to MG by the Company and its affiliates,
and assumed obligations of the Company's subsidiary Indian Refining Limited
Partnership under a $120 million senior facility, together totalling
approximately $322 million, (b) transferred back to the Company the remaining
969,000 shares of Common Stock held by MG and a $5.5 million debenture
convertible into 500,000 shares of Common Stock, (c) issued to the Company a $10
million note payable in three years (the "MG Note"), (d) terminated all of its
interests in the Company's natural gas operations and (e) agreed to supply all
crude oil necessary for the Company to meet its delivery obligations under a
forward sale contract with a third party entered into in September 1993. In
exchange for the foregoing, the Company's subsidiaries (i) amended the Offtake
Agreements to terminate effective February 1, 1995, (ii) amended their working
capital facilities to terminate on March 31, 1995, and (iii) transferred to MG
certain of the Company's participations in debt obligations of the Company and
its affiliates to MG. In connection with the MG Settlement, the Company and MG
also entered into a four- year natural gas swap agreement. See "Certain
Relationships and Related Transactions -- MG and Its Affiliates."

Certain Consequences of the MG Settlement. The completion of the
transactions contemplated by the MG Settlement has, among others, three
consequences for the Company. First, effective February 1, 1995, the Offtake
Agreements terminated and the Company's sale of refined products are now
subject to market risks. Second, effective March 31, 1995, the working
capital facilities provided by MG terminated, which requires the Company to
raise other financing for its Refinery operations. (See "Proposal to Approve
the Refinery Plan -- Special Factors -- Background of the Refinery Plan -- MG
Credit Facilities.") Third, for Federal and state income tax purposes, the
Company recognized income of $391 million, on which, after giving effect to
applicable net operating loss and depletion carryovers and other items of
expense and deduction, Federal and state income taxes of approximately $91
million would have been owing as of September 30, 1994 unless the Company
sells or abandons its Refinery assets. See "Proposal to Approve the Refinery
Plan -- Special Factors -- Background of the Refinery Plan" and "-- Certain
Tax and Accounting Matters."

The Company considered a number of alternatives for dealing with these
consequences, ranging from continuing the refining operations on
substantially the same basis as prior to the MG Settlement to selling or
closing the Refineries. For a number of reasons, the Company early on
determined to focus its efforts on seeking to sell the Refinery operations.
However, if either Refinery is not sold, the Company anticipates that it will
close such Refinery or curtail its operations until it is sold. See "Proposal
to Approve the Refinery Plan -- Special Factors -- Background of the Refinery
Plan."

The SIPAC Agreement. In July 1994, William S. Sudhaus, President, Chief
Operating Officer, and a Director of the Company, began discussions with
members of the Board of Directors regarding the possibility of Mr. Sudhaus
and certain other members of management of the Company forming a group to
acquire the Refinery operations. It was initially contemplated in such
discussions that Mr. Sudhaus's group would purchase both Refinery operations
for a fixed amount of approximately $40 million plus a cash payment for
working capital, with the fixed amount payable partly by a convertible note
of the buyer and partly in cash. In later discussions, it was contemplated
that, to increase the Company's potential equity interest if the buyer were
to be successful in operating the Refineries, the entire fixed amount (which
the parties ultimately agreed would be $38.75 million) would be payable by a
convertible note. In addition, Mr. Sudhaus agreed that the buyer would assume
certain liabilities of the Company and agreed to certain adjustments proposed
by the Company to the manner of determining the working capital payment.

<PAGE>
On October 20, 1994, the Board of Directors formed the Special Committee
to consider Mr. Sudhaus's proposal. The Special Committee consists of Joseph
L. Castle, Chairman of the Board of the Company, John W. Sullivan and Sheldon
M. Bonovitz. Except for Mr. Castle, none of the members of the Special
Committee is affiliated with the Company or any of its affiliates (other than
in his capacity as a Director). Mr. Bonovitz is a partner with the law firm
of Duane, Morris & Heckscher, which provides legal services to the Company.
(See "Executive Compensation -- Compensation Committee Interlocks and Insider
Participation.") None of the members of the Special Committee is affiliated
with or anticipates having any interest in CORE or any of its affiliates.

The Board authorized and directed the Special Committee to review Mr.
Sudhaus's proposal, negotiate with Mr. Sudhaus the terms of a proposed
transaction, and make a recommendation to the Board with respect to such
proposal. The Board also authorized the Special Committee to consider and
seek alternative transactions, including to seek alternative buyers for the
Refinery operations.

Following several meetings and negotiations with Mr. Sudhaus, the Special
Committee unanimously determined to recommend that the Board of Directors
approve a stock and asset purchase agreement pursuant to which CORE (then
known as SIPAC Inc.) proposed to acquire both Refineries (the "SIPAC
Agreement"). Subsequently, the Board of Directors (with Mr. Sudhaus
abstaining) unanimously approved the SIPAC Agreement and, on December 5,
1994, the parties executed the SIPAC Agreement and issued a press release
announcing the SIPAC Agreement.

Adoption of the Refinery Plan. In view of the termination of the SIPAC
Agreement, the Company was forced to deal quickly with the termination of the
Offtake Agreements and the working capital facility provided by MG.
Accordingly, the Company announced that it had determined to terminate the
SIPAC Agreement and to shut down the Powerine Refinery if not sold. The
Company also announced that it was negotiating with CORE for the sale of the
Indian Refinery, but would consider shutting down the Indian Refinery as well
if no agreement were reached. The Company has subsequently determined to shut
down the Indian Refinery if it is not sold.

The Company continued to believe that a sale of the Refineries was in the
best interests of the Company and its Stockholders. However, although the
Company was discussing a sale of the Indian Refinery with CORE and was
discussing the sale of the Powerine Refinery with several parties, the
Company was concerned that it would need to be able to consummate quickly any
sale which might be negotiated. Accordingly, the Company determined to seek
Stockholder approval for a plan to sell the Refinery assets, subject to
certain minimum price conditions. On April 24, 1995, following unanimous
approval by the Special Committee, the Board of Directors unanimously (with
Mr. Sudhaus abstaining) approved the Refinery Plan.

See "Proposal to Approve the Refinery Plan -- Special Factors --
Background of the Refinery Plan."

RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS

The Board of Directors of the Company, based in part on the unanimous
favorable recommendation of the Special Committee, has unanimously (with Mr.
Sudhaus abstaining) approved the Refinery Plan. In recommending the Refinery
Plan, the Special Committee and the Board of Directors considered a number of
factors, including without limitation that (i) as a result of the MG
Settlement, the Offtake Agreements and the working capital facility provided
by MG have terminated, and the Company has recognized income on which, absent
other offsets, it will owe taxes of approximately $91 million; (ii) to
address these consequences, the Company, the Special Committee, and its
financial advisor Lazard Freres & Co. LLC have explored alternative
transactions, both prior to and after the execution of the SIPAC Agreement,
and no type of transaction addressed these consequences as well as the
negotiated sale of the Refinery operations as a going concern; (iii) the Company

<PAGE>
has contacted in excess of 40 potential buyers but none have entered into an
agreement to purchase either Refinery; (iv) as a result of the foregoing, the
Company has determined to shut down the Refineries if not sold, but the Company
believes a negotiated sale for the Minimum Considerations would be more
advantageous than abandoning the Refineries and selling their assets for scrap
value; (v) based on the Directors' knowledge of the assets, businesses,
financial condition, results of operations, cash flow and prospects of the
Refineries, and the results of the Company's efforts to date to sell the
Refineries, the Board believes that the Minimum Considerations represent fair
prices for the respective assets; and (vi) the Company believes that a prolonged
period following the shutdown of either Refinery may significantly adversely
affect the consideration which may be realizable upon a sale and that adoption
of the Refinery Plan may enable the Company to complete promptly any Refinery
Transaction which the Company may enter into. See "Proposal to Approve the
Refinery Plan -- Special Factors -- Recommendations of the Special Committee and
the Board of Directors."

INTERESTS OF CERTAIN PERSONS IN THE REFINERY TRANSACTIONS; CONFLICTS OF
INTEREST

Stockholders should be aware that certain members of the Company's
management and Board of Directors may have interests which present them with
actual or potential conflicts of interest in connection with potential
Refinery Transactions, including the following:

Equity Participation. William S. Sudhaus, President, Chief Operating
Officer, and a Director of the Company, is the Chairman, President, and Chief
Executive Officer of CORE. If any CORE Transaction is consummated, CORE
anticipates that Mr. Sudhaus will hold a portion of the equity of CORE. In
addition, CORE has informed the Company that it anticipates that, if any CORE
Transaction is consummated, it will invite several other officers of the
Company and its subsidiaries to join CORE. Certain of such persons may also
acquire a portion of CORE's equity (yet to be determined). Although it cannot
be predicted whether members of management will obtain equity in any
potential purchaser other than CORE, it is likely that any potential
purchaser would offer an opportunity to acquire such an interest to certain
members of management of a Refinery being acquired.

Employment Arrangements. CORE has informed the Company that, if any CORE
Transaction is consummated, it is anticipated that Mr. Sudhaus and certain
other members of management of the Indian Refinery will enter into employment
agreements with CORE and will agree to the termination of their employment
agreements with the Company. The terms of such employment with CORE have not
yet been determined. Mr. Sudhaus has also informed the Company that, if he is
elected as a Director, he will resign as a Director if any CORE Transaction
is consummated. Although it cannot be predicted whether members of management
will join any potential purchaser other than CORE, it is likely that any
potential purchaser would offer employment to certain members of management
of a Refinery being acquired.

Stockholder Loans. If the Indian Refinery is sold, loans made to the
Company by John W. Sullivan (a Director of the Company) and UI Banque (a
former executive director of which was at the time of the loan a Director of
the Company) in the amounts of $250,000 and $2.5 million, respectively, will
be repaid. See "Executive Compensation -- Compensation Committee Interlocks
and Insider Participation."

Other. Sheldon M. Bonovitz, a Director of the Company and a member of the
Special Committee, is a partner of the law firm of Duane, Morris & Heckscher,
which has acted as counsel to the Company on certain matters and is acting as
counsel to the Special Committee in connection with the Refinery
Transactions. If a CORE Transaction is consummated, Craig R. Culbertson,
General Counsel and Secretary of the Company, and a partner in the law firm
of Jenner & Block, which regularly acts as counsel to the Company, is
expected to join CORE and may receive equity in CORE. Jenner & Block also has
represented CORE in connection with its financing and other matters (not
including the negotiation with the Company of the SIPAC Agreement or a CORE
Transaction) and may represent CORE in connection with various matters if a
CORE Transaction is entered into or consummated.

See "Proposal to Approve the Refinery Plan -- Interests of Certain Persons
in the Refinery Transactions; Conflicts of Interest."

<PAGE>

PLANS FOR THE COMPANY AFTER THE REFINERY TRANSACTIONS

If the Refineries are sold or shut down, as currently planned, the Company
will have ceased its operations in the refining segment, and its continuing
operations would be confined to the natural gas marketing and exploration and
production segments. Commencing in the summer of 1994, the prices received by
producers of natural gas, including the Company, declined significantly.
Although such lower gas prices, if they continue, would adversely affect the
revenues of the Company's exploration and production segment, such lower gas
prices would also significantly decrease the cost of natural gas for the
Company's natural gas marketing segment.

If any Refinery Transaction is consummated, and depending upon the nature
and amount of the consideration received, the Company will consider expanding
both its current gas marketing and exploration and production operations
through new drilling and acquisitions, repayment or refinancing of the
existing long-term debt of its natural gas marketing subsidiaries and a
repurchase of its own shares if market conditions justify such repurchase.

The Company currently plans to hold the MG Note. The Company may seek to
use the MG Note as collateral for borrowings or, if circumstances warrant,
sell or otherwise dispose of the MG Note.

See "Proposal to Approve the Refinery Plan -- Plans for the Company After
the Refinery Transactions."

RISKS THAT THE REFINERY TRANSACTIONS WILL NOT BE CONSUMMATED; PLANS FOR THE
COMPANY IF THE REFINERY TRANSACTIONS ARE NOT CONSUMMATED

There can be no assurance that the Company will enter into any agreement
or agreements to sell either or both Refineries. In addition, it can be
anticipated that any agreement which the Company does enter into may provide
a number of conditions to closing, including potentially the ability of the
purchaser to obtain financing, and there can be no assurance, if any
agreement is entered into, that the transactions contemplated thereby will be
consummated.

The Company has announced the shutdown of the Powerine Refinery, scheduled
for June 30, 1995. If prior to that date definitive agreements with Ampton or
another buyer are executed or the Company believes negotiations therefor have
sufficiently progressed, the Company may extend that date. The Company will
also shut down the Indian Refinery if CORE is unable to proceed with a CORE
Transaction and no other buyer is identified, although no date for such
shutdown has been set.

See "Proposal to Approve the Refinery Plan -- Special Factors --
Background of the Refinery Plan" and "-- Recommendations of the Special
Committee and the Board of Directors."

TAX MATTERS

As a result of the MG Settlement, the Company recognized taxable income of
$391 million. If the MG Settlement had occurred on September 30, 1994, after
giving effect to applicable net operating loss and depletion carryovers and
other items of expense and deduction, the Company would have owed as of that
date Federal and state income taxes on such gain of approximately $91
million. If a sale of the Refineries for the Minimum Considerations also had
occurred on September 30, 1994, the Company's income tax liability as of that
date would have been reduced to approximately $0.6 million and the Company
would have had a consolidated net operating loss for Federal income tax
purposes of approximately $16 million. If such sale had occurred as December
31, 1994, the Company's income tax liability as of that date would have been
approximately $1.1 million. See "Proposal to Approve the Refinery Plan --
Special Factors -- Certain Tax and Accounting Matters."

APPRAISAL RIGHTS

The holders of the Common Stock will have no dissenters' appraisal rights
or other dissenters' rights in connection with the approval of the Refinery
Plan.

<PAGE>
CERTAIN CONSIDERATIONS

Stockholders of the Company should carefully consider certain significant
risks associated with the Refinery Plan, including (i) the status of the
potential Refinery Transactions; (ii) that the Board of Directors will have
substantial discretion in determining whether the Minimum Price Condition is
satisfied; (iii) that stockholders will not have the opportunity to vote on
any specific Refinery Transaction or to review information concerning
potential purchasers; (iv) that certain members of the Company's current
management may obtain significant equity interests in or be offered
employment by potential purchasers and thus may have interests which may be
different from those of the Stockholders of the Company with respect to the
Refinery Transactions; (v) that CORE, Ampton, and other potential purchasers
may need to raise substantial financing to complete any Refinery Transaction
and to operate thereafter; (vi) that certain on-going litigation with respect
to the Shell Contract may adversely affect the Company's ability to sell the
Indian Refinery or the consideration which might be received on such a sale;
(vii) that the termination of the credit facilities provided by MG may
adversely affect the operations of or the ability of the Company to sell the
Refineries; and (viii) that, notwithstanding any assumption of liabilities by
a purchaser, if such purchaser is unable to satisfy such obligations, the
parties asserting such obligations may be entitled to proceed against the
Company in the same manner as if the transactions had not taken place, and
factors relevant to purchasers' ability to satisfy such obligations and to
pay any deferred or contingent portion of a purchase price. See "Proposal to
Approve the Refinery Plan -- Certain Considerations."

VOTE REQUIRED

The affirmative vote of the holders of at least a majority of the
outstanding shares of Common Stock is required to adopt the proposal to
approve the Refinery Plan.

<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES

The following table sets forth, as of April 28, 1995, the names of all
persons who were known by the Company to be the beneficial owners (as defined
in the rules of the Securities and Exchange Commission (the "Commission")) of
more than five percent of the shares of Common Stock of the Company:

<TABLE>
<CAPTION>
Amount and Nature of
Class of Beneficial Percent of
Stock Name and Address of Beneficial Owner Ownership(1) Class(1)
---------- --------------------------------------- --------------------- ------------
<S> <C> <C> <C>
Common ... Joseph L. Castle II and Sally W. Castle
One Radnor Corporate Center, Suite 250
100 Matsonford Road
Radnor, Pennsylvania 19087 539,883(2) 7.99%

Common ... FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109 1,121,450(3) 16.82%
</TABLE>

- ------
(1) Based on a total of 6,668,646 shares of Common Stock issued and
outstanding as of April 28, 1995. In calculating each respective holder's
percentage ownership and beneficial ownership in the table above, shares
of Common Stock which the holder has the right to acquire within 60 days
are included.

(2) Joseph L. Castle II and Sally W. Castle are husband and wife. As such,
each is deemed to beneficially own 539,883 shares of Common Stock.
Includes (a) 410,733 shares of Common Stock owned by Mr. Castle and
37,275 shares of Common Stock owned by Mrs. Castle; (b) 67,500 shares of
Common Stock issuable upon exercise of options which are exercisable
within 60 days by Mr. Castle at $6.00 per share; and (c) 24,375 shares of
Common Stock issuable upon exercise of options which are exercisable
within 60 days by Mr. Castle at $12.25 per share.

(3) Includes 1,121,450 shares of Common Stock beneficially owned by Fidelity
Management & Research Company as a result of its serving as investment
adviser to various investment companies registered under Section 8 of the
Investment Company Act of 1940 and as investment adviser to certain other
funds which are generally offered to limited groups of investors.

<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth, as of April 28, 1995, the shares of Common
Stock beneficially owned by each of the Company's Chief Executive Officer and
the Company's four other most highly compensated executive officers (the
"Named Executives"), by each Director and nominee for Director of the Company
and by the Directors, nominees and executive officers of the Company as a
group, with sole voting and investment power unless otherwise indicated:

<TABLE>
<CAPTION>
Amount and Nature
Class of of Beneficial Percent of
Stock Name of Beneficial Owner Ownership(1) Class(1)(2)
---------- ------------------------------------- ----------------- ------------
<S> <C> <C> <C>
Common Joseph L. Castle II 539,883(3) 7.99%
Common William S. Sudhaus 66,875(4)
Common John D.R. Wright, III 0
Common A.L. Gualtieri 25,000(5)
Common David M. Hermes 37,499(6)
Common John W. Sullivan 52,970(7)
Common Sheldon M. Bonovitz 40,121(8)
Common W. Arthur Benson 25,000(9)
Common Warren V. Musser 20,000(10)
Common Martin R. Hoffmann 0
Common Sidney F. Wentz 0
Common All Directors, Nominees and Executive

Officers as a group (15 persons) 840,523(11) 12.02%

</TABLE>
- ------
(1) Based on a total of 6,668,646 shares of Common Stock issued and
outstanding as of April 28, 1995. In calculating each respective
holder's percentage ownership and beneficial ownership in the table
above, shares of Common Stock which the holder has the right to acquire
within 60 days are included.

(2) Percentages of less than one percent are omitted.

(3) Includes (a) 410,733 shares of Common Stock owned by Mr. Castle and
37,275 shares of Common Stock owned by Mrs. Castle; (b) 67,500 shares of
Common Stock issuable upon exercise of options which are exercisable
within 60 days by Mr. Castle at $6.00 per share; and (c) 24,375 shares
of Common Stock issuable upon exercise of options which are exercisable
within 60 days by Mr. Castle at $12.25 per share.

(4) Includes (a) 42,500 shares of Common Stock issuable upon exercise of
options which are exercisable within 60 days by Mr. Sudhaus at $11.00
per share and (b) 24,375 shares of Common Stock issuable upon exercise
of options which are exercisable within 60 days by Mr. Sudhaus at $12.25
per share.

(5) Includes 25,000 shares of Common Stock issuable upon exercise of options
which are exercisable within 60 days by Mr. Gualtieri at $11.00 per
share.

(6) Includes (a) 12,499 shares of Common Stock issuable upon exercise of
options which are exercisable by Mr. Hermes at $12.25 per share and (b)
25,000 shares of Common Stock issuable upon exercise of options which
are exercisable within 60 days by Mr. Hermes at $11.00 per share.

(7) Includes (a) 2,158 shares of Common Stock owned by Mr. Sullivan; (b)
25,146 shares of Common Stock held by Mr. Sullivan as Trustee, under a
Trust Agreement dated March 25, 1991; (c) 4,000 shares of Common Stock
owned by the John W. and Susan R. Sullivan Foundation of which Mr.
Sullivan disclaims beneficial ownership although retaining voting and
investment power with respect to such shares of Common Stock; (d) 5,000
shares of Common Stock held by an Individual Retirement Account for the
benefit of Mr. Sullivan; (e) 5,000 shares of Common Stock issuable upon
exercise of options which are exercisable within 60 days by Mr. Sullivan

14
<PAGE>

at $8.50 per share; and (f) 11,666 shares of Common Stock issuable upon
exercise of options which are exercisable within 60 days by Mr. Sullivan
at $11.00 per share. Does not include 2,500 shares of Common Stock held by
Mr. Sullivan's wife as Trustee under a Trust Agreement dated March 25,
1991, of which Mr. Sullivan disclaims beneficial ownership, or 5,000
shares of Common Stock issuable upon exercise of options which will become
exercisable by Mr. Sullivan at $11.75 per share in the event the Company
adopts the Amendment to the Incentive Plan, as described herein. See
"Proposal to Approve the First Amendment to the Company's 1992 Executive
Equity Incentive Plan."

(8) Includes (a) 23,455 shares of Common Stock owned by Mr. Bonovitz; (b)
5,000 shares of Common Stock issuable upon exercise of options which are
exercisable within 60 days by Mr. Bonovitz at $8.50 per share; and (c)
11,666 shares of Common Stock issuable upon exercise of options which are
exercisable within 60 days by Mr. Bonovitz at $11.00 per share. Does not
include (a) 15,633 shares of Common Stock held by Mr. Bonovitz's wife,
Jill F. Bonovitz; (b) 7,266 shares of Common Stock owned by the Trust
under Will #1 Robert H. Fleisher, of which Mr. Bonovitz is one of four
trustees and shares voting power; (c) 4,821 shares of Common Stock held by
Mr. Bonovitz as Trustee, u/t/d 5/24/91, f/b/o Erik F. Bonovitz; (d) 4,821
shares of Common Stock held by Mr. Bonovitz as Trustee, u/t/d 11/14/89,
f/b/o Christopher F. Bonovitz, of which Mr. Bonovitz disclaims beneficial
ownership or (e) options to acquire 5,000 shares of Common Stock which
will become exercisable by Mr. Bonovitz at $11.75 per share in the event
the Company adopts the Amendment to the Incentive Plan, as described
herein. See "Proposal to Approve the First Amendment to the Company's 1992
Executive Equity Incentive Plan."

(9) Includes 25,000 shares of Common Stock issuable upon exercise of options
which are exercisable by Mr. Benson at $5.75 per share. Does not include
5,000 shares of Common Stock issuable upon exercise of options which will
become exercisable by Mr. Benson at $11.75 per share in the event the
Company adopts the Amendment to the Incentive Plan, as described herein.
See "Proposal to Approve the First Amendment to the Company's 1992
Executive Equity Incentive Plan."

(10) Includes (a) 10,000 shares of Common Stock owned by Mr. Musser; (b) 5,000
shares of Common Stock issuable upon exercise of options which are
exercisable within 60 days by Mr. Musser at $8.50 per share; and (c) 5,000
shares of Common Stock issuable upon exercise of options which are
exercisable within 60 days by Mr. Musser at $11.00 per share. Does not
include 5,000 shares of Common Stock issuable upon exercise of options
which will become exercisable by Mr. Musser at $11.75 per share in the
event the Company adopts the Amendment to the Incentive Plan, as described
herein. See "Proposal to Approve the First Amendment to the Company's 1992
Executive Equity Incentive Plan."

(11) Includes 322,706 shares of Common Stock issuable upon exercise of options
which are exercisable by such persons within 60 days.

<PAGE>
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The Directors, nominees for Director, executive officers and key employees
of the Company (including certain officers of Indian Refining & Marketing
Inc. ("IR&M"), a wholly-owned subsidiary of the Company and the sole general
partner of Indian Refining Limited Partnership ("IRLP"), a wholly-owned
subsidiary limited partnership of the Company; Powerine Oil Company
("Powerine"), a wholly-owned subsidiary of the Company; and IP Oil Co., a
wholly-owned subsidiary of the Company ("IPCO") and the sole general partner
of Indian Powerine Limited Partnership ("IPLP"), a wholly-owned subsidiary
limited partnership of the Company) who perform key policy-making functions
for the Company are as follows:

<TABLE>
<CAPTION>
Name Age Position
---------------------- ----- --------------------------------------------------------

<S> <C> <C>
Joseph L. Castle II ........ 62 Chairman of the Board and Chief Executive Officer of
the Company

William S. Sudhaus ......... 46 President and Chief Operating Officer and Director of
the Company; Chairman and Chief Executive Officer
of IR&M and IPCO

Richard E. Staedtler ....... 50 Senior Vice President and Chief Financial Officer
of the Company

Donald L. Marsh, Jr ........ 47 Senior Vice President, Development and Treasurer of
the Company

John D.R. Wright, III ...... 57 President and Chief Operating Officer of IR&M

A.L. Gualtieri ............. 51 Chairman, President and Chief Executive Officer of
Powerine

David M. Hermes ............ 39 Senior Vice President, Raw Material Supply of IR&M,
Powerine and IPCO

Chris A. Woods ............. 36 Vice President and Chief Accounting Officer of the
Company, IR&M, Powerine and IPCO
Chris J. Bloomer ........... 41 Senior Vice President - Canadian Operations of IR&M
W. Arthur Benson ........... 55 Director
Sheldon M. Bonovitz ........ 57 Director
Warren V. Musser ........... 67 Director
John W. Sullivan ........... 59 Director
Martin R. Hoffmann ......... 62 Nominee for Director
Sidney F. Wentz ............ 62 Nominee for Director
</TABLE>

For a description of the business experience of Joseph L. Castle II,
William S. Sudhaus, Sheldon M. Bonovitz, John W. Sullivan, Martin R. Hoffmann
and Sidney F. Wentz, see "Proposal to Elect Directors." See "Proposal to
Approve the Refinery Plan -- Special Factors -- Interests of Certain Persons
in the Refinery Transactions; Conflicts of Interest" with respect to
information concerning officers to whom CORE may offer employment if a CORE
Transaction is consummated.

Richard E. Staedtler has been Senior Vice President and Chief Financial
Officer of the Company since November 1994. Mr. Staedtler served as a
Director of the Company from 1986 through September 1992, and as Chief
Financial Officer of the Company from 1986 through June 1993, when he formed
Terrapin Resources Corp. ("Terrapin") to purchase Minden Energy Corporation,
then a wholly-owned subsidiary of the Company. Mr. Staedtler also serves as
President of Terrapin, which provides certain administrative services to the
Company. See "Certain Relationships and Related Transactions -- Transactions
With Other Related Parties."

Donald L. Marsh, Jr. has been Senior Vice President, Development of the
Company since November 1994, Senior Vice President and Chief Financial
Officer of IPCO since September 1993, and Treasurer of the Company since

<PAGE>

October 1993. Prior to serving as Senior Vice President, Development, Mr. Marsh
served as Senior Vice President, Finance of the Company. From 1986 until he
joined the Company in August 1993, Mr. Marsh had been an independent consultant
with Earned Interest Inc.

John D.R. Wright, III is the President and Chief Operating Officer of
IR&M, and formerly the President and Chief Operating Officer of Indian
Refining Management Company ("IRMC"). Prior to assuming his position with
IRMC, Mr. Wright founded and was for 11 years Chairman of Wright Killen &
Co., consultants to the downstream sector of the petroleum industry.

A.L. Gualtieri is the Chairman, President and Chief Executive Officer of
Powerine. Prior to February 1995, he was President and Chief Operating
Officer of Powerine, and was formerly its Vice President of Refining. Prior
to assuming employment with Powerine in September 1986, Mr. Gualtieri was
Vice President of West Coast Trading of Oxbow Resources Inc.

David M. Hermes is the Senior Vice President, Raw Material Supply of IR&M,
Powerine and IPCO. From 1983 until he assumed his positions with the Company
in February 1992, Mr. Hermes was Senior Crude Trading Representative of Fina
Oil and Chemical Company.

Chris A. Woods is the Vice President and Chief Accounting Officer of the
Company, IR&M, Powerine and IPCO. Prior to joining the Company in 1989, Mr.
Woods served as the Treasurer of Woods Oil Company, and as an accounting and
tax consultant for other regional oil and gas companies. From 1980 until
1982, Mr. Woods was a staff accountant for Marathon Oil Company.

Chris J. Bloomer has been Senior Vice President - Canadian Operations of
IR&M since December 1993. Prior to joining IR&M, Mr. Bloomer served as
Director - Liquids Business Centre of Shell Canada Limited, a major Canadian
integrated oil company, where he held various staff and senior management
positions since joining that company in 1977.

W. Arthur Benson has been a Director of the Company since September 1992.
Mr. Benson was employed by Metallgesellschaft Corp. ("MG") from November 1991
through February 1994, having served as President of MG's wholly-owned
subsidiary MG Refining & Marketing, Inc. ("MGRM"), Senior Vice President of
MG and Chairman of MG's wholly-owned subsidiary MG Natural Gas Corp. ("MGNG")
from November 1991 until December 1993. From December 1993 through February
1994, Mr. Benson was responsible for MGRM's physical marketing activities.
Mr. Benson was Senior Vice President of Louis Dreyfus Energy Corporation, a
world-wide energy company, from November 1988 through November 1991 and was
Vice President, Marketing of MGRM from September 1987 through November 1988.
Mr. Benson has elected not to stand for reelection as a Director at the
Annual Meeting.

Warren V. Musser has been a Director of the Company since December 1991.
Since 1968, Mr. Musser has been the Chairman and Chief Executive Officer of
Safeguard Scientifics, Inc. (formerly Safeguard Industries, Inc.). Since
December 1991, Mr. Musser has been the Chairman of Technology Leaders
Management, Inc. Mr. Musser is also a Director of CenterCore, Inc., CompuCom
Systems, Inc., Rabbit Software Corp., Cambridge Technology Partners, Inc.,
Coherent Communications Corp. and Tangram Enterprise Solutions, Inc. Mr.
Musser has elected not to stand for reelection as a Director at the Annual
Meeting.

<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION

The following table summarizes all compensation paid to the Named
Executives for the Company's last three completed fiscal years:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------ --------------
Securities
Underlying All Other
Awards Compen-
Fiscal Options/ sation(1)
Name and Principal Position Year Salary($) Bonus($) SARs(#) ($)
---------------------------- -------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Joseph L. Castle II ........ 1994 $416,667 $285,000 -- $ 6,000
Chairman of the Board, 1993 300,000 -- 32,500 9,000
Chief Executive Officer and 1992 333,328 -- 67,500 6,000
Director of the Company

William S. Sudhaus ......... 1994 $443,695 $292,311 75,000 $ 6,000
President, Chief Operating 1993 409,690 122,907 37,500 7,500
Officer and Director of the 1992 397,230 -- --
Company

John D.R. Wright, III ...... 1994 $273,114 $ 50,000 -- --
President and Chief 1993 260,250 50,000 87,500(2) --
Operating Officer of IR&M 1992 250,000 -- -- --

A. L. Gualtieri ............ 1994 $333,754 $ 53,202 50,000 $207,013(3)
President and Chief
Operating Officer of
Powerine

David M. Hermes ............ 1994 $181,042 $262,875 50,000 --
Senior Vice President, Raw 1993 196,875 37,500 16,666 --
Material Supply of IR&M, 1992 85,625 -- 20,000 --
Powerine and IPCO
</TABLE>

- ------
(1) Directors' fees, except for Mr. Gualtieri.

(2) Mr. Wright was granted 175,000 stock appreciation rights ("SARs")
pursuant to a Bonus Payment Rights Agreement dated October 1, 1991 among
Mr. Wright, IR&M and IRLP. Pursuant to an Amendment to Agreement dated as
of February 25, 1993, IR&M, IRLP and Mr. Wright agreed to reduce the
number of SARs then held by Mr. Wright from 175,000 to 87,500. In
addition, the terms of the SARs held by Mr. Wright were amended to
provide that (a) until the aggregate amount received by Mr. Wright upon
exercise of SARs equals $2 million, each SAR would be exercisable for the
sum of (i) the amount (the "Basic Value") by which the average closing
price of shares of Common Stock of the Company for the 20 trading days
prior to the date of exercise exceeds the base price of $8.00, plus (ii)
the Basic Value up to $11.42 (the "Incremental Value"); (b) thereafter
and until the aggregate Basic Value of the SARs to be exercised equals
the aggregate Incremental Value received by Mr. Wright described in (a)
above, Mr. Wright would not receive any amount upon the exercise of SARs;
and (c) thereafter, each SAR would be exercisable for the Basic Value.

(3) Amounts paid as consideration for termination of prior employment
contract.

<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table summarizes all options and SARs granted as
compensation to the Named Executives during the fiscal year ended September
30, 1994:

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------
Potential
Realizable
Value at
Percent Assumed
of Total Annual Rates
Number of Options/ of Stock Price
Securities SARS Appreciation
Underlying Granted to Exercise For Option
Options/ Employees or Base Term
SARs in Fiscal Price Expiration --------------------------
Name Granted (#) Year ($/Sh) Date 5% ($) 10% ($)
---------------------- ------------ ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph L. Castle II .. 0 -- -- -- -- --
William S. Sudhaus ... 75,000(1) 17.3% $11.00 1/12/04 $519,000 $1,314,838
John D.R. Wright, III 0 -- -- -- -- --
A. L. Gualtieri ...... 50,000(1) 11.5% $11.00 1/12/04 $346,000 $ 876,500
David M. Hermes ...... 50,000(1) 11.5% $11.00 1/12/04 $346,000 $ 876,500
</TABLE>

- ------
(1) Options granted vest 25% on July 12, 1994, 25% on January 12, 1995, 25%
on January 12, 1996 and 25% on January 12, 1997, unless sooner vested as
a result of a "Change in Control" of the Company, as defined in the
Company's 1992 Executive Equity Incentive Plan.

OPTION/SAR EXERCISES AND OPTION/SAR VALUES

No options or SARs were exercised by the Named Executives during the
fiscal year ended September 30, 1994. The following table shows the total
number of unexercised options and SARs held at September 30, 1994 by such
officers. The table also shows the values for unexercised "in-the money"
options and SARs which represent the positive spread between the exercise
price of such stock options or SARs and the fair market value of the shares
of Common Stock as of September 30, 1994 ($16.00 per share).

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES

<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options/SARs Options/SARs
at Fiscal Year-End at Fiscal Year-End
Shares Value (#) ($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
---------------------- ------------- ---------- ------------------ ------------------
<S> <C> <C> <C> <C>
Joseph L. Castle II .. 0 -- 83,750/16,250 $ 735,938/60,938
William S. Sudhaus ... 0 -- 37,500/75,000 $142,188/354,688
John D.R. Wright, III 0 -- 87,500/ -- $ 1,468,250/ --
A. L. Gualtieri ...... 0 -- 12,500/37,500 $ 62,500/187,500
David M. Hermes ...... 0 -- 40,833/45,833 $336,549/218,749
</TABLE>

Subsequent to September 30, 1994, Mr. Hermes exercised 20,000 SARs and
received upon such exercise $140,219.

EMPLOYMENT AGREEMENTS

Employment Agreements among the Company and certain of its subsidiaries
and the Named Executives are described below:

Effective January 1, 1994, Joseph L. Castle II entered into an Employment
Agreement with the Company pursuant to which Mr. Castle agreed to serve as
Chairman and Chief Executive Officer of the Company through December 31,
1995. This agreement provides for Mr. Castle to receive annual compensation
at the rate of $475,000 plus cost of living increases and discretionary
bonuses to be determined by the Compensation Committee of the Board of
Directors (the "Compensation Committee"). Mr. Castle's agreement also

<PAGE>
provides that he will be entitled to receive certain separation pay and benefits
in the event that the Company fails to renew the agreement or following a change
in control of the Company, as such event is described in the agreement and to
certain benefits upon his retirement from the Company. Mr. Castle has agreed to
waive any such payments which might result from the Refinery Transactions. Under
the agreement, a change in control includes any person becoming the beneficial
owner of more than 50% of the Company's voting stock or the sale of all or
substantially all of the assets of the Company. Upon retirement, subject to
certain conditions set forth in the agreement, Mr. Castle will be entitled to
receive, for life, 20% of his annual base salary, as defined in the agreement,
or one of three actuarially equivalent benefits.

Effective January 1, 1994, William S. Sudhaus entered into an Amended and
Restated Employment Agreement with the Company, IR&M, Powerine and IRLP, as
amended February 21 and 24, 1995, pursuant to which Mr. Sudhaus agreed to
serve as President and Chief Operating Officer of the Company and Chairman
and Chief Executive Officer of IR&M. This agreement provides for Mr. Sudhaus
to receive annual compensation at the rate of $450,000 plus cost of living
increases and bonuses based on the profitability of IRLP, Powerine and IPLP,
and discretionary bonuses to be determined by the Compensation Committee. The
agreement also provides that Mr. Sudhaus will be entitled to receive certain
separation pay and benefits following a change in control of the Company, as
such event is defined in the agreement. Under the agreement, a change in
control includes any person becoming the beneficial owner of more than 50% of
the Company's voting stock, any such person having nominated or designated
more than 50% of the Company's directors, or the sale of all or substantially
all of the assets of the Company.

On October 1, 1991, John D.R. Wright, III entered into an Employment
Agreement with IR&M and IRLP, as amended on February 25, 1993, pursuant to
which Mr. Wright agreed to serve as President and Chief Operating Officer of
IR&M through January 31, 1996. This agreement provides for Mr. Wright to
receive annual compensation at the rate of $250,000 plus cost of living
increases and bonuses based on achievement of certain targeted levels of
performance by the Indian Refinery and on the profitability of IRLP. Mr.
Wright's agreement also provides that he will be entitled to receive certain
separation pay and benefits following a change in control of IRLP, as such
event is described in the agreement. Under the agreement, a change in control
occurs if neither the Company nor MG owns at least 50% of the equity
interests in IRLP or if IRLP no longer owns at least 50.01% of the Indian
Refinery. In connection with Mr. Wright's agreement, Mr. Wright is also a
party to a Bonus Payment Rights Agreement, dated October 1, 1991, as amended
on February 25, 1993, with IR&M and IRLP pursuant to which Mr. Wright
received 87,500 SARs from IR&M. See Footnote 2 to the Summary Compensation
Table.

On April 1, 1994, A. L. Gualtieri entered into an Employment Agreement
with Powerine pursuant to which Mr. Gualtieri agreed to serve as President
and Chief Operating Officer of Powerine through December 31, 1995. This
agreement provides for Mr. Gualtieri to receive annual compensation at the
rate of $280,000 plus cost of living increases and discretionary bonuses
based on achievement of certain targeted levels of performance of Powerine as
determined by the Compensation Committee. Mr. Gualtieri's agreement also
provides that he will be entitled to receive certain separation pay and
benefits following a change in control of Powerine, as such event is
described in the agreement. Under the agreement, a change in control includes
any person becoming the beneficial owner of more than 50% of the Company's or
Powerine's voting stock or the sale of all or substantially all of the assets
of Powerine. Mr. Gualtieri was elected Chairman and Chief Executive Officer
of Powerine, in addition to President, in February 1995.

On February 14, 1992, David M. Hermes entered into an Employment Agreement
with IR&M, Powerine and IPCO, as amended on March 1, 1993, March 2, 1994 and
May 9, 1994, pursuant to which Mr. Hermes agreed to serve as Senior Vice
President, Raw Material Supply of IR&M, Powerine and IPCO through February
28, 1997. The agreement, which is guaranteed by the Company, provides for Mr.
Hermes to receive annual compensation at the rate of $200,000 plus cost of
living increases and discretionary bonuses based on achievement of certain
targeted levels of performance by IR&M. In addition, Mr. Hermes was advanced
$75,000 in 1992, which amount will either be applied against Mr. Hermes'
future compensation or be repaid if Mr. Hermes' employment is terminated
under certain circumstances prior to February 29, 1996. In connection with
Mr. Hermes' agreement, Mr. Hermes also entered into a Bonus Payment Rights
Agreement, dated February 12, 1992, pursuant to which Mr. Hermes received
20,000 SARs which were exercised on November 4, 1994.

<PAGE>
As noted above, pursuant to their employment agreements, the Named
Executives, including the Chairman of the Board and Chief Executive Officer,
are entitled to certain separation pay and benefits following termination of
employment (except for death, disability, willful misconduct or, except for
Mr. Castle, normal retirement) or (except for Mr. Hermes) a change in control
of the Company or certain of its subsidiaries, as such event is defined in
their respective employment agreements. Any Refinery Transaction may be a
change of control as defined in one or more of such agreements. The Company
currently anticipates that it will seek to receive, from each employee,
officer or Director of the Company or its affiliates who is or is anticipated
to become an officer, director or stockholder of any purchaser in any
Refinery Transaction, an agreement to waive and release any payments which
may be or become due to such individual as a result of the consummation of
such Refinery Transaction. There can be no assurance that such persons will
enter into such agreements.

1992 EXECUTIVE EQUITY INCENTIVE PLAN

The Company established the Incentive Plan to increase the ownership of
Common Stock of the Company by those non-union key employees (including
officers and Directors who are officers) and Directors who are not employees
of the Company or its subsidiaries ("Outside Directors") who contribute to
the continued growth, development and financial success of the Company and
its subsidiaries, and to attract and retain key employees and Directors and
reward them for the Company's profitable performance.

The Incentive Plan provides that an aggregate of 562,500 shares of Common
Stock will be available for awards in the form of stock options, including
incentive stock options and nonqualified stock options, generally at prices
at or in excess of market price on the date of grant. As of October 31, 1994,
options to purchase 503,332 shares of Common Stock were outstanding.

Unexercised options terminate one year after a grantee's termination of
employment by death or permanent disability, and 90 days after normal
retirement. If a grantee's employment is terminated for any reason other than
by death, retirement or permanent disability, any options of such grantee
exercisable as of the date of such termination must be exercised within three
months.

The Incentive Plan is administered by the Compensation Committee. During
the fiscal year ended September 30, 1994, the Compensation Committee awarded
options to purchase (a) 277,500 shares of Common Stock at $11.00 per share to
seven employees of the Company and its subsidiaries; (b) 25,000 shares of
Common Stock at $10.25 per share to two employees of the Company and its
subsidiaries; (c) 25,000 shares of Common Stock at $12.75 per share to one
employee of one of the Company's subsidiaries; and (d) 106,500 shares of
Common Stock at $14.25 per share to 34 employees of the Company and its
subsidiaries. Awards of stock options to the Named Executives made pursuant
to the Incentive Plan are reflected herein in the table entitled "Option/SAR
Grants in the Last Fiscal Year."

On May 11, 1993, the Board of Directors of the Company adopted, subject to
Stockholder approval, the Amendment to the Incentive Plan. The Amendment was
later revised and readopted by the Board of Directors on November 17, 1994.
Pursuant to the terms of the Amendment, if adopted by the Stockholders, each
Outside Director will automatically be granted an option to purchase 5,000
shares of Common Stock each calendar year. See "Proposal to Approve the First
Amendment to the Company's 1992 Executive Equity Incentive Plan." Contingent
upon Stockholder approval of the Amendment and in addition to the options
listed above, on May 2, 1994 the Company issued each Outside Director options
to purchase 5,000 shares of Common Stock at $11.75 per share.

RETENTION BONUS PROGRAM

On March 17, 1994, the Compensation Committee approved a retention bonus
program (the "Retention Bonus Program") pursuant to which the Compensation
Committee may, in its sole discretion, award a retention bonus to any covered
executive in any calendar quarter during which the Retention Bonus Program is
in effect. Currently, the covered executives include each of the Named
Executives. Each retention bonus award may include one or both of: (a) an
acceleration of the payment of a designated percentage of the covered
executive's then current annual performance bonus, not to exceed 100% of such
performance bonus prorated on a quarterly basis; and (b) the payment of an
additional bonus which for any quarter may not aggregate more than 7.5% of

<PAGE>
such executive's annual base salary. The Retention Bonus Program also
contemplates that a retention bonus pool be established for employees other
than the covered executives; the Compensation Committee may make retention
bonus awards from this bonus pool in its sole discretion. The Board of
Directors terminated the Retention Bonus Program effective December 31, 1994.

During the fiscal year ended September 30, 1994, Mr. Castle earned
$285,000, Mr. Sudhaus earned $168,750 and Mr. Gualtieri earned $53,202 under
the Retention Bonus Program.

PENSION PLANS

The Company has no defined benefit pension plans.

IRLP Retirement Plan. IRLP established a defined benefit retirement plan
(the "IRLP Retirement Plan") commencing January 1, 1991. All employees of
IRLP and IPLP, including officers, are eligible for benefits under the IRLP
Retirement Plan commencing on the first January 1 after attaining 20.5 years
of age and six months of service with IRLP or IPLP. The IRLP Retirement Plan
is administered by a trustee and is funded at amounts required by the
Employee Retirement Income Security Act of 1974, as amended.

The table below shows the estimated annual retirement benefits at age 65
to participants in the IRLP Retirement Plan.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
Remuneration Years of Service(1)
-------------------- ---------------------------------------------------------------
15 20 25 30 35
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$125,000 $25,445 $33,940 $42,425 $50,910 $59,395
$150,000 and greater 31,455 41,940 52,425 62,910 73,395
</TABLE>

- ------
(1) Employees are generally entitled to annual retirement benefits equal to
1.1% of average earnings up to compensation covered by social security
and 0.5% of average earnings that exceed compensation covered by social
security, up to a maximum of $150,000. Such annual benefit is multiplied
by the years of service up to a maximum of 35 years. Average earnings are
generally computed based upon all salary and bonuses received by each
eligible employee during the five highest paid compensation years during
the last ten years before retirement. Employees may retire at age 65 or
at age 62 if they have 20 years of vested service.

As of September 30, 1994, the Named Executives were credited under the
IRLP Retirement Plan with the years of service indicated: William S. Sudhaus,
four years; John D.R. Wright, III, three years; and David M. Hermes, three
years.

IRLP 401(k) Plan. IRLP sponsors a tax savings 401(k) plan (the "IRLP
401(k) Plan") for employees of IRLP, IPLP and the Company. All employees of
IRLP and IPLP hired after January 31, 1991 become eligible to participate in
the IRLP 401(k) Plan on the January 1 immediately following the date on which
the employee has completed 500 hours of eligible service in the six-month
period. Effective July 1, 1994, employees of the Company became eligible to
participate in the IRLP 401(k) Plan.

Employees participating in the IRLP 401(k) Plan may authorize their
respective employer to contribute up to 15% of their gross compensation to
the IRLP 401(k) Plan. Such employer will match such voluntary employee
contributions up to 3% of employee gross compensation. Employee's
contributions to the IRLP 401(k) Plan may not exceed thresholds set by the
Secretary of the Treasury. In calendar years 1994 and 1993, the thresholds
were $9,240 and $8,994, respectively.

Employee contributions to the IRLP 401(k) Plan vest immediately. Employer
contributions to the IRLP 401(k) Plan vest as follows:

<TABLE>
<CAPTION>
Years of Service Completed Percentage of IRLP Contributions Vested
------------------------------ -------------------------------------------
<S> <C>
3 25%
4 50%
5 75%
6 100%
</TABLE>

<PAGE>
During the fiscal year ended September 30, 1994, IRLP, IPLP and the
Company contributed matching contributions in the amounts indicated: Mr.
Castle $1,188, Mr. Sudhaus $9,279, Mr. Wright $5,816 and Mr. Hermes $6,336.

Powerine Retirement Plan. Although Powerine does not have a defined
benefit plan, Powerine does sponsor a defined contribution retirement plan
(the "Powerine Retirement Plan") for its eligible employees. Employees who
have attained age 21 and who have completed one year of service become
eligible to participate in the Powerine Retirement Plan on the January 1st or
July 1st immediately following the date on which the employee satisfies such
eligibility requirements.

Pursuant to the terms of the Powerine Retirement Plan, Powerine
contributes an amount equal to 2.5% of each participant's compensation which
is equal to or less than the Social Security Taxable Wage Base and 5% of each
participant's compensation which is greater than the Social Security Taxable
Wage Base. In calendar years 1994 and 1993, the Social Security Taxable Wage
Base was $60,600 and $57,600, respectively.

Powerine's contributions to the Powerine Retirement Plan vest as follows:

<TABLE>
<CAPTION>
Years of Service Completed Percentage of Powerine Contributions Vested
------------------------------ ---------------------------------------------
<S> <C>
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>

During the fiscal year ended September 30, 1994 Powerine contributed
$4,243 to the Powerine Retirement Plan on behalf of Mr. Gualtieri.

Powerine 401(k) Plan. Powerine sponsors a tax savings 401(k) plan (the
"Powerine 401(k) Plan") for its employees. Employees who have attained age 21
and have completed one year of service become eligible to participate in the
Powerine 401(k) Plan on the January 1st or July 1st immediately following the
date on which the employee satisfies such eligibility requirements.

Employees participating in the Powerine 401(k) Plan may authorize Powerine
to contribute up to 10% of their gross compensation to the Powerine 401(k)
Plan. Powerine will match such voluntary employee contributions up to 5% of
employee gross compensation. Employees' contributions to the Powerine 401(k)
Plan may not exceed the thresholds described above for the IRLP 401(k) Plan,
as set by the Secretary of the Treasury.

Employee contributions to the Powerine 401(k) Plan vest immediately.
Powerine's contributions to the Powerine 401(k) Plan vest as follows:

During the fiscal year ended September 30, 1994, Powerine contributed
$4,620 of matching contributions to the Powerine 401(k) Plan on behalf of Mr.
Gualtieri.

SECTION 16 COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers, directors and owners of
more than 10% of any class of the Company's securities registered pursuant to
Section 12 of the Exchange Act to file reports of ownership and changes in
ownership with the Commission. The Commission's rules also require such
persons to furnish the Company with a copy of all Section 16(a) reports that
they file.

<PAGE>
Based solely on a review of the copies of the reports which the Company
received and written representations from certain persons, the Company
believes that, except as set forth below, all such reporting persons complied
with such requirements:

David M. Hermes, who serves as an executive officer of the Company, filed
a Form 3 that was four days delinquent and that inadvertently omitted to
report certain derivative securities held by Mr. Hermes at that time, which
delinquency and omission was not reported on a Form 5. Mr. Hermes has now
filed an amended Form 3 to report his holding of the derivative securities
that were omitted from the original Form 3 report.

John W. Sullivan, who serves as a Director of the Company, did not file a
Form 4 report with respect to two transactions in April 1993, which omission
was not reported on a Form 5 with respect to the fiscal years ended September
30, 1993 or 1994. Mr. Sullivan has now filed a Form 4 reporting such
transactions.

Richard E. Staedtler, who became an executive officer of the Company in
November 1994, filed a Form 3 that was one day delinquent.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee consisted of Sheldon M. Bonovitz, Chairman,
Warren V. Musser and John W. Sullivan. The Company has engaged the law firm
of Duane, Morris & Heckscher, of which Mr. Bonovitz is a partner, to provide
legal services to the Company.

On December 11, 1991, John W. Sullivan, a Director of the Company, UI
Banque ("UI") and the Company entered into a Loan Agreement pursuant to which
Mr. Sullivan loaned the Company $250,000, and UI loaned the Company $2.5
million (collectively, the "Stockholder Loans"). Guy Barbey was the Executive
Director of UI at the time the loan was made by UI and was also then a
Director of the Company. Mr. Barbey is no longer an employee of UI and
resigned as a Director of the Company to pursue other interests effective
December 31, 1993.

The Stockholder Loans mature on June 30, 1996 and earn interest at the
annual rate of LIBOR plus one-half of one percent established in advance on
November 21 of each year while the Stockholder Loans are outstanding.
Interest is payable annually on December 31 of each year and at maturity of
the Stockholder Loans. The Company may elect to pay interest in either cash
or Common Stock. Should the Company elect to pay interest in Common Stock,
each of Mr. Sullivan and UI may, independently, elect to capitalize the
interest in lieu of accepting the Common Stock. The Company paid $118,208 and
$11,821 to UI and Mr. Sullivan as interest on their respective loans during
the year. The security for the Stockholder Loans, a collateral assignment of
the Company's second mortgage on the assets of IRLP, is further subject to an
intercreditor agreement by and among UI, Mr. Sullivan and MG Trade Finance
Corp., a wholly-owned subsidiary of MG ("MGTFC").

In November 1994, the Company received a notice from UI indicating that UI
believes that the consummation of the MG Settlement constituted an event of
default under the Stockholder Loans. The Company does not agree with UI and
is discussing the matter with UI. If the Company's Indian Refinery is sold,
the Company intends to repay UI so the related liens will be released. If the
Indian Refinery is not sold, the Company does not believe that the debt is
due but nevertheless believes it has sufficient funds to repay UI should
repayment prior to maturity be required or be in the best interest of the
Company.

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Overall Policy. This report is provided by the Compensation Committee to
assist stockholders in understanding the Compensation Committee's objectives
and procedures in establishing the compensation of the Company's Chief
Executive Officer and other executive officers. The Compensation Committee is
comprised of three Directors, none of whom are employees or former employees
of the Company. The Compensation Committee's role is to assure that the
compensation strategy of the Company is aligned with the interest of the
stockholders and that the Company's compensation structure will allow for
fair and reasonable base salary levels and the opportunity for senior
executives to earn short-term and long-term compensation that reflects both
Company and individual performance as well as energy industry practice. The
Company has, from time to time, including during the fiscal year ended
September 30, 1994, utilized the expertise of independent compensation
consultants in discharging its responsibilities.

<PAGE>
The Company's executive compensation programs are designed to retain and
reward executives who are successful in helping the Company achieve its
business objectives. The key components of the executive compensation program
are base salary, annual incentive awards and equity participation. These
components are administered with the goal of providing total compensation
that is competitive with the median compensation levels in the external
marketplace. Median competitive levels are determined by an independent
consultant using published survey information and analyzing similar
companies' public data. Similar companies are identified on the basis of
industry, size and growth stage each year as a comparable peer group. These
companies may differ from year to year and are not necessarily the same peer
group used for purposes of the performance graph. The program also recognized
meaningful differences in individual performance. Each year the Compensation
Committee reviews the elements of executive compensation to insure that the
total compensation program, and each of its elements, meets the overall
objectives discussed above.

Base Salary. Executive officers' salaries (and their salary increases,
which are reviewed annually) are determined on a subjective basis with
consideration given to the level of job responsibility, the competitiveness
of the executives' salaries to the external marketplace and the degree to
which the executive's individual objectives have been achieved. Individual
objectives vary by business unit and strategic business goals. These factors
are not considered on any formula basis.

Annual Bonus Program. Bonus payments are subjectively determined and are
designed to reward and encourage individual excellence. In determining
whether to award a discretionary bonus, the Compensation Committee considers
the individual's special achievements, such as his contribution to actions
taken during the past year that contribute to the strategic growth and
competitiveness of the Company. Bonus payments tend to reflect results of the
most recent fiscal year and thus emphasize achievement of short-term business
plans. For certain executives, however, bonuses are determined by reference
to certain targeted levels of operational performance, such as revenue or net
operating income, or certain subsidiaries' aggregate pre-tax earnings.

On March 17, 1994, the Compensation Committee approved the Retention Bonus
Program pursuant to which the Compensation Committee has the discretionary
authority to award a retention bonus to any covered executive in any calendar
quarter during which the Retention Bonus Program is in effect. The purpose of
the Retention Bonus Program was to provide an incentive for covered
executives to remain employed and focused on their job responsibilities
during a period of substantial uncertainty concerning the Company's business
relationships with MG. Under the Retention Bonus Program, each retention
bonus award may include one or both of: (a) an acceleration of the payment of
a designated percentage of the covered executive's then current annual
performance bonus, not to exceed 100% of such performance bonus pro rated on
a quarterly basis; and (b) the payment of an additional bonus which for any
quarter may not aggregate more than 7.5% of such executive's annual base
salary.

Equity Participation. The Compensation Committee believes that it is in
the Company's best interests to grant stock options to executive officers in
order to align the interests of those executive officers with the
stockholders and to maximize long-term stockholder value. The purpose of the
Incentive Plan, approved by the stockholders of the Company in May 1993, is
to increase the ownership of Common Stock of the Company by those key
employees who contribute to the continued growth, development and financial
success of the Company and its subsidiaries and to attract and retain key
employees and reward them for the Company's profitable performance. The
Incentive Plan is administered by the Compensation Committee.

Targeted award ranges are determined by taking into account competitive
marketplace practice. Actual individual awards are subjectively determined
based on these competitive practices and on such factors as the recipient's
position, annual salary and individual and Company performance as well as
historical equity grants and ownership positions. The Compensation Committee
believes that equity participation helps create a long- term partnership
between management/owners and other stockholders. The policy of granting
stock options on a regular basis and encouraging stock ownership has played a
strong part in retaining an excellent team of executives and managers.

Compensation of the Chief Executive Officer. The Compensation Committee
considers the same factors described above in determining the salary of Mr.
Castle, the Chairman and Chief Executive Officer of the Company. Mr. Castle's
salary earned in fiscal 1994 was $416,667, an increase of $116,667 from 1993.

<PAGE>

This increase, which was approved in April 1994, to be effective as of January
1, 1994, reflects recognition of Mr. Castle's achievement of growing the Company
during fiscal 1993 and the first half of the 1994 fiscal year to where it was
positioned to generate significantly greater annual revenues, which in fact rose
to $1.01 billion during fiscal 1994, as compared to annual revenues of $598.8
million in the preceding year. The increase also reflects a partial adjustment
for the value of stock options not granted in prior years, a partial adjustment
for base salary reductions in the prior three years, and an adjustment to bring
Mr. Castle's base salary more in line with the external marketplace described
above.

Mr. Castle did not receive annual bonus payments during the three fiscal
years preceding the 1994 fiscal year. In recognition of the increase in the
Company's annual revenues from $598.8 million to $1.01 billion as well as Mr.
Castle's efforts in preserving the management and assets of the Company
during the period of substantial uncertainty with regard to the Company's
business relationships with MG, Mr. Castle earned a bonus of $285,000 during
the fiscal year ended September 30, 1994 under the Retention Bonus Program,
which equaled the maximum bonus for which he was eligible.

Mr. Castle was not awarded any stock options in fiscal 1994. Stock option
information with respect to executive officers, including Mr. Castle, is
reflected in the tables included in this Proxy Statement.

Tax Deductibility of Executive Compensation. The Omnibus Budget
Reconciliation Act (OBRA) of 1993 added Section 162(m) to the Internal
Revenue Code. This section eliminates a company's tax deduction for any
compensation over one million dollars paid to any one of the five executives
who appear in the Summary Compensation table included in this proxy
statement, subject to several statutory exceptions. The Company desires to
preserve the tax deductibility of all compensation paid to its executive
officers and other members of management. However, the Compensation Committee
may make awards or approve compensation that does not qualify for the
compensation deduction if, taking into consideration the relevant factors in
existence at the time, the Compensation Committee believes it is in the
Company's interest to do so. Based on the proposed regulations issued under
Section 162(m) and the transition rules, the Compensation Committee does not
anticipate any non-deductible compensation from the Company's 1994 executive
compensation program.

Compensation Committee:
Sheldon M. Bonovitz (Chairman)
Warren V. Musser
John W. Sullivan

<PAGE>
PERFORMANCE GRAPH

Comparison of Cumulative Total Returns (1)
Among the Company, the Nasdaq Stock Market (U.S. Companies only)
and the Company's Peer Group (2)

200|------------------------------------------------------------------|
| |
| |
| & & |
| |
| |
150|------------------------------------------------------------------|
| & |
| * |
| & |
| # |
| # |
100|*&#---------------------------------------------------------------|
| # * * |
| # # |
| & |
| |
| |
50|-------------------------*----------------------------------------|
| |
| * |
| |
| |
| |
0|----|----------|---------|-----------|-----------|-----------|----|
9/89 9/90 9/91 9/92 9/93 9/94

*=Company Index &=Market Index #=Peer Index

Castle Energy Corporation
Performance Graph Plot Points

Market Peer
Date Company Index Index
---- ------- ------ -----
09/29/89 100.000 100.000 100.000
09/28/90 126.602 74.441 79.447
09/30/91 48.914 117.048 87.677
09/30/92 34.528 131.135 76.759
09/30/93 89.197 171.746 106.467
09/30/94 92.074 172.202 113.542

- ------
(1) Assumes $100 invested on September 29, 1989 in the Company's Common
Stock, the Nasdaq Stock Market (Market Index for U.S. Companies only) and
the Peer Group (as hereinafter defined).

(2) The Peer Group selected by the Company is comprised of the following
companies, all of which are included in SIC Code 291 (Petroleum
Refining): Ashland Oil Inc., Crown Central Petroleum Corp., Diamond
Shamrock Inc., Ultramar Corp., Holly Corp., Clark Oil and Refining Corp.
and Tosco Corp.

<PAGE>
BOARD OF DIRECTORS AND BOARD COMMITTEES

1994 BOARD MEETINGS

The Board of Directors of the Company held 14 meetings during the fiscal
year ended September 30, 1994. During such fiscal year, each of the incumbent
Directors attended not less than 75% of the total number of meetings of the
Board of Directors and of the Committees of the Board of Directors on which
such Director served except for Messrs. Benson and Musser.

BOARD COMMITTEES

The Audit Committee consists of Mr. Sullivan, Chairman; and Mr. Bonovitz.
The function of the Audit Committee is to: (a) recommend the appointment of
the Company's independent public accountants; (b) review the financial
reports of the Company; (c) monitor the effectiveness of the independent
audit; (d) assure that the scope and implementation of the independent audit
is not restricted or the independence of the independent accountants
compromised; (e) review the independent accountants' periodic reports to
management on internal controls and recommend such actions as may be
appropriate; and (f) review and approve the engagement by management of all
non-audit and special services involving, in the aggregate, fees to the
Company's independent accountants in excess of $15,000 per year. The Audit
Committee held three meetings during the last fiscal year.

The Company has not established a nominating committee.

The Compensation Committee consists of Mr. Bonovitz, Chairman; Mr. Musser
and Mr. Sullivan. The Compensation Committee establishes overall compensation
programs and policies for the Company. The Compensation Committee monitors
the selection and performance, as well as reviews and approves the
compensation, of key executives, and administers the Incentive Plan. The
Compensation Committee held five meetings during the last fiscal year.

COMPENSATION OF DIRECTORS

All of the Outside Directors are paid director's fees of $25,000 per year.
In addition, all Directors receive $1,500 per Board meeting attended and
$1,500 per Board committee meeting attended ($500 per committee meeting if
held in conjunction with a Board meeting).

On October 20, 1994, the Board of Directors formed the Special Committee,
consisting of Joseph L. Castle II, Sheldon M. Bonovitz and John W. Sullivan,
to consider CORE's initial proposal to acquire the Refinery operations. See
"Proposal to Approve the Refinery Plan." On December 1, 1994, the Board
determined that each member of the Special Committee, other than Mr. Castle,
would receive the sum of $40,000 for his service on the Special Committee.
Mr. Bonovitz, because of his law firm's retention by the Special Committee,
waived such fee. Accordingly, only Mr. Sullivan received such fee.

On May 11, 1993, the Board of Directors of the Company adopted, subject to
stockholder approval, an amendment to the Incentive Plan, which amendment was
modified and readopted by the Board on November 17, 1994. Pursuant to the
terms of the amendment if adopted by the Stockholders, each Outside Director
will automatically be granted an option to purchase 5,000 shares of Common
Stock each calendar year on the earlier to occur of (a) the first trading day
coinciding with or immediately following the fifteenth day after the
Company's regular Annual Stockholders' Meeting or (b) the first trading day
in May, for serving as a Director, as more fully provided in the Incentive
Plan. See "Proposal to Approve the First Amendment to the Company's 1992
Executive Equity Incentive Plan." Contingent upon Stockholder approval of
this amendment, on May 2, 1994 the Company issued each Outside Director
(Messrs. Benson, Bonovitz, Musser and Sullivan) options to purchase 5,000
shares of Common Stock at $11.75 per share.

<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Except as otherwise indicated, the Company believes the terms of each of
the following transactions were comparable to those available from a
non-affiliate.

MG AND ITS AFFILIATES

Immediately prior to the MG Settlement described below, in excess of 40%
of the Company's outstanding common stock was owned by MG, and the Company
and its subsidiaries had entered into many agreements, described below, with
MG and its affiliates, including agreements pursuant to which MG and its
affiliates financed the Company's refining and natural gas marketing
operations, purchased all of the Company's refined product output, and
supplied natural gas to the Company for resale under a long-term contract to
a third party. In December 1993, the Company was informed that MG and its
parent corporation, Metallgesellschaft AG ("MG AG"), had incurred substantial
cash expenditures and losses related in part to margin payments required by
the New York Mercantile Exchange and various over-the-counter derivatives
trading counterparties as a result of a decline in oil prices. Thereafter, in
its annual report issued in February 1994, MG AG announced that its
consolidated net deficit (net loss) for fiscal 1993 was DM 2.025 billion
($1.241 billion).

As a result of the financial difficulties surrounding MG and its
affiliates, the Company became concerned that MG and its affiliates would be
unable to perform their obligations under their agreements with the Company
or might seek to avoid performance through litigation challenging the
validity of some or all of such agreements. Although the Company believed it
would be successful in any litigation seeking to enforce the agreements, the
Company also believed that the risks and substantial costs of such
litigation, including the risk of being unable to collect any damages which
might be awarded, as well as the disruption to the Company's business, made
litigation undesirable. In addition, the Company believed that MG might enter
bankruptcy and seek to reject some or all of such agreements, in which case
the Company would be likely to recover little if any damages. In addition,
relationships between the Company and MG, as a major stockholder of the
Company, had become adversarial, which the Company believed was not in the
best interests of the Company or its other stockholders. Accordingly, in July
1994 the Company and MG commenced negotiations to attempt to restructure the
contractual and other relationships between MG and its affiliates and the
Company and its affiliates.

On August 31, 1994, the Company entered into two agreements with MG and
certain of its affiliates pursuant to which the parties thereto agreed to
amend or terminate a number of contractual relationships among them (the "MG
Settlement"). In the first step of the MG Settlement, which closed on
September 9, 1994, MG transferred 3.6 million shares of Common Stock to the
Company in exchange for approximately $39.8 million of participations the
Company held in debt obligations of the Company and its affiliates to MG
Trade Finance Corp. ("MGTFC"), a wholly-owned subsidiary of MG.

In the second step of the MG Settlement, which closed on October 14, 1994,
MG (a) cancelled certain debt obligations owed to MGTFC by the Company and
its affiliates, and assumed IRLP's obligations under its $120 million senior
facility with Societe Generale (the "Senior Facility"), together totalling
approximately $322 million, (b) transferred back to the Company the remaining
969,000 shares of Common Stock held by MG and a $5.5 million debenture
convertible into 500,000 shares of Common Stock, (c) issued to the Company a
$10 million note payable in three years (the "MG Note"), (d) terminated all
of its interests in the Company's natural gas operations and (e) agreed to
supply all crude oil necessary for the Company to meet its delivery
obligations under a forward sale contract with a third party entered into in
September 1993. In exchange for the foregoing, IRLP and Powerine (i) amended
their offtake agreements (the "Indian Offtake Agreement" and the "Powerine
Offtake Agreement", respectively, and collectively the "Offtake Agreements")
to terminate effective February 1, 1995, (ii) amended their working capital
facilities to terminate on March 31, 1995, and (iii) transferred to MG
certain of the Company's participations in debt obligations of the Company
and its affiliates to MGTFC. In connection with the MG Settlement, IRLP and
MGNG also entered into a four-year natural gas swap agreement.

The following is a summary of certain of the agreements, arrangements and
transactions between the Company and MG and its affiliates.

INDIAN REFINERY OPERATIONS

Indian Offtake Agreement. The Company entered into the Indian Offtake
Agreement with MGRM in February 1992. Under the terms of the Indian Offtake
Agreement, as amended through October 14, 1993, MGRM agreed to purchase 100%

<PAGE>

of IRLP's refined products through June 30, 2000 at a purchase price equal to
(a) the settlement price of near month West Texas Intermediate crude oil; plus
(b) the "Margin Increment" which was $5.105 per barrel; plus (c) certain taxes
and other costs and charges.

Pursuant to the terms of the MG Settlement, MGRM and IRLP agreed to
terminate the Indian Offtake Agreement effective February 1, 1995 (except for
certain specified post-termination obligations) and to change certain
provisions relating to the refined product mix to be delivered thereunder.
Such revised product mix provisions were not expected to have a material
impact on IRLP's operations.

During the fiscal year ended September 30, 1994, IRLP recorded sales of
approximately $498.2 million to MGRM under the Indian Offtake Agreement. In
addition, during such period IRLP was paid approximately $11.9 million in
connection with reduced run periods for which MGRM was responsible under the
IRLP Offtake Agreement.

Although other refineries could mitigate the effect of low refining
margins to a minor degree through hedging activities, the Company believes
that long term, exclusive offtake agreements were generally not available to
other refineries.

MG Supply Agreement. As of February 1, 1992, IRLP entered into an
Agreement for the Purchase and Sale of Feedstocks (the "MG Supply Agreement")
with MG. Under the terms of the MG Supply Agreement, MG originally agreed to
supply IRLP with up to 2.1 million barrels of crude oil and intermediate
feedstocks each month through June 30, 1994 on a cost plus fee basis. The MG
Supply Agreement was amended as of October 1, 1993 to (a) add Powerine and
IPLP as parties and (b) extend the term to September 30, 1997. Under the MG
Supply Agreement, as amended, Powerine was permitted to request deliveries of
up to 1.5 million barrels of crude oil and intermediate feedstocks each
month, and IPLP was permitted to request deliveries of up to 1 million
barrels per month for sale to entities other than IRLP or Powerine. Pursuant
to the terms of the MG Settlement, the MG Supply Agreement was terminated as
of October 14, 1994.

During the fiscal year ended September 30, 1994, IRLP and IPLP purchased
$9.1 million and $41.1 million, respectively, of crude oil and feedstocks
from MG, including hedging transactions. Powerine did not purchase any crude
oil or feedstocks from MG under this agreement during fiscal 1994. In
addition, IRLP, Powerine and IPLP incurred approximately $1.4 million, $1.2
million and $12,000, respectively, of fees and reimbursable expenses pursuant
to the MG Supply Agreement, the Revolving Credit Facility and the Powerine
Loan Agreement (as such terms are defined below).

Swap Agreement. On May 27, 1993, IRLP entered into a 20,000 barrel per day
("B/D") swap agreement with MGRM (the "Swap Agreement"). Under the terms of
this agreement, IRLP was to pay to or receive from MGRM the differential of
the monthly mean price per barrel of West Texas Intermediate crude oil minus
$1.60 versus the monthly mean price per barrel of West Texas sour crude oil.
IRLP and its senior lender considered it prudent to hedge against unprotected
decreases in the price differentials between sweet and sour crude, which had
fluctuated significantly in the past, since IRLP intended to run an
increasing percentage of sour crude. Pursuant to the terms of the MG
Settlement, the Swap Agreement was terminated as of October 14, 1994. During
the fiscal year ended September 30, 1994, the Company received a net amount
of approximately $3.1 million under this agreement.

Forward Sale Transaction. On September 28, 1993, IPLP entered into a
forward sale contract (the "Forward Sale Contract") pursuant to which, in
exchange for a prepayment of $120 million, IPLP sold specified quantities of
crude oil to Percolin Limited ("Percolin") for delivery over a 12-month
period commencing March 1994. Pursuant to the terms of the MG Settlement,
MGRM agreed to supply all crude oil necessary to meet IPLP's delivery
obligations under the Forward Sale Contract. In addition and by agreement
with Percolin, the MG Settlement provided for the extension of IPLP's
delivery obligations through July 1995.

Hedging. During fiscal 1994, IRLP, Powerine and IPLP conducted and cleared
hedging activities through MG Futures, Inc., a wholly-owned subsidiary of MG
("MG Futures"), which is a registered Futures Commission Merchant. During the
fiscal year ended September 30, 1994, IRLP, Powerine and IPLP paid MG Futures
approximately $182,000, $92,000 and $18,000, respectively, for standard
commission fees. Pursuant to the terms of the MG Settlement, IRLP and
Powerine ceased to conduct hedging activities through MG Futures.

Natural Gas Contracts. During the fiscal year ended September 30, 1994,
IRLP purchased natural gas for its refining operations from MGNG. Such
purchases were made at market rates. During such fiscal year, IRLP paid
approximately $8.5 million to MGNG for natural gas purchases. Pursuant to the
terms of the MG Settle ment, IRLP and MGNG terminated their natural gas supply

<PAGE>

relationship; however, the parties entered into a natural gas swap agreement
pursuant to which the parties agreed that MGNG would pay to IRLP the excess, if
any, of the prompt month's natural gas price as reported on the NYMEX over the
one-year futures price, or IRLP would pay to MGNG the excess, if any, of such
futures price over such prompt month's price, for 10,000 MMBtu per day through
June 23, 1998.

Catalyst Lease. During the fiscal year ended September 30, 1994, IRLP
leased platinum from MGTFC to be used as a catalyst component on a
year-to-year basis. Pursuant to the terms of the MG Settlement, the platinum
lease was terminated and all platinum leased thereunder was transferred to
IRLP without incremental payment. Catalyst lease payments to MGTFC for the
fiscal year ended September 30, 1994 were $85,000.

POWERINE REFINERY OPERATIONS

Acquisition of Powerine. On August 9, 1993, the Company entered into a
letter of intent with MG pursuant to which the Company agreed to purchase
MG's option to acquire Powerine (the "Powerine Option"). The Powerine Option
had been acquired by MG in March 1993 for $8 million and the assumption of an
indemnity obligation. Pursuant to the terms of an Option Assignment Agreement
dated as of October 1, 1993, the Company (a) paid MG $8 million for the
Powerine Option which was immediately exercised for nominal consideration;
(b) assumed MG's estimated $3.027 million indemnity obligation related to
yield losses incurred by Powerine under a processing arrangement with MG; (c)
assumed a $2.7 million tax indemnification to the previous owner of Powerine;
(d) assumed $128 million of debt obligations to MG and other liabilities of
$45 million; and (e) paid transaction costs of $980,000. Concurrently with
the closing of the Powerine acquisition, (i) MGRM entered into the Powerine
Offtake Agreement, (ii) MGTFC entered into the Revised Powerine Loan
Agreement (as defined below), and (iii) Powerine became a party to the MG
Supply Agreement.

The purchase price for Powerine approximated its appraised value as of the
time of the Company's purchase.

Powerine Offtake Agreement. Pursuant to the terms of the Powerine Offtake
Agreement, Powerine agreed to sell substantially all of its refined products
it produces to MGRM through January 1, 1998 at a purchase price equal to (a)
the Platt's West Coast price of near month Alaskan North Slope crude oil;
plus (b) the "Margin Increment" which is currently $10.506 per barrel; plus
(c) certain taxes and other costs and charges.

Pursuant to the terms of the MG Settlement, MGRM and Powerine agreed to
terminate the Powerine Offtake Agreement effective February 1, 1995 (except
for certain specified post-termination obligations).

During the fiscal year ended September 30, 1994, Powerine recorded sales
of $348.8 million to MGRM under the Powerine Offtake Agreement. During such
period Powerine did not receive any amounts in connection with reduced run
periods under the Powerine Offtake Agreement.

Prior to the acquisition of Powerine by the Company, Powerine had
processed crude oil and feedstocks for MGRM and MGRM had made commitments to
purchase crude oil and feedstocks for processing by Powerine. In connection
with entering into the Powerine Offtake Agreement, Powerine agreed to honor
such commitments. As a result of such agreement, Powerine paid MGRM
approximately $47.1 million during fiscal 1994 for the delivery of such crude
oil and feedstocks. Powerine did not incur any fees as a result of these
transactions.

The Company has made certain claims, exceeding $10 million, against MGRM
under the Powerine Offtake Agreement. The Company and MG have agreed to
arbitrate such claims.

Petroleum Coke Purchase Agreement. Effective January 1, 1994, Powerine
entered into a 36-month Petroleum Coke and Purchase Agreement with MGPC
Petcoke Inc., a wholly-owned subsidiary of MG ("MG Petcoke"), pursuant to
which MG Petcoke agreed to purchase all petroleum coke produced at the
Powerine Refinery. During the fiscal year ended September 30, 1994, Powerine
recorded sales of $2.5 million to MG Petcoke under this agreement.

<PAGE>
NATURAL GAS OPERATIONS

Management Agreement. In connection with the acquisition of the 77-mile
intrastate pipeline located in Rusk County, Texas (the "Castle Pipeline")
from Atlantic Richfield Company ("ARCO"), Castle Texas Pipeline Limited
Partnership, a wholly-owned subsidiary limited partnership of the Company
("Castle Texas Pipeline"), and MG Gathering Corp., a wholly-owned subsidiary
of MG ("MG Gathering"), entered into a Management Agreement dated as of
December 1, 1992 (the "Management Agreement") pursuant to which MG Gathering
agreed to manage the operations of the Castle Pipeline. The Management
Agreement runs until June 1, 1999 and continues thereafter on a year-to-year
basis until terminated by either of the parties. During the fiscal year ended
September 30, 1994, Castle Texas Pipeline paid MG Gathering $148,000 for
services rendered pursuant to this agreement. Pursuant to the terms of the MG
Settlement, Castle Texas Pipeline may terminate the Management Agreement upon
thirty days notice.

Service Agreement. In connection with the acquisition of the various gas
supply contracts from ARCO, CEC Gas Marketing Limited Partnership, a
wholly-owned subsidiary limited partnership of the Company, and MGNG entered
into a Service Agreement dated as of December 1, 1992 (the "Service
Agreement") pursuant to which MGNG agreed to administer all gas supply
contracts owned by CEC Gas Marketing. Subject to certain termination events,
the Service Agreement runs until June 1, 1999, and continues thereafter on a
month-to-month basis until terminated by either of the parties. During the
fiscal year ended September 30, 1994, CEC Gas Marketing paid MGNG $240,000
for services rendered pursuant to this agreement. Pursuant to the terms of
the MG Settlement, CEC Gas Marketing may terminate the Service Agreement upon
thirty days notice.

MGNG Supply Agreement. CEC Gas Marketing supplies a contractual amount of
natural gas to the Lone Star Gas Company pursuant to the terms of a long-term
take or pay contract (the "Lone Star Contract") acquired from ARCO.
Approximately 17% of those supplies come from the wells operated by Castle
Texas Production. The balance is purchased by the CEC Gas Marketing from MGNG
pursuant to the Amended and Restated Gas Purchase Contract dated as of August
1, 1993 (the "MGNG Supply Agreement"). Natural gas is purchased from MGNG
pursuant to a six tier formula at varying prices. It is anticipated that a
substantial portion (approximately 83%) of the natural gas used to meet CEC
Gas Marketing's delivery obligations under the Lone Star Contract will
consist of natural gas provided by MGNG which, effective June 1, 1993, is
priced at $2.10 per MMBtu.

The MGNG Supply Agreement contains take-or-pay provisions which obligate
CEC Gas Marketing to take (and pay for if not taken) certain annual
quantities of natural gas. The agreement also has limitations on the maximum
amounts of gas which CEC Gas Marketing can require MGNG to deliver on any
given day and governing the quality of gas deliverable by MGNG, points of
delivery, passage of title and other relevant provisions. MG AG has
guaranteed delivery of the natural gas as provided in the MGNG Supply
Agreement in the event that MGNG fails to perform under the agreement.
Pursuant to the terms of the MG Settlement, CEC Gas Marketing had the option
to terminate the MGNG Supply Agreement on or before March 31, 1995, so long
as it obtained the approval of General Electric Capital Corporation.

During the fiscal year ended September 30, 1994, CEC Gas Marketing paid
approximately $31.1 million to MGNG for natural gas purchases.

The MGNG Supply Agreement contains several tranches of natural gas
pricing, one of which calls for MGNG to supply gas at prices which were below
the prevailing market price at the time the Agreement was entered into. In
consideration for MGNG's agreement to supply this gas to CEC Gas Marketing at
such price, CEC Gas Marketing agreed, pursuant to the Net Cash Flow Agreement
described below, to indemnify MGNG for the disparity between MGNG's cost of
the gas and the price at which the gas is sold to CEC Gas Marketing. Although
the Net Cash Flow Agreement decreased CEC Gas Marketing's gas merchant
margins, the Lone Star Contract was profitable to CEC Gas Marketing. Although
the Company believes that the terms of the MGNG Supply Agreement and the Net
Cash Flow Agreement, viewed together, were fair from the Company's point of
view given its accumulated deficit, financial condition, and lack of credit
at the time, it is unclear whether such terms would have been available from
an unaffiliated third party.

Net Cash Flow Agreement. In consideration of MGNG's agreement to supply
natural gas pursuant to the terms of the MGNG Supply Agreement, CEC Gas
Marketing originally agreed to indemnify MGNG for the disparity between
MGNG's cost of the gas and the prices at which the gas is sold to CEC Gas
Marketing in an amount estimated at $20 million. The payment of such

<PAGE>

indemnification was to have been deferred, however, until after the repayment of
the GECC Loan (as defined below) and the MGTFC Subordinated Loan (as defined
below). Pursuant to the terms of the MG Settlement, this indemnification
obligation was terminated.

FINANCING

Although the Company believes that the terms of each of the financings
with MG and its subsidiaries described below were fair from the Company's
point of view given its accumulated deficit, financial condition, lack of
credit, and lack of alternative financing at the time, it is unclear whether
such terms would have been available from an unaffiliated third party.

MGTFC Credit Agreement. In October 1990, the Company and MGTFC entered
into a Credit Agreement (the "Credit Agreement"). A portion of the proceeds
of this loan was used by the Company to make loans to IRLP. The aggregate
principal amount of the loans owing to MGTFC pursuant to the Credit Agreement
was $34.6 million as of September 30, 1994. The Credit Agreement was secured
by (a) a pledge of the promissory note dated July 1, 1993 executed by
Terrapin in favor of the Company, (b) a collateral assignment of the pledge
agreement executed by Terrapin in favor of the Company and (c) a collateral
assignment of a second lien on the assets of IRLP, which lien was granted to
the Company in connection with the Company's advances to IRLP.

For purposes of the calculation of interest, the Credit Agreement was
divided into two tranches: tranche A, in the principal amount of $8 million,
bore interest initially at the prime rate plus 1%, escalated each December 31
and June 30, beginning on December 31, 1993, by another 2% to a maximum of
prime plus 6%; and tranche B, in the principal amount of $26.6 million, bears
interest at LIBOR plus 1/2%. Interest was payable annually in arrears. The
Company could elect to pay such interest in shares of Common Stock rather
than cash. However, if the Company elected such option, MGTFC could require
that the interest be capitalized rather than paid in shares of Common Stock.
In December 1993, the Company paid MGTFC approximately $1.2 million of
interest accruing as of that date.

Pursuant to the terms of the MG Settlement, the Credit Agreement was
terminated as of October 14, 1994 at which time the $36.3 million of
principal and accrued interest owing thereunder was forgiven.

GECC Loan/MGTFC Subordinated Loan. On December 3, 1992, the Company,
through three newly formed subsidiary limited partnerships, CEC Gas
Marketing, Castle Texas Pipeline and Castle Production Limited Partnership, a
wholly-owned subsidiary limited partnership of the Company ("Castle
Production"), acquired (i) the Lone Star Contract and several gas supply
contracts, (ii) the Castle Pipeline and (iii) majority working interests in
approximately 100 producing oil and gas wells from ARCO. The Company obtained
a loan from MGTFC to make a $6.25 million deposit to ARCO upon entering into
the purchase and sale agreement with ARCO on September 3, 1992 (the "Deposit
Note"). The Deposit Note bore interest at 9% and was secured by the deposit
and the stock of a subsidiary of the Company. Upon the closing of the ARCO
acquisition on December 3, 1992, the purchase price was financed by an
aggregate $100.5 million term loan (the "MGTFC Bridge Loan") from MGTFC which
included the refinancing of the Deposit Note (at which time the Deposit Note
was repaid) and the deposit was applied to the purchase price. In connection
with this financing, the Company paid MGTFC $3.2 million as a loan
syndication and advisory fee, which was included in the financing provided by
MGTFC.

On September 2, 1993, the Company refinanced a substantial portion of the
then-outstanding $88 million balance of the MGTFC Bridge Loan with General
Electric Capital Corporation ("GECC"). Under the terms of the GECC financing,
GECC made an $80 million senior secured loan (the "GECC Loan") to CEC Gas
Marketing and Castle Texas Pipeline which was used to repay the majority of
the MGTFC Bridge Loan. MGTFC made a subordinated loan to CEC Gas Marketing
and Castle Texas Pipeline (the "MGTFC Subordinated Loan") for the $8 million
balance of the existing MGTFC Bridge Loan. All obligations under the MGTF
Subordinated Loan were terminated in connection with the MG Settlement. The
GECC Loan bears interest at a fixed rate of 8.33%. Interest payments and
principal amortization are made on a monthly basis in an amount equal to the
greater of a pre-established amortization schedule or 90% of the combined net
cash flow of CEC Gas Marketing and Castle Texas Pipeline. In any month if the
aggregate net cash flow exceeds the amounts necessary to pay the applicable
principal and interest on the GECC Loan, the excess will be used to further
reduce the principal balance of the GECC Loan. In addition to the MGTFC

<PAGE>

Subordinated Loan, MGTFC entered into an agreement with Castle Production (the
"Castle Production Guaranty") under which Castle Production guaranteed the
obligations under the MGTFC Subordinated Loan. This guaranty was secured by a
first security interest in all of the assets of Castle Production as well as a
pledge of the partnership interests of Castle Production and a pledge of the
capital stock of the general and limited partners of Castle Production. All
obligations under the Castle Production Guaranty were terminated under the MG
Settlement. The GECC Loan contains various representations, warranties and
covenants. Under the terms of the GECC Loan, GECC has a first security interest
in all of the assets of CEC Gas Marketing and Castle Texas Pipeline as well as a
pledge of the partnership interests of CEC Gas Marketing and Castle Texas
Pipeline and a pledge of the capital stock of each general and limited partner
of both CEC Gas Marketing and Castle Texas Pipeline. In consideration for making
the MGTFC Subordinated Loan and for supplying certain volumes of natural gas at
below market prices, CEC Gas Marketing agreed to allow MGNG to share in $20
million of its cash flow (the "Indemnification Agreement") and each of CEC Gas
Marketing and Castle Texas Pipeline agreed to grant MGTFC a 20% interest in the
respective net profits of the two entities (the "Partnership Interest Option
Agreements"), which interest became effective after the repayment of the GECC
Loan and the MGTFC Subordinated Loan, and the aforesaid $20 million cash flow
payment due to MGNG. Pursuant to the terms of the MG Settlement, all obligations
under the Indemnification Agreement and the Partnership Interest Option
Agreements were terminated prior to the time any amounts were paid under any of
such agreements.

MGTFC Production Loan. On September 30, 1993, Castle Production and MGTFC
entered into an additional term loan (the "MGTFC Production Loan") of up to
$52 million to Castle Production, $47 million of which was available to be
drawn until December 31, 1996 to finance additional drilling and well
completions in the Oak Hill Field, the oil and gas producing properties owned
by Castle Production in Rusk County, Texas, and $5 million of which is
available to finance the acquisition of additional interests in its wells.
The MGTFC Production Loan was to bear interest at the prime rate plus 1% and
would have been amortized through the application of 100% of Castle
Production's net cash flow. Pursuant to the terms of the MG Settlement, the
MGTFC Production Loan was terminated prior to the time any amounts were
funded thereunder.

In connection with the MGTFC Production Loan, Castle Production entered
into a swap agreement (the "Swap") with MG under which, during a term ending
May 31, 1999, Castle Production was required to pay MG the current market
price that Castle Production was being paid at the wellhead for its
production from the Oak Hill Field and MG is obligated to pay Castle
Production a fixed price for the gas produced. The payment obligations under
the Swap were designed to correspond to the development and physical
deliveries of gas by Castle Production under its gas contracts. The Swap was
intended to have the economic effect of setting a fixed price for the gas
that is projected to be developed by Castle Production in connection with the
MGTFC Production Loan which was sufficient to provide funds to pay principal
and interest on the MGTFC Production Loan through May 31, 1999. Pursuant to
the terms of the MG Settlement, the Swap was terminated as of October 14,
1994.

In consideration for the MGTFC Production Loan, Castle Production also
agreed to grant to MGTFC rights to 50% of Castle Production's net cash flow,
commencing on the date on which the MGTFC Production Loan is repaid. In
addition, in the five year period commencing on September 30, 1993 (the
"Initial Period"), MGTFC was to have received a marketing fee of $.35 per
MMBtu of gas produced by Castle Production in lieu of the 50% interest. At
the end of the Initial Period, MGTFC's right to the $.35 marketing fee was to
have terminated and, provided the MGTFC Production Loan had been repaid and
no obligations remained outstanding under the Swap, MGTFC was to become
entitled to 50% of the net cash flow of Castle Production. Pursuant to the
terms of the MG Settlement, all of such obligations of Castle Production were
terminated prior to the time when any amounts were paid to MGTFC.

SocGen Senior Facility. IRLP entered into the Senior Facility with SocGen
on May 27, 1993. In April 1994, the Company received notice from SocGen that
IRLP was in default of several covenants contained in the Senior Facility,
under which approximately $85.3 million was then outstanding. The defaults in
question related primarily to financial and other problems of MG and its
affiliates. Pursuant to the terms of the MG Settlement Agreement, MG assumed
all of IRLP's obligations under the Senior Facility including IRLP's
obligation to pay $73.1 of principal and interest owing thereunder as of
October 14, 1994.

<PAGE>
MGTFC Revolving Credit Facility. MGTFC and IRLP entered into a revolving
credit facility on September 24, 1992 (the "Revolving Credit Facility")
pursuant to which MGTFC (a) refinanced IRLP's indebtedness to MGRM under
IRLP's previous Processing Agreement with MGRM (the "Processing Agreement"),
(b) provides funds to IRLP for working capital and capital expenditures, (c)
issues, or provides for the issuance of, letters of credit for the benefit of
IRLP and (d) provides commitments to finance for the purchase of feedstocks
pursuant to the MG Supply Agreement with MG. On May 27, 1993, the Revolving
Credit Facility was amended to (a) increase the total commitment under the
Revolving Credit Facility to up to $362 million (of which $26.9 million was
used as of September 30, 1994) and (b) segregate $70 million of the existing
facility which represented the amount previously owing to MGRM under the
Processing Agreement into a subordinated loan (discussed below). The
Revolving Credit Facility was further amended on October 1, 1993 to extend
the termination date for the commitments to finance and the letters of credit
to September 30, 1997. Pursuant to the terms of the MG Settlement, the
Revolving Credit Facility was amended to terminate on March 31, 1995, to cap
the total commitment at $130 million and to provide for the financing of
certain capital expenditures. In addition, the Company agreed to guarantee
IRLP's obligations under the Revolving Credit Facility. The Company also
agreed to grant an option to purchase a new class of preferred stock of
IRLP's general partner to a nominee of MG which could have the effect of
precluding certain changes of control and bankruptcy events relating to IRLP
without the approval of the nominee while any amounts are outstanding under
the Revolving Credit Facility.

The Revolving Credit Facility contains various representations, warranties
and covenants, including covenants restricting certain indebtedness, liens,
distributions to the Company, certain corporate transactions and other
matters. The Revolving Credit Facility is secured by a first lien on
inventory and a percentage of IRLP's accounts receivable and a second lien on
real estate, fixed assets inventory and the remaining accounts receivable.
The Revolving Credit Facility bears interest payable monthly at a Eurodollar
Base Rate plus 1/2%. IRLP also pays standard fees in connection with the
issuance of letters of credit and commitments to finance.

The Company did not pay the outstanding indebtedness when the Revolving
Credit Facility terminated on March 31, 1995, but believes that the value of
the pledged collateral exceeds the amount of the indebtedness. See "Proposal
to Approve the Refinery Plan -- Special Factors -- Background of the Refinery
Plan" and "-- Certain Considerations -- MG Credit Facilities."

MGTFC Subordinated Note. IRLP executed a Subordinated Note (the "MGTFC
Subordinated Note") in favor of MGTFC dated May 27, 1993 in the aggregate
principal amount of $70 million. In connection with the execution of the
Subordinated Note, IRLP also granted a junior lien on all of its assets in
favor of MGTFC. The MGTFC Subordinated Note represented indebtedness
previously owing to MGRM under the Processing Agreement and refinanced by
MGTFC in 1992 under the Revolving Credit Facility. Pursuant to the terms of
the MG Settlement, the MGTFC Subordinated Note was terminated as of October
14, 1994 at which time the $76.4 million of principal and interest owing
thereunder was forgiven.

Indian Offtake Subdebt. Under the terms of the Indian Offtake Agreement as
revised pursuant to the MG Settlement, MGRM is required to purchase all of
IRLP's refined products. In the event that IRLP delivers any non-spec
products to MGRM, then IRLP will be deemed to have incurred debt to MGRM
("Indian Offtake Subdebt") in an amount equal to the difference in value
between the non-spec product delivered and product which would have met
industry specifications. No Indian Offtake Subdebt has accrued as of the date
hereof. Any Indian Offtake Subdebt that accrues will be represented by a
subordinated note (the "Indian Offtake Note") in favor of MGRM. The Indian
Offtake Note is secured by IRLP's real property and fixed assets. Pursuant to
the terms of the MG Settlement, the Indian Offtake Agreement terminated
effective February 1, 1995.

Powerine Loan Agreement. Powerine and MGTFC entered into a Loan Agreement
(the "Powerine Loan Agreement") dated as of February 2, 1992 which was
amended and restated on October 1, 1993 and which was further amended
pursuant to the MG Settlement.

The Powerine Loan Agreement originally provided for a revolving credit
facility and a term loan facility. Under the revolving loan portion of the
Powerine Loan Agreement, Powerine was able to obtain up to $115 million (of
which none was outstanding as of September 30, 1994) of cash advances or
letters of credit for the purchase of feedstocks, for commitments to finance
the purchase of feedstocks pursuant to the MG Supply Agreement, for the
purchase of petroleum products in connection with exchange or hedging
contracts, to pay or satisfy bonding or other requirements of public utilities

<PAGE>

and/or government entities, for general working capital purposes and for the
payment of a management fee to the Company. The revolving loan portion of the
Powerine Loan Agreement bore interest at the overnight Eurodollar rate plus
1/2%. Pursuant to the terms of the MG Settlement, the $115 million cap was
reduced to $100 million, and the parties agreed that such revolving credit
facility would be due and payable on March 31, 1995. Powerine also agreed to
grant an option to purchase a new class of preferred stock to a nominee of MG
which could have the effect of precluding certain changes of control and
bankruptcy events relating to Powerine without the approval of the nominee while
any amounts are outstanding under the Powerine Loan Agreement.

The term loan portion of the Powerine Loan Agreement was used by Powerine
to repay all existing obligations and indebtedness of Powerine to MGRM and to
provide funds for working capital purposes. The term loan portion of the
Powerine Loan Agreement was divided into three tranches. Tranche A was in the
principal amount of $90 million and bore interest at LIBOR plus 3/4%.
Tranche B was in the principal amount of $44 million and bore interest at
LIBOR plus 2 1/4%. Tranche C was in the principal amount of $35 million and
bore interest at LIBOR plus 2%. Pursuant to the terms of the MG Settlement,
the term loan portion of the Powerine Loan Agreement was terminated as of
October 14, 1994 at which time the $133.6 million of principal and accrued
interest owing thereunder was forgiven.

The Powerine Loan Agreement included various representations, warranties
and covenants, including covenants restricting liens, debt, distributions on
stock and certain corporate transactions, and was secured by liens on
Powerine's real and personal property. The Company guaranteed Powerine's
obligations under the Powerine Loan Agreement.

The Company repaid all of the remaining outstanding indebtedness under the
Powerine Loan Agreement on April 14, 1995. See "Proposal to Approve the
Refinery Plan -- Special Factors -- Background of the Refinery Plan -- MG
Credit Facilities--" and "-- Certain Considerations -- MG Credit Facilities."

Powerine Offtake Subdebt. Under the terms of the Powerine Offtake
Agreement, MGRM is required to purchase substantially all of Powerine's
refined products. In the event that Powerine delivers any non-spec products
to MGRM, then Powerine will be deemed to have incurred debt to MGRM
("Powerine Offtake Subdebt") in an amount equal to the difference in value
between the non-spec product delivered and product which would have met
industry specifications. No Powerine Offtake Subdebt has accrued as of the
date hereof. Any Powerine Offtake Subdebt that accrues will be represented by
a subordinated note (the "Powerine Offtake Note") in favor of MGRM. The
Powerine Offtake Note is secured by Powerine's real property and fixed
assets. Pursuant to the terms of the MG Settlement, the Powerine Offtake
Agreement terminated effective February 1, 1995.

TRANSACTIONS WITH OTHER RELATED PARTIES

STOCKHOLDER LOANS

See "Executive Compensation -- Compensation Committee Interlocks and
Insider Participation" with respect to certain loans involving John W.
Sullivan, a Director of the Company, and UI.

LOAN TO OFFICER

On February 26, 1993, John D.R. Wright, III, President and Chief Operating
Officer of IR&M, was loaned $250,000 by IR&M. The principal amount of the
loan is due and payable in full on the earlier of January 31, 1996 or the
termination of Mr. Wright's employment with IR&M. The loan accrues interest
at the prime rate in effect on the date of the loan as adjusted each January
1. The loan was made to Mr. Wright pursuant to a provision in Mr. Wright's
employment agreement. The largest amount of indebtedness outstanding at any
time was $250,000, and at January 31, 1995, $250,000 remained outstanding. At
January 1, 1995, the prime rate (and thus the rate being charged on the loan)
was 8.5%.

TERRAPIN AGREEMENT

Effective June 1993, the Company entered into a Stock Purchase Agreement
with Terrapin, a corporation owned by Richard E. Staedtler, Senior Vice
President and Chief Financial Officer of the Company, pursuant to which the

<PAGE>

Company sold Minden Energy Corporation and three of its subsidiaries which were
principally engaged in the business of management of oil and gas partnerships.
In connection with this acquisition, Terrapin issued a promissory note to the
Company pursuant to which Terrapin agreed to pay $800,000 to the Company over 12
months along with 8% interest. The note has been repaid in full. The Company and
one of its subsidiaries entered into management agreements with Terrapin and one
of its subsidiaries pursuant to which Terrapin and Mr. Staedtler agreed to
provide certain management, accounting and other services to the Company and its
affiliates through May 1999. Pursuant to the terms of these agreements, Terrapin
received management fees of $590,500 during the fiscal year ended September 30,
1994. The Company has also agreed to indemnify Terrapin with respect to $311,000
of gas balancing liabilities related to partnerships previously managed by a
subsidiary of Terrapin.

SARS

Subsequent to September 30, 1994, William S. Sudhaus, President, Chief
Operating Officer, and a Director of the Company, exercised 112,500 SARs and
received upon such exercise $1,026,035. Such SARs had been granted to Mr.
Sudhaus in 1992 in consideration of his interest in IRLP. See "Proposal to
Approve the Refinery Plan -- Special Factors -- The Refineries."

PROPOSAL TO ELECT DIRECTORS

At the Annual Meeting, the Stockholders of the Company will be asked to
elect two classes of Directors to serve for the terms indicated and until
their successors are elected and qualified. In the unanticipated event that
any nominee for Director becomes unavailable it is intended that the proxies
will be voted for such substitute nominee as may be designated by the Board
of Directors.

The Company's Bylaws provide that the number of Directors of the Company
shall be not less than five, nor more than nine, as shall be determined by
the Board of Directors. Both the Bylaws and the Company's Certificate of
Incorporation also provide that the Directors shall be divided into three
classes, each class to consist, as nearly as possible, of one third of the
number of Directors to constitute the entire Board. At each annual meeting of
Stockholders of the Company, successors to the class of Directors whose term
expires at such meeting shall then be elected for a three-year term. The
Bylaws further provide that if the number of Directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of Directors in each class as nearly equal as possible.

Because the Company did not hold elections for Directors to serve in the
class of Directors whose term was to have expired in 1994, the Stockholders
are being asked to elect two classes of Directors whose terms will expire at
the 1997 Annual Meeting and the 1998 Annual Meeting, respectively. Further,
because the Board of Directors has determined to reduce the number of
Directors from seven to six, Mr. Castle has been nominated for election to
serve as a Director in the class whose term will expire at the 1998 Annual
Meeting.

The shares represented by the enclosed Proxy will be voted as directed. If
no choice is specified in the Proxy, the shares represented by the enclosed
Proxy will be voted "For" all nominees set forth below. The Board of
Directors recommends voting "FOR" each of the nominees to serve in the class
indicated.

Information concerning the nominees for both classes of Directors to be
elected, as well as those Directors not standing for election at the Annual
Meeting, is set forth below:

The following individuals are nominated to serve as Directors in the class
whose terms will expire at the 1997 Annual Meeting:

WILLIAM S. SUDHAUS has been a Director of the Company since February 1993.
Mr. Sudhaus became the President and Chief Operating Officer of the Company
in February 1994 having served as Executive Vice President of the Company
since December 1993. Mr. Sudhaus also serves as Chairman and Chief Executive
Officer of both IR&M and IPCO. Mr. Sudhaus previously served as Chairman,
President and Chief Executive Officer of IRMC, the former general partner of
IRLP, and as Chairman and Chief Executive Officer of Powerine. Effective
December 1991, Mr. Sudhaus became the Chairman and Chief Executive Officer of
IR&M when it assumed the duties as IRLP's general partner. Prior to assuming
his position with IRMC, Mr. Sudhaus was the President of Danik Corporation

<PAGE>

from January 1987 through May 1989, an investment banking and consulting firm to
companies operating in the areas of energy, trade finance, shipping and consumer
products. Mr. Sudhaus is the Chairman of the Board, President and Chief
Executive Officer of CORE. Mr. Sudhaus has informed the Company that he will
resign as a Director if a CORE Transaction is consummated. See "Proposal to
Approve the Refinery Plan."

MARTIN R. HOFFMANN has been a Senior Visiting Fellow at the Center for
Technology, Policy and Industrial Development of the Massachusetts Institute
of Technology since 1993 and a private business consultant since 1993. From
1989 to 1993, Mr. Hoffmann served as Vice President and General Counsel of
Digital Equipment Corporation. Prior to assuming this position, Mr. Hoffmann
practiced law as Managing Partner of the Washington, D.C. office of Gardner,
Carton and Douglas from 1977 to 1989. Mr. Hoffmann also served in various
capacities at the United States Department of Defense, including General
Counsel from 1974 to 1975 and Secretary of the Army from 1975 to 1977. Mr.
Hoffmann is a director of E-Systems, Inc.

The following individuals are nominated to serve as Directors in the class
whose terms will expire at the 1998 Annual Meeting:

JOSEPH L. CASTLE II has been a Director of the Company since 1985. Mr.
Castle is the Chairman of the Board of Directors and Chief Executive Officer
of the Company, having served as Chairman from December 1985 through May 1992
and since December 20, 1993. Mr. Castle also served as President of the
Company from December 1985 through December 20, 1993 when he reassumed his
position as Chairman of the Board. Mr. Castle has worked in the energy
industry in various capacities since 1971. Mr. Castle is a director of The
Reading Company, Comcast Corporation, Charming Shoppes, Inc., Independence
Capital Management, Inc. and Mark Centers Trust, a real estate investment
trust.

SIDNEY F. WENTZ has been Chairman of the Board of The Robert Wood Johnson
Foundation, the nation's largest health care philanthropy, since June 1989.
Commencing in 1967, he held several positions with Crum and Forster, an
insurance holding company, retiring as Chairman and Chief Executive Officer
in 1988. Previously, he was Corporate Attorney for Western Electric
Company/AT&T and then an attorney with the law firm of White & Case. Mr.
Wentz is a director of Ace Limited, a Bermuda-based insurance company, and a
trustee for Morristown Memorial Hospital and Drew University.

The following individuals are Directors whose terms will expire at the
1996 Annual Meeting:

SHELDON M. BONOVITZ has been a Director of the Company since September
1988 and is currently the Chairman of the Compensation Committee of the Board
of Directors. Mr. Bonovitz has been a partner of the Philadelphia law firm of
Duane, Morris & Heckscher since 1966, was Chairman of the Tax Department of
that firm from 1972 to 1994, and is currently Vice Chairman of that firm
since 1992 and has served as a member of the partners Board of that firm
since 1976. Mr. Bonovitz is also a director of Comcast Corporation, WWF Paper
Corporation, The Graham Company, Inc., Surgical Laser Technologies, Inc. and
Escalon Opthalmics, Inc.

JOHN W. SULLIVAN has been a Director of the Company since January 1986.
Since April 1987, Mr. Sullivan has been the President of Loblolly Pines
Development Company, a real estate development firm located in Hobe Sound,
Florida. Mr. Sullivan is a director of The Reading Company.

PROPOSAL TO APPROVE THE FIRST
AMENDMENT TO THE COMPANY'S 1992
EXECUTIVE EQUITY INCENTIVE PLAN

At the Annual Meeting, the Stockholders of the Company will be asked to
consider and approve the Amendment to the Incentive Plan. A copy of the
Incentive Plan, which reflects the Amendment, is attached to this Proxy
Statement as Exhibit A. The Amendment, which amends the Incentive Plan to
provide for limited grants of options to purchase Common Stock to Directors
of the Company who are not employees of the Company or its subsidiaries
("Outside Directors"), was originally adopted by the Board of Directors on
May 11, 1993, and then amended and readopted by the Board on November 17,
1994.

<PAGE>
The shares represented by the enclosed Proxy will be voted as directed. If
no choice is specified in the Proxy, the shares represented by the enclosed
Proxy will be voted "FOR" the proposal to adopt the Amendment. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO ADOPT THE AMENDMENT.

If the Amendment is not approved by Stockholders, the options granted to
Outside Directors as described below will be automatically cancelled. The
Company does not presently intend to provide any substitute compensation to
its Outside Directors.

THE AMENDMENT

Pursuant to the terms of the Amendment, each Outside Director will
automatically be granted an option to purchase 5,000 shares of Common Stock
each calendar year on the earlier of (a) the first trading day coinciding
with or immediately following the fifteenth day after the Company's regular
annual meeting, or (b) the first trading day in May. Each such option will be
exercisable at 100% of the Fair Market Price, as defined in the Incentive
Plan, of the Common Stock on the date of the grant, and will terminate ten
years from the date of grant.

On May 2, 1994, the Company granted options to the Outside Directors
(Messrs. Benson, Bonovitz, Musser and Sullivan) to purchase 5,000 shares of
Common Stock at $11.75, contingent upon Stockholder approval of the
Amendment.

REASONS FOR ADOPTING THE AMENDMENT

The purpose of the Incentive Plan is to increase the ownership of Common
Stock by those key employees and Directors who contribute to the continued
growth, development and financial success of the Company and its
subsidiaries. The Board of Directors believe that it is in the Company's best
interest to grant stock options to such employees and Directors in order to
align the interests of such individuals with the Stockholders and thereby
maximize long-term Stockholder value.

The Incentive Plan is intended to comply with all applicable requirements
of Rule 16b-3 promulgated pursuant to the Exchange Act, which provides that
transactions in equity securities of the Company by an officer or director of
the Company pursuant to a qualified employee benefit plan shall be exempt
from the short-swing profit recapture provisions of Section 16(b) of the
Exchange Act. Although compliance with Rule 16b-3 will not exempt officer or
director grantees of options from the six-month holding period requirement
imposed upon such grantees by Rule 16(b)-3(c)(1) with respect to options
granted under the Incentive Plan, compliance by the Incentive Plan with Rule
16b-3 will permit such grantees to sell equity securities in the Company,
including shares of Common Stock (other than shares of Common Stock received
upon exercise of an option granted within the immediately preceding six-month
period), within six months of an exempt grant. If the Incentive Plan did not
comply with the applicable requirements of Rule 16b-3, such grantees would be
restricted in their ability to sell shares of, or options for, Common Stock
and, as a result, the compensation value of the Incentive Plan would be
reduced. One requirement for compliance with Rule 16b-3 is that the Incentive
Plan be administered by a committee of Outside Directors who are not eligible
to receive options under the Incentive Plan except pursuant to a
nondiscretionary formula. In order to ensure compliance with this
requirement, the Incentive Plan, as originally adopted by the Company,
provided that Outside Directors were eligible to receive one grant of options
to purchase 5,000 shares of Common Stock at the time the Outside Director
first was elected to the Board. In furtherance of the goal of the Incentive
Plan to increase ownership of Common Stock by key employees and Directors,
the Board has proposed the adoption of the Amendment to include a formula to
provide for automatic, nondiscretionary annual grants of options to the
Outside Directors to purchase 5,000 shares of Common Stock, which would
permit the Company to increase the ownership of Common Stock by the Outside
Directors under the Incentive Plan in a manner which should not impair the
Incentive Plan's compliance with the provisions of Rule 16b-3.

NEW INCENTIVE PLAN BENEFITS

On May 2, 1994, the Company issued each Outside Director (Messrs.
Bonovitz, Benson, Musser and Sullivan) options to purchase 5,000 shares of
Common Stock, at $11.75 per share, contingent upon receipt of Stockholder
approval of the Amendment. The following table sets forth the contingent
benefits received during the fiscal year ended September 30, 1994, as if the
Amendment had been in effect:

<PAGE>
Dollar Value
Name and Position ($) Number of Units
----------------------------- -------------- -------------------
Non-Executive Director Group $85,000((1)) 20,000 options((2))

- ------
(1) Value of unexercised in-the-money options as of September 30, 1994.

(2) These options, which expire on May 2, 2004, will be null and void in the
event that the Stockholders do not approve the Amendment.

The Amendment does not create new benefits for the Named Executives, other
executives of the Company or Directors who are employed by the Company or its
subsidiaries.

OTHER TERMS OF THE 1992 EXECUTIVE EQUITY INCENTIVE PLAN

The following constitutes a brief discussion of the material features of
the Incentive Plan, as amended, and is qualified in its entirety by reference
to a copy of the Incentive Plan which, as proposed to be amended, is attached
as Exhibit A to this Proxy Statement.

Number of Shares. The Incentive Plan provides that an aggregate of 562,500
authorized but unissued shares of Common Stock of the Company will be
available for awards in the form of stock options, including incentive stock
options and nonqualified stock options. The aggregate number of shares of
Common Stock available under the Incentive Plan is subject to adjustment to
reflect certain subsequent stock changes such as stock dividends, stock
splits and share exchanges.

Administration. The Incentive Plan is administered by the Compensation
Committee which includes not less than two Outside Directors who do not hold
the position of Chairman of the Board of the Company, and who are appointed
by the Board. Members of the Compensation Committee may not participate in
the Incentive Plan except pursuant to a formula provided in the Incentive
Plan, and at any time within one year prior to appointment to the
Compensation Committee, (a) will not have been eligible to receive options
under the Incentive Plan other than pursuant to a formula and (b) will not
have been a person to whom stock options could be granted pursuant to any
other plan of the Company or any of its subsidiaries.

Eligibility. Stock options may be granted to any employee of the Company
or any of its subsidiaries (currently approximately 825 individuals) or to
any Director who holds the position of Chairman of the Board of the Company
or who is also an employee of the Company or any of its subsidiaries ("Inside
Directors") in any case whose rates of pay or fringe benefits are not
negotiated under a collective bargaining agreement. In selecting the
individuals to whom options will be granted, as well as in determining the
number of shares of Common Stock subject to each option to be granted, the
Compensation Committee will take into consideration such factors as it deems
relevant in connection with promoting the purposes of the Incentive Plan
pursuant to a formula provided in the Incentive Plan. Pursuant to the terms
of the Amendment, if adopted, Outside Directors will be eligible to receive
non-qualified stock options to purchase 5,000 shares of Common Stock to be
granted automatically each calendar year on the earlier of (a) first trading
day coinciding with or immediately following the fifteenth day after the
Company's regular annual meeting or (b) the first trading day in May.

Term of Grant. The term of each stock option granted under the Incentive
Plan will be for a period of not more than 15 years from the date of the
grant (ten years in the case of incentive stock options and nonqualified
options granted to Outside Directors), and will be subject to earlier
termination as provided in the Incentive Plan.

Grant of Stock Options. Generally, each grant of stock options will be
exercisable in one or more installments commencing any time after six months
from the date of the grant of such option. The Compensation Committee will
determine the per share purchase price of the Common Stock subject to stock
options (the Option Price"); provided that the Option Price will not be less
than fifty percent (50%) of the Fair Market Value, as defined in the
Incentive Plan, of the Common Stock on the date of grant. Further, in the
case of incentive stock options or options granted to Outside Directors, the
Option Price will not be less than one hundred percent (100%) of the Fair
Market Value of the Common Stock on the date of the grant; provided, however,
that in the case of a grant of an incentive stock option to an employee who
owns more than ten percent of the voting stock of the Company, the price will
be not less than one hundred ten percent (110%) of the Fair Market Value of
the Common Stock on the date of grant.

<PAGE>
Employees' Agreement to Serve. Each employee who is granted an option
must, by the terms of such grantee's option agreement, agree that such
grantee will remain an employee of the Company or any of its subsidiaries for
at least one year after the date of the grant, unless earlier terminated by
the Company.

Special Rules for Officers, Directors and 10% Stockholders. With respect
to those persons who, for purposes of Section 16 of the Exchange Act, are
treated as officers, directors or 10% stockholders of the Company
("Insiders"), no stock option may be disposed of (other than upon exercise or
conversion) until after six months after the date of its grant. This
limitation will not apply if the death or Permanent Disability, as defined in
the Incentive Plan, of the grantee occurs prior to the expiration of the
six-month period.

Effect of Change of Control. Notwithstanding any other provisions of the
Incentive Plan except with respect to Insiders, all options granted under the
Incentive Plan may be disposed of commencing on the date of a Change of
Control, as defined in the Incentive Plan; provided, however, that the
Company may cancel all such options under the Incentive Plan as of the date
of a Change of Control by giving notice to each grantee thereof of its
intention to do so and by permitting the purchase during the thirty-day
period next preceding such effective date of all of the shares subject to
such outstanding options.

Termination of Employment. An unexercised option terminates within one
year after the termination of a grantee's employment by death or Permanent
Disability, as defined in the Incentive Plan, and within 90 days of
termination by normal retirement. If the grantee has a termination of
employment for any reason other than by death, retirement or Permanent
Disability, any unexercised option to the extent exercisable on the date of
such termination of employment, may be exercised, in whole or in part, at any
time within three months from the date of such termination of employment.

Intent to Comply with Section 16 of the Securities Exchange Act of
1934. With respect to Insiders subject to Section 16 of the Exchange Act,
transactions under the Incentive Plan are intended to comply with all
applicable conditions of Rule 16b-3 (which relates to transactions which may
be deemed exempt under Section 16(b) of the Exchange Act) or its successors
under the Exchange Act. See "Reasons for Adopting the Amendment." To the
extent any provision of the Incentive Plan or action by the Board or the
Compensation Committee fails to so comply, it will be deemed null and void,
to the extent permitted by law and deemed advisable by the Board and the
Compensation Committee.

Amendment of Incentive Plan. The Board may make such modifications of the
Incentive Plan as it may deem advisable, but may not, without further
approval of the Stockholders of the Company, except as provided in the
Incentive Plan, materially increase the number of shares of Common Stock
reserved for issuance under the Incentive Plan; materially increase the
benefits accruing to participants under the Incentive Plan; materially modify
the requirements as to eligibility for participation in the Plan; or extend
the date of termination of the Plan. Notwithstanding the foregoing, the
provisions in the Plan relating to the grant of stock options to Outside
Directors pursuant to a formula may not be amended more than once every six
months, other than to comport with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act, or the rules thereunder. The Board
may amend the Plan or any agreement under the Plan to provide for any
amendment to or revision of Section 16 of the Exchange Act.

Termination of Plan. The Plan will terminate on December 22, 2007 or at
such earlier time as the Board may determine. Any termination, whether in
whole or in part, will not affect any option then outstanding under the
Incentive Plan.

<PAGE>
PROPOSAL TO APPROVE THE REFINERY PLAN

At the Annual Meeting, the Stockholders of the Company will be asked to
consider and approve the Refinery Plan and thereby authorize the Company and
its subsidiaries to sell certain assets, including the Company's 86,000
barrel per day refinery located in Lawrenceville, Illinois (the "Indian
Refinery"), and the Company's 49,500 barrel per day refinery located in Santa
Fe Springs, California (the "Powerine Refinery" and, together with the Indian
Refinery, the "Refineries"), on such terms and conditions as the Board of
Directors may approve, subject to certain minimum price conditions. The
Refinery Plan is attached to this Proxy Statement as Exhibit B.

The shares represented by the enclosed Proxy will be voted as directed. If
no choice is specified, the shares represented by the enclosed Proxy will be
voted "FOR" the approval of the Refinery Plan. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE REFINERY PLAN.

TERMS OF THE REFINERY PLAN

The Refinery Plan provides for the Company and certain of its subsidiaries
(the "Refinery Subsidiaries") to sell the Refineries and related assets. The
Refinery Subsidiaries, which own all of the assets utilized in the Company's
Refinery operations, include IRLP, which owns and operates the Indian
Refinery; IR&M, the general partner of IRLP; Powerine Holding Corp., a
holding company which owns all of the capital stock of Powerine; Powerine,
which owns and operates the Powerine Refinery; IPLP, a crude oil and
feedstock merchant; IPLP's general partner IPCO; Castle Refining Company, a
holding company which owns all of the capital stock of Indian Refining
Company ("IRC"); IRC, which owns certain land located contiguous to the
Indian Refinery; and Castle Energy Canada Ltd., which explores strategic
opportunities for Canadian feedstock suppliers and assists in the
administration of a Long Term Supply Agreement (the "Shell Contract") among
Shell Canada Limited and its wholly-owned subsidiary Salmon Resources Ltd.
(collectively, "Shell"), IRLP, IR&M and MGRM.

Under the Refinery Plan, the Company may sell the Refineries and the other
assets of the Refinery Subsidiaries in one or more transactions, by sale of
assets, sale of capital stock of or partnership interests in the Refinery
Subsidiaries, by mergers involving subsidiaries of the Company, or any
combination thereof or in such other manner as the Board of Directors of the
Company may approve. The Refinery Plan permits the sale of one of the
Refineries, regardless of whether any transaction for the sale of the other
Refinery has been entered into or consummated. In any Refinery Transaction,
certain assets and liabilities may be retained by the Company; any such
retained assets may be disposed of in subsequent transactions or may be
retained by the Company on a long-term basis.

For example, if a purchaser were to propose to acquire the stock of
Powerine for $1 plus the Working Capital Market Value, the Consideration Paid
(for purposes of determining whether the Minimum Consideration has been
received) in such transaction would include the value of Powerine's
liabilities (the book value of which was approximately $27.9 million at
December 31, 1994, excluding working capital liabilities) and the net

<PAGE>
amount of shutdown expenses avoided by such transaction (approximately
$900,000 at December 31, 1994). Accordingly, if such a transaction had
occurred on December 31, 1994, the value of the Consideration Paid in such
transaction would have been approximately $28.8 million plus the Working
Capital Market Value, which would have exceeded the Minimum Consideration for
the Powerine Refinery by approximately $18.8 million. Similarly, if a
purchaser were to propose to acquire the assets and assume all of the
liabilities of the Indian Refinery for $1 plus the Working Capital Market
Value, the Consideration Paid (for purposes of determining whether the
Minimum Consideration has been received) in such transaction would include
the value of such liabilities (the book value of which was approximately $3.0
million at December 31, 1994, excluding working capital liabilities) and the
net amount of shutdown expenses avoided by such transaction (approximately
$18.7 million at December 31, 1994). Accordingly, if such a transaction had
occurred on December 31, 1994, the value of the Consideration Paid in such
transaction would have been approximately $21.7 million plus the Working
Capital Market Value, which would have exceeded the Minimum Consideration for
the Indian Refinery by approximately $16.7 million. The excess of the
liabilities and estimated net shutdown costs of each Refinery over the
respective Minimum Consideration ($18.8 million for the Powerine Refinery and
$16.7 million for the Indian Refinery) is shown on the pro forma financial
statements included in this Proxy Statement as the "maximum stipulated
reduction." See "Pro Forma Consolidated Financial Statements of the Company."

Except for the determination of the Working Capital Market Value, the
Minimum Considerations will not be apportioned among portions of the assets
of either Refinery. If a purchaser offers to purchase only certain assets of
a Refinery, the Consideration Paid must equal or exceed the Minimum
Consideration with respect to such Refinery for such transaction to be
considered authorized by the Refinery Plan (unless one or more additional
transactions are also consummated at or prior to such time for total
Consideration Paid at least equal to such Minimum Consideration).

At December 31, 1994, the estimated maximum Working Capital Market Value
of the Indian Refinery of approximately $37.9 million exceeded the maximum
stipulated reduction for the Indian Refinery by approximately $21.2 million
and the maximum stipulated reduction of the Powerine Refinery exceeded the
estimated maximum Working Capital Market Value of the Powerine Refinery of
approximately $12.6 million by approximately $6.2 million. If, at the time of
a Refinery Transaction, the Working Capital Market Value for the Refinery or
Refineries involved in such Refinery Transaction were less than the maximum
stipulated reduction(s), and if the purchaser in such Refinery Transaction
directly or indirectly assumed all of the liabilities of such Refinery or
Refineries, the Company could make a net payment to such purchaser and still
satisfy the Minimum Price Condition. The Company anticipates that the maximum
Working Capital Market Values will continue to decrease as a result of the
negative cash flow being experienced by the Refineries. At March 31, 1995,
the maximum stipulated reduction of the Powerine Refinery exceeded the
estimated maximum Working Capital Market Value of the Powerine Refinery of
approximately $9.1 million by approximately $9.6 million. If, as of such
date, the purchaser of the Powerine Refinery directly or indirectly assumed
all of the liabilities of such Refinery, the Company could make a net payment
to such purchaser of $9.6 million and still satisfy the Minimum Price
Condition.

The value of any non-cash consideration, including assumption of
liabilities and avoidance of shutdown expenses, received by the Company in
any Refinery Transaction will be determined by the Board of Directors of the
Company. In valuing any non-cash consideration, the Board of Directors may
seek opinions, appraisals, or other assistance from independent sources such
as investment banking firms or appraisers. However, the Refinery Plan
expressly provides that the Board of Directors may approve and consummate any
transaction, including a transaction in which the purchaser is an affiliate
of the Company or any member of its senior management, without seeking or
obtaining any such fairness opinion or appraisal and, in connection with any
transaction pursuant to the Refinery Plan, may waive any condition requiring
any such opinion or appraisal. Accordingly, the Board of Directors will have
considerable discretion in determining whether a particular transaction
satisfies the Minimum Price Condition.

The Refinery Plan provides authorization for Refinery Transactions for
which definitive agreements are entered into on or before December 31, 1995.

The Refinery Plan does not obligate the Company to sell either Refinery,
and the Board of Directors may reject an offer for one or both Refineries
even if such offer satisfies the Minimum Price Condition.

<PAGE>
If Stockholders approve the Refinery Plan, the Company does not
contemplate that further Stockholder approval will be sought in connection
with any proposed Refinery Transaction which satisfies the Minimum Price
Condition. The Company may seek such approval, however, if the Board of
Directors determines it is appropriate in connection with any transaction.

Under the General Corporation Law of the State of Delaware (the "Delaware
Law"), a sale of all or substantially all of the assets of a Delaware
corporation must be approved by the affirmative vote of the holders of a
majority of the corporation's capital stock entitled to vote. Although it is
not clear whether the Refinery Transactions would constitute a sale of all or
substantially all of the assets of the Company, as such term is used in the
Delaware Law, the Board of Directors of the Company has determined to seek
Stockholder approval of the Refinery Plan. However, if the Stockholders do
not approve the Refinery Plan, the Board of Directors will consider the
alternatives available under Delaware law, including, but not limited to,
discontinuing the operations of the Refineries or disposing of one or both of
the Refineries in a manner consistent with Delaware law. The Board has not
made any determination as to whether to proceed with a disposition of one or
both of the Refineries in the absence of Stockholder approval. Any such
determination will depend on circumstances existing at the time, including
the actual results of any vote and the terms of any particular transaction.

STATUS OF THE REFINERY TRANSACTIONS

As of the date of this Proxy Statement, the Company has not entered into
any definitive agreements with respect to the sale of either Refinery. The
Company is currently soliciting bids for the Refineries. The Company has
entered into a letter of intent with Ampton Investments, Inc. ("Ampton"), an
investment firm that is not affiliated with the Company, to sell, to a
corporation to be formed by Ampton and others (the "Ampton Purchaser"), the
stock of Powerine or its parent for $10 million in cash plus the value of the
Powerine Refinery's working capital (which is expected to include the value
of its platinum and similar assets). Since such letter of intent provides for
the purchase of stock of the subsidiary, as a result of which the Ampton
Purchaser will indirectly assume liabilities of the Powerine Refinery as well
as enable the Company to avoid shutdown costs, such a transaction would meet
the Minimum Price Condition. The Company is currently negotiating definitive
agreements for such transaction and Ampton is seeking financing for the
purchase. Wickland Oil Company ("Wickland"), which is not affiliated with the
Company and which Ampton anticipates will provide certain of such financing,
has provided certain interim financing for the Powerine Refinery. See
"Special Factors -- Background of the Refinery Plan -- MG Credit Facilities."
There can be no assurance that definitive agreements for such purchase will
be entered into or that any transaction with Ampton will be consummated. The
Company had agreed that if, prior to April 30, 1995, the Company entered into
an agreement to sell the Powerine Refinery to a party other than Ampton and
certain of its associates, the Company would pay a break-up fee of $500,000.
In addition, the Company had agreed that if it terminated negotiations for
such sale prior to April 30, 1995, and such fee was not payable, the Company
would reimburse Ampton for its out-of-pocket expenses. Both of such
provisions have expired without the Company incurring any liability. The
letter of intent also provides that, after execution of definitive
agreements, the Company will be permitted to accept higher offers, but will
be obligated to pay a fee of $1,000,000 if it does so.

<PAGE>

liabilities. CORE is currently exploring sources of financing for such a
transaction. Although the Company has agreed to reimburse a potential investor
in CORE for certain expenses, up to a maximum of $250,000, the Company has not
entered into any agreements or letter of intent with CORE for such a
transaction. The Company has advised such investor that, until CORE progressed
further in obtaining its financing, the Company will not consider further
expenses as reasonable and will not reimburse such expenses. Because CORE's
payment for the adjusted working capital would be expected to approximate the
Working Capital Market Value, and the Consideration Paid would include the
amount of the environmental liabilities of the Indian Refinery (the book value
of which liabilities was approximately $3.0 million at December 31, 1994) and
the net shutdown costs avoided (approximately $18.7 million at December 31,
1994), the Consideration Paid by CORE would exceed the Minimum Consideration for
the Indian Refinery even if the royalty payments were valued at zero.
Accordingly, a CORE Transaction on substantially the foregoing terms would
satisfy the Minimum Price Condition. The Company has not entered into any
agreements or letter of intent with CORE for such a transaction.

There can be no assurance that any Refinery Transaction will be
consummated, on the terms described herein or at all. See "Special Factors --
Background of the Refinery Plan" for a discussion of the Company's efforts to
sell the Refineries, to CORE and to others.

SPECIAL FACTORS

THE REFINERIES

The Indian Refinery. Prior to 1989, the Company was engaged only in oil
and gas exploration and production. In August 1989, the Company acquired IRC,
which owned the Indian Refinery, for a total cost of approximately $21
million (inclusive of liabilities assumed). In April 1990, IRC transferred
the Indian Refinery to IRLP, an Illinois limited partnership in which the
Company owned 92.5% of the limited partnership interests. The remaining 7.5%
limited partnership interests were held by several individuals, including
William S. Sudhaus, President, Chief Operating Officer and a Director of the
Company and Chairman and Chief Executive Officer of CORE.

In November and December 1992, IRLP acquired 5.5% of the remaining limited
partnership interests of IRLP from certain current and former members of
management of IRLP, including 3.7% from Mr. Sudhaus. In return for his
interest, IRLP granted Mr. Sudhaus 112,500 stock appreciation rights,
entitling Mr. Sudhaus to a cash amount equal to the difference between the
average price per share of the Company's Common Stock for the 20 trading days
preceding the date of exercise and $6.00. In June 1993, IRLP acquired Mr.
Sudhaus' remaining 2% of IRLP limited partnership interest in exchange for
150,000 additional stock appreciate rights entitling Mr. Sudhaus to a cash
amount equal to the difference between the average price per share of the
Company's Common Stock for the 20 trading days preceding the date of exercise
and $12.50. At that time, IRLP became an indirect wholly-owned subsidiary
limited partnership of the Company. On October 31, 1994, Mr. Sudhaus
exercised 112,500 SARs with a base price of $6.00 and received an aggregate
of $1.026 million. Since startup in 1990, the Company has invested over $140
million in the Indian Refinery, increasing capacity 50% to 86,000 barrels per
day and conforming the Indian Refinery's operations to the requirements of
the Clean Air Act.

The Powerine Refinery. In August 1993, the Company entered into a letter
of intent with MG pursuant to which the Company agreed to purchase an option
held by MG to acquire Powerine. This option had been acquired by MG in March
1993 for $8 million and the assumption of an indemnity obligation. Pursuant
to the terms of an Option Assignment Agreement dated as of October 1, 1993,
the Company (a) paid MG $8 million

45
<PAGE>
for the Powerine Option which was immediately exercised for nominal
consideration; (b) assumed MG's estimated indemnity obligation related to
yield losses incurred by Powerine under a processing arrangement with MG; (c)
assumed a $2.7 million tax indemnification to the previous owner of Powerine;
(d) assumed $128 million of debt obligations to MG and other liabilities of
$45 million; and (e) paid transaction costs of $980,000. Concurrently with
the closing of the Powerine acquisition, (i) MGRM entered into the Powerine
Offtake Agreement, (ii) MGTFC entered into the revised Powerine Loan
Agreement and (iii) Powerine became a party to the MG Supply Agreement. See
"Certain Relationships and Related Transactions -- MG and Its Affiliates."

Acquisition Costs, Book Values, and Consideration to be Received. The
Company paid aggregate consideration of approximately $21,000,000 for the
Indian Refinery and approximately $153,000,000 for the Powerine Refinery. As
of September 30, 1994, the book value of the property, plant and equipment,
furniture and fixtures and acquired goodwill of the Refineries, including
improvements and net of accumulated depreciation and amortization, was
approximately $123,000,000 for the Indian Refinery and approximately
$180,500,000 for the Powerine Refinery. However, at December 31, 1994, as a
result of the termination of the Offtake Agreements and the Company's
inability to sell the Refineries to that date, the Company wrote-down its
refining property, plant and equipment, furniture and fixtures and acquired
goodwill to zero assuming that the Refineries would be abandoned. The Company
also recorded a provision for anticipated severance and closing costs, net of
an offer the Company has received to purchase the refining equipment of the
Powerine Refinery. If the Refineries are sold, any proceeds exceeding that
offered for the refining equipment of the Powerine Refinery and any resulting
decrease in anticipated severance or closing costs or environmental
liabilities will be reported in the period in which the sale occurs as a
reversal of the loss provision. See Note 3 to the financial statements
included in the Form 10-Q.

BACKGROUND OF THE REFINERY PLAN

Certain Consequences of The MG Settlement. The completion of the
transactions contemplated by the MG Settlement (see "Certain Relationships
and Related Transactions -- MG and Its Affiliates") has, among others, three
consequences for the Company. First, effective February 1, 1995, the Offtake
Agreements terminated and the Company's sale of refined products are now
subject to market risks. Second, effective March 31, 1995, the working
capital facilities provided by MG terminated, which requires the Company to
raise other financing for its Refinery operations. (See "MG Credit
Facilities" below.) Third, for Federal and state income tax purposes, the
Company recognized income of $391 million, on which, after giving effect to
applicable net operating loss and depletion carryovers and other items of
expense and deduction, Federal and state income taxes of approximately $91
million would have been owing as of September 30, 1994 unless the Company
sells or abandons its Refinery assets. See "Certain Tax and Accounting
Matters."

The Company began to explore its options for dealing with these
consequences before and during the negotiation of the MG Settlement. The
Company considered a number of alternatives, ranging from continuing the
refining operations on substantially the same basis as prior to the MG
Settlement, but obtaining new working capital financing and a new customer
base, to selling or closing the Refineries. The Company believed, however,
that it would need to raise substantial new equity for the payment of its
income taxes, in addition to raising the working capital financing for the
Refineries, if it decided to continue the Refinery operations. Further,
continuing the Refinery operations would require the Company to add
significant marketing personnel, expertise and expense. On the other hand,
closing the Refineries would result in substantial shutdown costs, including
severance obligations to employees and potential environmental clean-up
costs, although it would allow the Company to write-off the costs of its
Refineries to substantially reduce its taxes.

Accordingly, the Company early on determined to focus its efforts on
seeking to sell the Refinery operations.

Efforts to Sell the Refineries (other than to CORE). During the spring of
1994, a multinational company began discussions with the Company concerning
such company forming a marketing organization under the direction of W.
Arthur Benson, a Director of the Company, which would market substantially
all of the refined product of the Refineries. In connection with such
discussions, in August 1994, such company entered into preliminary
discussions with the Company about acquiring one or both of the Refineries.
After completing significant due diligence, however, such company informed
the Company in October 1994 that it was not interested in engaging in a
transaction.

<PAGE>

With the assistance of its financial advisor Lazard Freres & Co. LLC
("Lazard"), the Company began in September 1994 to try to identify other
potential buyers for one or both of the Refineries and to prepare information
for such potential buyers. The Company believed, however, that, because the
financial and operating condition of the Refineries would differ
significantly depending on whether the MG Settlement was completed, the
Company could not actively solicit potential buyers until the completion of
the MG Settlement. Accordingly, commencing in late October 1994, the Company
and Lazard began to solicit potential buyers for the Refineries. Initially,
in excess of 40 potential buyers were contacted. Between October 1994 and
January 1995, 16 of those parties expressed sufficient interest to receive
certain confidential material, one visited a "data room" the Company
established, and one received information from the data room. During this
period, none of these parties made an offer to buy either Refinery nor
expressed further interest in pursuing such a transaction. One party made an
offer to purchase the equipment of the Powerine Refinery for $15 million, and
other parties expressed interest in acquiring certain equipment for scrap
prices. The Company is currently in discussions with certain of such parties
for possible sales of some of such equipment. Certain parties also expressed
interest in negotiating long-term processing agreements; however, because
long-term processing agreements would not address the consequences of the MG
Settlement other than the termination of the Offtake Agreements, and interim
processing arrangements are generally not profitable to the other party and
therefore not generally obtainable on favorable terms, the Company has not
pursued such agreements.

In addition, in February and March 1995, the Company solicited bids for
the Powerine Refinery from at least 11 persons (including some of the parties
previously contacted). Through such efforts, the Company has received the
proposal from Ampton and the equipment purchase proposals described under
"Status of the Refinery Transactions." See also "MG Credit Facilities" below.

The Company is continuing to try to identify potential bidders and to
solicit additional bids.

The SIPAC Agreement. In July 1994, William S. Sudhaus, President, Chief
Operating Officer and a Director of the Company, began discussions with
Joseph L. Castle II, Chairman of the Board of the Company, and subsequently
with certain other members of the Board of Directors of the Company
(including those who later were named to the Special Committee), regarding
the possibility of Mr. Sudhaus forming a group to acquire the Refinery
operations. Mr. Sudhaus was joined in certain of such discussions by
Oppenheimer & Co., Inc. ("Oppenheimer"), which contemplated possibly
participating in such a group and raising or assisting in raising the
financing for such an acquisition. In addition, during such discussions, Mr.
Sudhaus informed the Company that it was contemplated that Craig R.
Culbertson would participate in the buy-out group. Mr. Culbertson is a
partner in the law firm of Jenner & Block, which regularly acts as counsel to
the Company, and is General Counsel to and Secretary of the Company.

As a result of the discussions between the Company and Mr. Sudhaus, in
late August 1994, the Company, with the unanimous approval of the Board of
Directors (Messrs. Sudhaus and Benson abstaining), entered into a letter
agreement with Mr. Sudhaus, authorizing him to seek to assemble a group to
effect such an acquisition and in the course of such efforts to divulge
confidential information subject to the recipients signing appropriate
agreements to keep such information confidential. The Company also agreed to
pay expenses of up to $250,000 in connection with Mr. Sudhaus's efforts. Such
agreement was superseded by the SIPAC Agreement (as defined below), which did
not limit the amount of expenses to be paid by the Company.

General discussions with Mr. Sudhaus continued through October 1994. It
was initially contemplated in such discussions that Mr. Sudhaus's group would
purchase both Refinery operations for a fixed amount of approximately $40
million plus a cash payment for working capital. It was also initially
contemplated that the fixed amount would be payable partly by a convertible
note of the buyer and partly in cash. In later discussions, it was
contemplated that, to increase the Company's potential equity interest if the
buyer were to be successful in operating the Refineries, the entire fixed
amount (which the parties ultimately agreed would be $38.75 million) would be
payable by a convertible note. In addition, Mr. Sudhaus agreed that the buyer
would assume certain liabilities of the Company and agreed to certain
adjustments proposed by the Company to the manner of determining the working
capital payment. The Company and Mr. Sudhaus also believed that, by providing
for the entire fixed amount to be paid by a convertible note, Mr. Sudhaus
could more easily raise the financing necessary to consummate the
transactions.

On October 20, 1994, the Board of Directors formed the Special Committee
to consider Mr. Sudhaus's proposal. The Special Committee consists of Mr.
Castle, John W. Sullivan and Sheldon M. Bonovitz. The members of the Special

<PAGE>

Committee, prior to the formal appointment of the Special Committee, had been
engaged in the negotiations with Mr. Sudhaus on an ad hoc basis. See "Proposal
to Elect Directors" for a description of the business experience of Messrs.
Castle, Sullivan and Bonovitz. Except for Mr. Castle, none of the members of the
Special Committee is affiliated with the Company or any of its affiliates (other
than in his capacity as a Director). Mr. Bonovitz is a partner with the law firm
of Duane, Morris & Heckscher, which provides legal services to the Company. (See
"Executive Compensation -- Compensation Committee Interlocks and Insider
Participation.") None of the members of the Special Committee is affiliated with
or anticipates having any interest in CORE or any of its affiliates. At a
meeting of the Board of Directors held on December 1, 1994, following delivery
of the Special Committee's report and recommendation to the Board and completion
of the Board's consideration of the original purchase agreement with CORE, the
Board determined that each member of the Special Committee, other than Mr.
Castle, would receive the sum of $40,000 for his service on the Special
Committee. Mr. Bonovitz, because of his firm's retention by the Special
Committee as described below, waived such fee. Accordingly, only Mr. Sullivan
received such fee.

Also on October 20, 1994, the Special Committee met and confirmed the
retention of Lazard as financial advisor and retained Duane, Morris &
Heckscher as legal counsel. At meetings (telephonic and in person) on October
20, 1994, November 27, 1994, and November 30, 1994, the Special Committee met
with its legal and financial advisors to discuss Mr. Sudhaus's proposal and
review the terms of drafts of agreements for such transaction. During this
period, and until the execution of the original agreement with CORE (then
known as SIPAC, Inc.) (the "SIPAC Agreement") on December 5, 1994, the
Special Committee and its advisors also negotiated the terms of the SIPAC
Agreement with Mr. Sudhaus and his advisors.

At the November 30, 1994 meeting of the Special Committee, the Special
Committee reviewed a substantially complete draft of the SIPAC Agreement,
which included substantially the terms ultimately embodied in the definitive
SIPAC Agreement. The Special Committee unanimously determined to recommend
that the Board of Directors approve the SIPAC Agreement. At a meeting the
following day, the Board of Directors (with one member absent, and with Mr.
Sudhaus not participating) received the report and recommendation of the
Special Committee and unanimously approved the SIPAC Agreement.

On December 5, 1994, after completion of the definitive SIPAC Agreement,
the parties executed and issued a press release announcing the SIPAC
Agreement.

In February 1995, Mr. Sudhaus informed Mr. Castle that CORE would be
unable to raise the $125-$150 million of financing needed to complete the
transactions contemplated by the SIPAC Agreement. Accordingly, on February
27, 1995, the Company terminated the SIPAC Agreement. Through the date
hereof, the Company has paid or reimbursed CORE for expenses of CORE in the
aggregate amount of approximately $1.1 million in connection with the SIPAC
Agreement. Although there is no agreement between the parties, it is
anticipated that, if a CORE Transaction is consummated, CORE will repay to
the Company a substantial portion of the amount that the Company has paid or
reimbursed CORE for expenses. The Company does not anticipate any further
material expenses of CORE relating to the SIPAC Agreement, although the
Company has agreed to reimburse a potential investor in CORE, which investor
is not affiliated with the Company, under certain circumstances for certain
expenses, up to a maximum of $250,000, in connection with CORE's pursuit of a
CORE Transaction. See "Status of the Refinery Transactions."

Shell Litigation. On December 27, 1994, Shell brought suit (the "Shell
Litigation") in the United States District Court for the Northern District of
Illinois, seeking a declaration that the Shell Contract had been
anticipatorily repudiated and frustrated and had become impossible to perform
due to MGRM's changed relationship with IRLP as a result of the MG
Settlement. The Shell Contract provides for Shell to supply to IRLP and IR&M
specified volumes of certain petroleum feedstocks for a term of 10 years
ending in 2002 and requires MGRM to purchase such feedstocks if IRLP and IR&M
do not. Shell had in November 1994 requested certain performance assurances
from MGRM and had asserted that, pursuant to a provision of Illinois law,
Shell was entitled to terminate the Shell Contract if such assurances were

<PAGE>

not provided. Although MGRM stated that it believed Shell was not entitled to
such assurances, MGRM provided certain assurances. Shell stated in the Shell
Litigation, however, that such assurances "failed to provide commercially
reasonable" assurances and that it is therefore entitled to terminate the Shell
Contract. On January 17, 1995, IRLP moved to dismiss Shell's complaint for
improper venue or, alternatively, to transfer the Shell Litigation to the United
States District Court for the Southern District of Illinois. The motion is fully
briefed and the court has taken it under advisement. No ruling date has been
set. Shell has to date continued deliveries under the Shell Contract pending a
ruling of the court.

Prior to the termination of the SIPAC Agreement, the Company and CORE
discussed certain amendments to the SIPAC Agreement which would have
provided, in general, for the Company pay certain amounts to CORE if the
Shell Contract is found to have been properly repudiated or Shell ceases
performing under the Shell Contract, as well as for the conduct of the Shell
Litigation. No such amendment was entered into.

Adoption of the Refinery Plan. In view of the termination of the SIPAC
Agreement, the Company was forced to deal quickly with the termination of the
Offtake Agreements on February 1, 1995 and the termination on March 31, 1995
of the working capital facility provided by MGTFC. Accordingly, on February
23, 1995, the Company announced that it had determined to terminate the SIPAC
Agreement and to shut down the Powerine Refinery within 60 days if not sold.
The Company also announced that it was negotiating with CORE for the sale of
the Indian Refinery, but would consider shutting down the Indian Refinery as
well if no agreement were reached. The Company subsequently extended the date
for the shutdown of the Powerine Refinery to June 30, 1995, and determined to
shut down the Indian Refinery if it is not sold, although no date for such
shutdown has been set.

The Company continued to believe that a sale of the Refineries was in the
best interests of the Company and its Stockholders. See "Recommendations of
the Special Committee and the Board of Directors." However, although the
Company was discussing sales of the Refineries with several parties (see
"Status of the Refinery Transactions"), the Company was concerned that it
would need to be able to consummate quickly any sale which might be
negotiated. Accordingly, the Company determined to seek Stockholder approval
for a plan to sell the Refinery assets, subject to certain minimum price
conditions. On April 24, 1995, following unanimous approval by the Special
Committee, the Board of Directors unanimously (with Mr. Sudhaus abstaining)
approved the Refinery Plan.

MG Credit Facilities. The Company did not pay the indebtedness under the
credit facilities with MG when due on March 31, 1995. On April 14, 1995,
Powerine repaid all of the indebtedness owed by it to MG. Powerine obtained
the funds for such repayment and to continue its operations on an interim
basis, pending completion or abandonment of the contemplated transaction with
Ampton, through a purchase/sale transaction with Wickland. In addition, the
Company has taken steps to reduce the inventories of IRLP and thereby reduce
its indebtedness to MG. At April 17, 1995, IRLP's remaining indebtedness to
MG was approximately $40,000,000. The Company has provided MG a business plan
to continue such reductions and repayments and expects to be able to fully
repay MG during May 1995. The Company believes the value of the inventories
of IRLP is substantially in excess of the outstanding indebtedness to MG. See
"Certain Considerations -- MG Credit Facilities."

Pursuant to the agreement with Wickland, on April 14, 1995, Powerine sold
to Wickland Powerine's inventories of petroleum commodities for an aggregate
of $22,328,000, subject to certain post-closing adjustments. The purchase
price represented the market values of the inventories less, in certain
cases, agreed discounts. For the term of the agreement, Powerine will
purchase certain crude oil, intermediate products, and feedstocks exclusively
from Wickland, for purchases prices equal to either (i) in the case of such
commodities which Wickland acquired from Powerine, Wickland's purchase price
therefor plus a fixed premium plus an amount representing interest or (ii) in
the case of other quantities of such commodities, amounts determined by
reference to certain market indices (or, for certain crude oil, Wickland's
purchase price from third-parties) plus fixed premiums plus an amount
representing interest. At the end of the term of the agreement, Powerine has
the option to purchase Wickland's inventories of such commodities; provided,
that, at the later of May 23, 1995 and the date that Powerine obtains $15
million of financing (the "Product Purchase Date"), Powerine will be required
to purchase all of Wickland's inventories of such intermediate products and
feedstocks and will have the option to purchase Wickland's inventories of
crude oil. In such case, Powerine will continue to purchase crude oil, and

<PAGE>
will have the option to continue to purchase feedstocks, from Wickland for
the remainder of the term of the agreement. If Powerine does not purchase all
of Wickland's inventories of such commodities, either at the end of the term
or at the Product Purchase Date, Powerine will reimburse Wickland for costs
of removing the remainder of such commodities from Powerine's facilities and
for all losses Wickland suffers in reselling such commodities to third
parties. In addition, until the Product Purchase Date Wickland has the
exclusive right to purchase Powerine's output of certain blend stocks and
refined products, for prices determined by reference to certain market
indices less certain agreed discounts. The agreement will terminate on July
1, 1995 or earlier upon 15 days notice given by either party at any time
after May 14, 1995. To secure its obligations to Wickland under the
agreement, Powerine has granted Wickland a security interest in all of
Powerine's assets and has provided Wickland a $3 million letter of credit and
the Company has guaranteed Powerine's obligations to Wickland.

RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS

1. As described above, as a result of the MG Settlement, the Offtake
Agreements and the working capital facility provided by MGTFC have
terminated. In addition, the Company recognized income of $391 million on
which, absent other offsets, Federal and state income taxes of
approximately $91 million would have been owing as of September 30, 1994.

2. To address these consequences, the Company, the Special Committee,
and Lazard have explored alternative transactions, both prior to and after
the execution of the SIPAC Agreement. No type of transaction addressed
these consequences as well as a negotiated sale of the Refinery operations
as a going concern, which could result in (a) the buyer assuming
environmental and other liabilities for which the Company would otherwise
be liable and (b) the Company avoiding severance and other expenses
associated with shutting down the Refineries.

3. Since September 1994, the Company has contacted, directly and
through its financial advisor, Lazard, in excess of 40 potential buyers
for the Refineries. While the Company has received proposals for the
Powerine Refinery and the proposal from CORE for the Indian Refinery, as
of the date of the Board's recommendation and as of the date of this Proxy
Statement, no potential buyer has entered into an agreement to purchase
either Refinery. See "Status of the Refinery Transactions" and "Special
Factors -- Background of the Refinery Plan."

4. As a result of the foregoing, the Company has determined to shut
down the Refineries if not sold. However, although abandoning the
Refineries will generate losses to offset the gain from the MG Settlement,
the Company believes a negotiated sale for the Minimum Considerations
would, if the other terms and conditions of such a sale are acceptable, be
more advantageous to the Company than abandoning the Refineries and
selling their assets for scrap value.

5. Based on the Directors' knowledge of the assets, businesses,
financial condition, results of operations, cash flow and prospects of the
Refineries, and on the results of the Company's efforts to date to sell
the Refineries, the Board believes that the Minimum Considerations
represent fair prices for the respective assets. Although the Company has
not used any specific valuation measures or methodologies, and has not
obtained or made a fairness opinion, appraisals, or cash flow or similar
projections, the Board of Directors believes its knowledge of the business
of the Refineries, together with the market test it has conducted in its
efforts to sell the Refineries, has provided the Board with an adequate
basis for determining the Minimum Considerations and approving the
Refinery Plan.

6. The Company believes that a shutdown of either Refinery may
adversely affect the consideration which may be realizable upon a sale,
which effect will be greater if the shutdown is prolonged. Approval of the
Refinery Plan may enable the Company to complete promptly any Refinery
Transaction which the Company may enter into, which may avoid a shutdown,

<PAGE>
reduce the period of a shutdown, or reduce the period that the Company is
operating a Refinery at a loss, as well as reduce the time during which
events might occur that could prevent a closing of a Refinery Transaction. In
addition, approval of the Refinery Plan will save the Company the expense of
additional proxy solicitations in connection with specific Refinery
Transactions.

In view of the wide variety of factors considered in connection with their
evaluation of the Refinery Plan, the Special Committee and the Board of
Directors did not find it practicable to, and did not, quantify or otherwise
assign relative weights to the individual factors considered in reaching its
determination.

INTERESTS OF CERTAIN PERSONS IN THE REFINERY TRANSACTIONS; CONFLICTS OF
INTEREST

Equity Participation. William S. Sudhaus, a Director and the President and
Chief Operating Officer of the Company, is the Chairman, President, and Chief
Executive Officer of CORE. If any CORE Transaction is consummated, CORE
anticipates that Mr. Sudhaus will hold a portion of the equity of CORE.

In addition to Mr. Sudhaus, CORE has informed the Company that it
anticipates that, if a CORE Transaction is consummated, it will invite Craig
R. Culbertson, General Counsel and Secretary of the Company, IR&M and
Powerine and a partner in the law firm of Jenner & Block, which regularly
acts as counsel to the Company, IR&M and Powerine, to join CORE, and may
invite other members of IRLP's management to join CORE. Certain of such
persons may also acquire a portion of CORE's equity. The amount of equity of
CORE which Mr. Sudhaus and such other officers may obtain and the terms on
which they will obtain such equity will depend on a number of factors,
including the other participants in CORE and its financing, none of which
have yet been determined.

The remaining members of the Company's management (including Joseph L.
Castle, Chairman of the Board and Chief Executive Officer; Richard E.
Staedtler, Senior Vice President and Chief Financial Officer; Donald L.
Marsh, Senior Vice President, Development, and Treasurer of the Company; and
A.L. Gualtieri, Chairman, President and Chief Executive Officer of Powerine)
are expected to remain as management of the Company if a CORE Transaction is
consummated.

Warren V. Musser, a Director of the Company who is not standing for
reelection, through one or more affiliated entities, had considered acquiring
a portion of the equity of CORE. Mr. Musser did not participate in the
Board's consideration of the SIPAC Agreement.

Mr. Sudhaus did not participate in deliberations by the Board of Directors
regarding the SIPAC Agreement. Mr. Culbertson, who was present at certain
meetings of the Board at which such matters were discussed, was excused from
such meetings during discussions of the SIPAC Agreement.

Although it cannot be predicted whether members of management will obtain
equity in any potential purchaser other than CORE, it is likely that any
potential purchaser would offer an opportunity to acquire such an interest to
certain members of management of a Refinery being acquired. In particular, it
might be expected that A.L Gualtieri would join and receive equity in any
purchaser of the Powerine Refinery. Ampton has indicated that it may offer
certain members of management an opportunity to obtain equity in the Ampton
Purchaser, but to the knowledge of the Company has not to date made any such
offers.

Employment Arrangements. CORE has informed the Company that, if any CORE
Transaction is consummated, it is anticipated that Mr. Sudhaus, Mr.
Culbertson, and possibly other members of IRLP's management will enter into
employment agreements with CORE. The terms of such employment with CORE have
not yet been determined.

Mr. Sudhaus has informed the Company that he will resign as a Director and
officer of the Company if a CORE Transaction is consummated.

Mr. Culbertson is an employee of the Company, participates in the IRLP
401(k) Plan, and receives executive health and disability insurance from the
Company. He was an executive officer of the Company and of certain of its
subsidiaries (in addition to his positions as Secretary and General Counsel)
from March 1993 to March 1994.

<PAGE>
Although it cannot be predicted whether members of management will join
any potential purchaser other than CORE, it is likely that any potential
purchaser would offer employment to certain members of management of a
Refinery being acquired. In particular, it might be expected that A.L.
Gualtieri would join any purchaser of the Powerine Refinery. Ampton has
indicated that it may offer employment with the Ampton Purchaser to certain
members of management, but to the knowledge of the Company has not to date
made any such offers.

Stockholder Loans. If the Indian Refinery is sold, loans made to the
Company by John W. Sullivan (a Director of the Company) and UI (a former
executive director of which was at the time of the loan a Director of the
Company) in the amounts of $250,000 and $2.5 million, respectively, will be
repaid. See "Executive Compensation -- Compensation Committee Interlocks and
Insider Participation."

Jenner & Block, which represents the Company and its subsidiaries in
connection with certain matters and of which Mr. Culbertson is a partner,
represents CORE in connection with its financing and other matters (not
including the negotiation with the Company of the SIPAC Agreement or a CORE
Transaction) and may represent CORE in connection with various matters if any
CORE Transaction is entered into or consummated. To avoid potential conflicts
of interest, in November 1994 Jenner & Block and the Company agreed that
Jenner & Block would not render legal advice to any party other than the
Company relating to the acquisition of the Refineries without the written
consent of the Company. Further, at the Company's direction, Duane, Morris &
Heckscher has generally taken the role as lead counsel in any matter in which
the parties believed that Mr. Culbertson's role with CORE or Jenner & Block's
representation of CORE might pose a potential conflict of interest.

If a CORE Transaction is consummated, the Company may rent corporate
office space to CORE on a short- term basis. The Company does not currently
anticipate any other business relationships with CORE following a CORE
Transaction, or with Ampton or the Ampton Purchaser if the Powerine Refinery
is sold to it, except for such post-closing obligations as may be contained
in any agreements for such a transaction.

PLANS FOR THE COMPANY AFTER THE REFINERY TRANSACTIONS

If the Refineries are sold or shut down, as currently planned, the Company
will have ceased its operations in the refining segment, and its continuing
operations would be confined to the natural gas marketing and exploration and
production segments. Commencing in the summer of 1994, the prices received by
producers of natural gas, including the Company, declined significantly.
Furthermore, primarily as a result of a mild winter thus far in 1994-1995,
many econometricians have significantly lowered their natural gas price
projections for 1995 and 1996. Although such lower gas prices, if they in
fact continue, would adversely affect the revenues of the Company's
exploration and production segment, such lower gas prices would also
significantly decrease the cost of natural gas for the Company's natural gas
marketing segment.

During fiscal 1994, the Company's exploration and production segment
produced and sold 3,606,000 million cubic feet ("mcf") of gas. The average
price received for each mcf of gas sold was $2.02 (versus $2.44 in fiscal
1993). Approximately 900,000 of the mcf produced and sold were sold under a
fixed price contract that expires in 1997. The remaining 2,706,000 mcf
produced were sold at market prices. If the average spot price declines to
$1.50 to $1.60 per mcf, as same econometricians now predict, the Company's
gas revenues will decline $1.1 to $1.4 million annually assuming stable
production.

The Company's natural gas marketing segment currently obtains
approximately 12% of its annual gas supply requirements at market prices, 5%
at a fixed price under a gas contract expiring in 1997, and the remaining 83%
at $2.10/mcf from an affiliate of MG under a contract expiring in 1999. Since
all gas purchased is ultimately sold under a fixed-price contract ending in
1999, any decreases in the market prices paid for natural gas supply decrease
the Company's gas purchase cost and increase the Company's gross margin. The
Company is currently purchasing approximately 2,100,000 mcf of gas at market
prices. Accordingly, the Company believes that its natural gas marketing
segment would make up approximately 75% to 80% of gas merchant margins lost
by its exploration and production segment due to lower gas prices.

<PAGE>
In addition, as a result of the MG Settlement, the Company had the option
until March 31, 1995 to terminate three agreements with MG: a supply
agreement pursuant to which MG supplies approximately 15,000,000 mcf of gas a
year at $2.10/mcf, a pipeline management agreement costing the Company
approximately $400,000 (including management fees of $148,000) annually, and
a gas marketing services agreement costing the Company approximately $240,000
annually. While the Company would have liked to terminate these agreements
because it believed that it could have obtained gas at a price significantly
less than $2.10/mcf, it was unable to do so because it could not obtain the
consent of its natural gas lender or obtain new financing to replace its
natural gas lender.

Although the Company does not expect to shut down any wells due to low gas
prices, local producers might shut down some production that would otherwise
be purchased by the Company's natural gas segment. In such case, the Company
believes that alternative gas supplies will be available, although at
slightly higher prices.

The Company currently plans to hold the MG Note. The Company may seek to
use the MG Note as collateral for borrowings or, if circumstances warrant,
sell or otherwise dispose of the MG Note, although such actions may require
the consent of MG. There can be no assurance that the Company could obtain
the consent of MG or financing on acceptable terms using the MG Note as
collateral, or as to the price the Company might realize on a sale of the MG
Note.

See "Selected Historical and Pro Forma Financial Data of the Company"
below and Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources in the Form
10-K.

RISKS THAT THE REFINERY TRANSACTIONS WILL NOT BE CONSUMMATED; PLANS FOR THE
COMPANY IF THE REFINERY TRANSACTIONS ARE NOT CONSUMMATED

The Company has announced the shutdown of the Powerine Refinery,
originally planned for April 24, 1995 but extended to June 30, 1995 as a
result of the Company having entered into the purchase/sale agreements with
Wickland (see "Special Factors -- Background of the Refinery Plan -- MG
Credit Facilities"). If prior to that date definitive agreements with Ampton
or another buyer are executed or the Company believes negotiations therefor
have sufficiently progressed, the Company may extend that date. The Company
will also shut down the Indian Refinery if CORE is unable to proceed with a
CORE Transaction and no other buyer is identified, although no date for such
shutdown has been set. As of the date of this Proxy Statement, the Company
has not entered into any definitive agreements with respect to a sale of
either Refinery.

The Company anticipates severance and other shutdown costs (net of salvage
cost recoveries) of approximately $18.7 million if the Indian Refinery is
shut down and approximately $900,000 if the Powerine Refinery is shut down.
If one or both Refineries are abandoned, the Company also anticipates
carrying costs of between $1 million and $2 million annually for property
taxes, security, minimum plant maintenance, and environmental monitoring. The
Company believes that the working capital of the Refineries will be
sufficient to finance the costs of closing or curtailing operations at the
Refineries, including environmental liabilities and employee severance costs.
See "Background of the Refinery Plan" and "Recommendations of the Special
Committee and the Board of Directors."

CERTAIN TAX AND ACCOUNTING MATTERS

As a result of the MG Settlement, the Company recognized taxable income of
$391 million. After giving effect to the Company's existing net operating
loss and depletion carry-forwards, if the MG Settlement had occurred on

<PAGE>

September 30, 1994, the Company would have had taxable income for state tax
purposes of approximately $226.3 million, on which it would have owed as of
September 30, 1994 state income taxes of approximately $18.6 million. After
deduction of such state taxes, the Company would have had taxable income for
Federal taxes purposes of approximately $207.7 million, on which the Company
would have owed as of September 30, 1994 Federal income taxes of approximately
$72.7 million, for total Federal and state income tax obligations as of that
date of approximately $91.3 million. If the Refinery operations are not sold or
abandoned prior to September 30, 1995, the Company would require outside
financing to pay such obligation on a timely basis, and there can be no
assurance the Company would be able to obtain such financing. A sale of the
Refineries for the Minimum Considerations would likely result in an ordinary
loss of approximately $125 million for the Indian Refinery and $185 million for
the Powerine Refinery for Federal income tax purposes. If a sale of the
Refineries for the Minimum Considerations also had occurred on September 30,
1994, the Company's Federal and state income tax liability as of that date would
have been reduced to approximately $0.6 million and the Company would have had a
consolidated net operating loss for Federal income tax purposes of approximately
$16 million. If such sale had occurred on December 31, 1994, the Company's
Federal and state tax liability as of that date would have been approximately
$1.1 million.

APPRAISAL RIGHTS

The holders of the Common Stock will have no dissenters appraisal rights
or other dissenters rights in connection with the approval of the Refinery
Plan.

CERTAIN CONSIDERATIONS

In considering the Refinery Plan, Stockholders of the Company should
carefully consider certain significant risks associated with the Refinery
Plan.

STATUS OF POTENTIAL REFINERY TRANSACTIONS

Although CORE has submitted a proposal to acquire the Indian Refinery,
CORE will need substantial debt and equity financing to complete a CORE
Transaction. CORE is currently exploring sources for such financing. There
can be no assurance as to whether, when, or on what terms CORE will be able
to obtain such financing, or whether CORE will otherwise be able to
consummate a CORE Transaction. If no CORE Transaction is consummated and no
alternative purchaser is identified, the Company will shut down the Indian
Refinery.

The Company has announced the shutdown of the Powerine Refinery, planned
for June 30, 1995. If prior to that date definitive agreements with Ampton or
another buyer are executed or the Company believes negotiations therefor have
sufficiently progressed, the Company may extend that date.

In addition, it can be anticipated that any agreement which the Company
does enter into may provide a number of conditions to closing, including
potentially the ability of the purchaser to obtain financing, and there can
be no assurance, if any agreement is entered into, that the transactions
contemplated thereby will be consummated.

See "Special Factors -- Background of the Refinery Plan" and "-- Risks
That the Refinery Transactions Will Not be Consummated; Plans for the Company
if the Refinery Transactions Are Not Consummated."

MINIMUM PRICE CONDITION

The Refinery Plan provides that the Board of Directors may approve the
sale of one or both Refineries on any terms and conditions so long as the
Minimum Price Condition is satisfied. The Refinery Plan also provides

<PAGE>
that the value of any non-cash consideration, including the assumption of
liabilities, to be received by the Company in any Refinery Transaction will
be determined by the Board of Directors of the Company. Although the Board of
Directors may seek opinions, appraisals, or other assistance from independent
sources in valuing any non-cash consideration, the Refinery Plan expressly
provides that the Board of Directors may approve and consummate any
transaction without seeking such assistance. Accordingly, the Board of
Directors will have considerable discretion in determining whether a
particular transaction satisfies the Minimum Price Condition. See "Terms of
the Refinery Plan."

UNCERTAINTY OF IDENTITY OF POTENTIAL PURCHASERS

If the Refinery Plan is approved by Stockholders, the Company does not
contemplate that further Stockholder approval will be sought in connection
with any proposed Refinery Transaction which satisfies the Minimum Price
Condition. Accordingly, if either or both of the Refineries are sold,
Stockholders will not have the opportunity to evaluate the potential
purchaser or purchasers or the terms of any such transaction. See "Terms of
the Refinery Plan."

CONFLICTS OF INTEREST

Certain members of the Company's current management may obtain equity in
or be offered employment by potential purchasers of Refinery assets,
including CORE or the Ampton Purchaser. Consequently, such persons may have
interests which may be different from those of the Stockholders of the
Company with respect to the Refinery Transactions. See "Special Factors --
Interests of Certain Persons in the Refinery Transactions; Conflicts of
Interest."

FINANCING

To provide funds for the acquisition of Refinery operations and for
working capital, CORE, the Ampton Purchaser, and other purchasers may need to
raise substantial capital, the amount and nature of which would depend upon,
among other things, the resources available to the purchaser and the terms of
the particular Refinery Transaction. The terms of any such financing cannot
be predicted, and there can be no assurance that CORE or the Ampton Purchaser
or any other purchaser will be able to obtain all of the necessary financing
on terms acceptable to it or at all. As of the date of this Proxy Statement,
neither CORE nor the Ampton Purchaser has to the knowledge of the Company
entered into any commitments or arrangements for financing.

SHELL LITIGATION

In the Shell Litigation, Shell seeks a judicial determination that the
Shell Contract has terminated. Although Shell has to date continued
deliveries under the Shell Contract pending a ruling of the court, and the
Company believes Shell's claims in the Shell Litigation are without merit, a
court may uphold Shell's position. The loss of the Shell Contract, and any
damages which a court may award to Shell, would have a material adverse
effect on the Indian Refinery operations, and thus may reduce the salability
of the Indian Refinery or the price which can be obtained for it. The loss of
the Shell Contract may also have a material adverse effect on any purchaser
of the Indian Refinery, including CORE if a CORE Transaction is consummated.

Under CORE's proposal to purchase the Indian Refinery, up to $20 million
of the purchase price would be received by the Company through royalty
payments to be paid by CORE based on deliveries by Shell under the Shell
Contract. In addition, it has not been determined whether CORE would assume
all or any part of the liability for any damages which might be paid to
Shell. Other potential purchasers may require similar or other arrangements
for the Company to retain all or a portion of the risks of the Shell
Litigation and Shell's performance under the Shell Contract.

MG CREDIT FACILITIES

On March 31, 1995, the credit facilities provided by MG terminated. See
"Special Factors -- Background of the Refinery Plan -- MG Credit Facilities."
Although Powerine has repaid its indebtedness to MG, IRLP has not yet repaid
MG. If other financing is not obtained and the debt to MG is not repaid, MG
may seek to execute on its lien on certain of IRLP's assets, including all of

<PAGE>

its inventory and other working capital assets, including cash and accounts
receivable. If MG executes on its lien, the Company may be forced to immediately
cease the operations of the Indian Refinery, which may have adverse affects on
the ability of the Company to sell the Indian Refinery as well as on the
Company's position in the Shell Litigation. The Company believes the value of
the collateral exceeds the indebtedness to MG.

ASSUMPTION OF LIABILITIES BY PURCHASERS AND CONTINGENT PAYMENTS

Stockholders should recognize that if, in any Refinery Transaction, the
purchaser agrees to assume liabilities of the Company, the Company may under
certain circumstances remain responsible for such liabilities, including
without limitation environmental liabilities. If the purchaser is unable to
satisfy such obligations, the parties asserting such obligations may be
entitled to proceed against the Company in the same manner as if such
Refinery Transaction had not taken place. In addition, if any Refinery
Transaction provides for payments of amounts (such as royalties based on
Shell's performance under the Shell Contract) on a delayed or contingent
basis, the payment of such amounts may depend, among other things, on the
ability of the purchaser to successfully operate the Refinery or Refineries
it purchases.

The ability of CORE, the Ampton Purchaser, or another purchaser to satisfy
any obligations it may incur with respect to the assumption of liabilities
and payment of delayed or contingent amounts will depend upon a number of
factors, including factors concerning such purchaser which cannot now be
identified. However, the ability to successfully operate the Refineries, or
either of them, will depend in part on at least some of the following
factors:

Financing. CORE, Ampton, and other purchasers may require substantial
financing to complete any Refinery Transaction. The requirements to pay
interest and principal on such indebtedness, as well as restrictive covenants
which may be contained in agreements relating to such indebtedness, could
significantly limit the operating and financial flexibility of CORE or the
Ampton Purchaser or any such other purchaser. These factors could also limit
the ability of any such purchaser to take action in response to competitive
pressures or adverse economic conditions. In addition, any purchaser over
time may require additional funds for its operations, and there can be no
assurance that such funds will be available.

Volatility of Refining and Marketing Margins. Earnings and cash flow from
operations of a Refinery will be primarily dependent upon processing crude
oil and selling quantities of refined products at margins sufficient to cover
fixed and variable expenses. Crude oil and refined products are commodities,
whose prices depend on numerous factors beyond a Refinery operator's control,
including the supply of and demand for crude oil, gasoline and other refined
products which in turn depend on, among other factors, changes in domestic
and foreign economies, political affairs, production levels, the availability
of imports, the marketing of competitive fuels and the extent of government
regulation. The prices received for the refined products of a Refinery also
will be affected by regional factors, such as product pipeline capacity,
local market conditions and the level of operations of competing refineries.
A large, rapid increase in crude oil prices would adversely affect operating
margins if the increased cost of raw materials could not be passed on to
customers. In recent years, crude oil costs and prices of refined products
have fluctuated substantially. Accordingly, earnings of a Refinery may be
subject to substantial fluctuations.

Availability of Crude Oil. CORE would, and the Ampton Purchaser or any
other purchaser might, purchase the majority of its crude oil requirements in
the spot market, where prices are subject to market fluctuations. Because of
the strategic location of the Refineries, adequate supplies of crude oil have
generally been available in the past in the spot market. No assurance can be
given, however, that CORE or the Ampton Purchaser or any other purchaser
would be able to negotiate favorable prices for crude oil on the spot market
or that adequate supplies would be available during times of shortages.

Competition. The refining and marketing segment of the oil industry is
highly competitive. Many of the Refineries principal competitors will be
integrated multinational oil companies that are substantially larger and
better known than CORE or the Ampton Purchaser or any other purchaser which
is not such a company. Because of their diversity, integration of operations,
larger capitalization and greater resources, the major oil companies may be
better able to withstand volatile market conditions, compete on the basis of
price and obtain crude oil in times of shortages.

<PAGE>
Environmental Liabilities and Governmental Regulations. The Refineries'
operations will be subject to comprehensive and frequently changing federal,
state and local environmental laws and regulations. These laws, and the
regulations promulgated thereunder, set forth stringent environmental
standards for the Refineries' operations and provide for civil and criminal
penalties for violations. Any new environmental initiatives, more vigorous
regulatory enforcement policies or stricter interpretation of existing laws
could have a material adverse effect on the financial condition or results of
operations of the Refineries. Any such development could require significant
additional expenditures to achieve compliance with such requirements or
policies.

The Refineries' operations also will be subject to liability for the
investigation and cleanup of environmental contamination at their properties
and at off-site locations where the Refineries historically arranged for the
disposal of hazardous substances. The Refineries are involved in several
proceedings relating to liability for the investigation and cleanup of such
sites. While the Company does not believe that these proceedings will have a
material adverse effect on the financial condition of either Refinery (beyond
reserves already in place or insurance or other recoveries), there can be no
assurance that the Refineries will not become involved in further litigation
or other proceedings or that, if the Refineries or their owner or operator
were to be held responsible for damages in any litigation or proceedings
(including existing ones), such costs would not be material.

As of September 30, 1994, the Company's accrual for environmental
liabilities aggregated $32.9 million, including $1.9 million of current
environmental liabilities and $31 million of long-term liabilities. Of the
$1.9 million in current liabilities, $1.1 million relates to hazardous waste
removal. The remaining $800,000 of current liabilities and $31 million of
long-term liabilities relates to potential remediation and related
environmental assessments. While the Company believes that the $32.9 million
accrual is adequate, it is possible that remediation costs (net of recoveries
from insurance and other responsible parties) could be as great as 150% of
the amount accrued. See Item 3 - Legal Proceedings in the Form 10-K.

Operational Considerations. The Refineries' operations will be subject to
the risks inherent in the refining industry, including the risks of fire,
explosion, pipe failure and environmental accidents such as oil spills, the
occurrence of any of which could result in substantial losses to equipment,
pollution or other environmental damage, clean-up responsibilities,
regulatory investigation and penalties and suspension of operations. The
Refineries' operations could be subject to significant interruption if any of
these or other problems develop. In accordance with customary industry
practice, any purchaser of the Refinery would be likely to maintain
liability, property and business interruption insurance against some, but not
all, of such risks. There can be no assurance that such an adverse event will
not happen, that any insurance will be adequate to cover any losses or
liabilities or that any such adverse event would not have a material adverse
effect on the Refineries' financial condition or operations.

Marketing Considerations. Substantially all of the output of the
Refineries had been purchased by MG pursuant to the Offtake Agreements for
the last several years and the Refineries had not sold product into the
general marketplace during such period. IRLP had entered into an interim
marketing agreement; however, such agreement has been terminated and IRLP is
currently conducting its own marketing. Because the Company has determined to
shut down the Powerine Refinery, no similar agreement has been negotiated for
the Powerine Refinery's output.

Lack of Diversification. CORE's and the Ampton Purchaser's business would,
and other potential purchaser's business may, be limited to the operation of
the Refinery purchased by it. As a result of such lack of diversification,
CORE's or the Ampton Purchaser's or any such other purchaser's operating
results would be very sensitive to changes in the oil refining business.

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF THE COMPANY

The following selected historical and pro forma financial data for the
Company has been derived from and should be read in conjunction with the
consolidated financial statements of the Company and the pro forma financial
statements for the Company as of and for the fiscal quarter ended December
31, 1994 and for the year ended September 30, 1994, included or incorporated
by reference in this Proxy Statement. The pro forma financial statements
assume that the consideration paid in the Refinery Transactions would consist
of the assumption of all environmental liabilities plus the avoidance of all
shutdown costs, plus payment for the market value of all of the working

<PAGE>

capital, platinum and certain other assets, less a cash adjustment (the "maximum
stipulated reduction") for the excess of such total over the Minimum
Considerations. The actual effects of a Refinery Transaction would vary from
those shown depending on the nature and amount of consideration actually paid.
The pro forma balance sheet data assume the Refinery Transactions occurred as of
December 31, 1994. The pro forma statement of operations data for the fiscal
quarter ended December 31, 1994 assume the Refinery Transactions occurred as of
October 1, 1994. The pro forma statement of operations data for the year ended
September 30, 1994 assume the MG Settlement (which occurred subsequent to
year-end) and the Refinery Transactions occurred as of October 1, 1993.

BALANCE SHEET DATA

As of December 31, 1994
----------------------------
Historical Pro Forma(1)
------------ ------------
(In thousands)
Total assets ............................... $376,306 $130,997
Long-term debt, including current maturities $ 49,294 $ 54,377
Book value per share ....................... $ 6.10 $ 8.41
Shares outstanding ......................... 6,659 6,659

STATEMENT OF OPERATIONS DATA

Quarter Ended December 31,
1994
----------------------------
Historical Pro Forma(1)
------------ ------------
(In thousands)
Revenues .........................
Sales of refined products ..... $290,666 --
Crude oil sales ............... -- --
Gas sales ..................... 20,055 $20,055
Oil and gas production ........ 2,217 2,217
Well operations ............... 141 142
Gain on MG Settlement ......... 391,139 --
Interest income and other
revenues .................... 714 364
-------- --------
Total revenues .............. $704,932 $22,778
======== ========
Net income (loss) ................ $ 14,084 $ 2,620

Net income (loss) per share ...... $ 1.97 $ 0.37
Cash dividends per share ......... -- --

<TABLE>
<CAPTION>
Year Ended September 30, 1994
----------------------------------------------
Historical Pro Forma-MG(2) Pro Forma(1)
------------ --------------- ------------
(In thousands)
<S> <C> <C> <C>
Revenues .........................
Sales of refined products ..... $ 857,553 $ 857,553 --
Crude oil sales ............... 71,062 71,062 --
Gas sales ..................... 61,228 61,228 $61,228
Oil and gas production ........ 8,069 8,069 8,069
Well operations ............... 483 483 483
Interest income and other
revenues .................... 14,383 15,183 1,266
--------- ----------- --------
Total revenues .............. $1,012,778 $1,013,578 $71,046
========= =========== ========

Net income (loss) ................ $ 38,917 $ 50,577 $ 3,168
Net income (loss) per share ...... $ 3.48 $ 7.32 $ 0.46
Cash dividends per share ......... _ _ _
</TABLE>

- ------
(1) Pro forma for the Refinery Transactions.
(2) Pro forma for the MG Settlement.

<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY

The following pro forma consolidated balance sheet and statement of
operations of the Company illustrates the estimated effects of the MG
Settlement and the Refinery Transactions as if (i) the Refinery Transactions
had occurred on December 31, 1994 for balance sheet purposes, (ii) the
Refinery Transactions has occurred on October 1, 1994 for purposes of the
statement of operations for the fiscal quarter ended December 31, 1994, and
(iii) the MG Settlement (which occurred subsequent to year-end) and the
Refinery Transactions occurred on October 1, 1993 for purposes of the
statement of operations for the year ended September 30, 1994. The pro forma
financial statements assume that the consideration paid in the Refinery
Transactions would consist of the assumption of all environmental liabilities
plus the avoidance of all shutdown costs, plus payment for the market value
of all of the working capital, platinum and certain other assets, less a cash
adjustment (the "maximum stipulated reduction") for the excess of such total
over the Minimum Considerations. The actual effects of a Refinery Transaction
would vary from those shown depending on the nature and amount of
consideration actually paid. THE PRO FORMA CONSOLIDATED STATEMENTS OF THE
COMPANY DO NOT PURPORT TO REPRESENT WHAT THE COMPANY'S FINANCIAL POSITION OR
RESULTS OF OPERATIONS WOULD ACTUALLY HAVE BEEN IF THE REFINERY TRANSACTIONS
IN FACT HAD OCCURRED ON SUCH DATES OR TO PROJECT THE COMPANY'S FINANCIAL
CONDITION OR RESULTS OF OPERATIONS AS OF ANY FUTURE DATE OR FOR ANY FUTURE
PERIOD. The pro forma adjustments are based upon available information and
upon certain assumptions that the Company believes are reasonable under the
circumstances. The pro forma consolidated statements and accompanying notes
should be read in conjunction with the historical consolidated financial
statements of the Company and notes thereto and the other financial
information regarding the Company included or incorporated by reference in
this Proxy Statement.

The pro forma consolidated statement of operations for the year ended
September 30, 1994 gives effect first to the MG Settlement and then to the
Refinery Transactions. Although the MG Settlement is not being presented for
a vote by Stockholders, the effects of the MG Settlement are included and
shown separately since the MG Settlement occurred subsequent to the end of
the Company's fiscal year and, in the absence of the MG Settlement, the
Company would not be proposing the Refinery Plan.

<PAGE>
CASTLE ENERGY CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF 12/31/94
("000'S" OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------------------------------------------------------------------------------
Indian Refinery(b)
-----------------------------------------------------------------------------------------------
Adjustment: Working
Accrued Capital, Plat- Property Environ- Maximum
12/31/94 Closing inum & Other Plant, Equip mental Stipulated
ASSETS Historical Costs(a) Assets & F & F (e) Liabilities(f) Reduction Total
---------- -------- ------ ----------- -------------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents .. $ 21,586 $21,360(d) ($ 16,686) $ 4,674
Restricted Cash ............ 6,404 (2,441) (2,441)
Temporary Investments ...... 10,443 (10,443) (10,443)
Accounts Receivable --
Trade ..................... 28,778 (8,717) (8,717)
Accounts Receivable --
Related Party ............. 120 (120) (120)
Inventories ................ 100,323 (65,390) (65,390)
Deferred Income Taxes ...... 101,278
Other ...................... 7,741 (1,816) (1,816)
--------- -------- --------- ---- ------- -------- --------
Total Current Assets ..... 276,673 0 (67,567) 0 0 (16,686) (84,253)
Due from related parties
Property, Plant and equipment,
net:
Refining....................
Natural Gas Transmission ... 24,074
Furniture and Fixtures ..... 320
Exploration and Production .. 19,259
Gas Contracts ............... 41,545
Other Assets ................ 14,435 (1,603) (1,603)
--------- -------- --------- ---- ------- -------- --------
Total Assets ............. $376,306 $ 0 ($69,170) $0 $ 0 ($16,686) ($85,856)
======== ======== ======== ==== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of
long-term debt ............ $ 35,013 ($ 27,016) ($ 27,016)
Current portion of
long-term debt -- RP.......
Accounts Payable ........... 57,691 (35,158) (35,158)
Accrued expenses ........... 54,196 ($ 18,734) (8,983) (27,717)
Due to related parties .....
Income Taxes Payable ....... 101,279
Other ...................... 3,134 (559) (559)
--------- -------- --------- ---- ------- -------- --------
Total current
liabilities .............. 251,313 (18,734) (71,716) 0 0 0 (90,450)
Long-term debt ............. 49,044
Long-term debt -
related party ............. 250
Deferred Income Taxes ...... 4,162
Other long-term
liabilities ............... 30,915 ($2,952) (2,952)
--------- -------- --------- ---- ------- -------- --------
Total liabilities ......... 335,684 (18,734) (71,716) 0 (2,952) 0 (93,402)
Commitments and
contingencies
Stockholders' equity
(deficit):
Series B participating
preferred stock;
Common stock; par value -- $.50;
6,658,646 shares issued and
outstanding at
December 31, 1994 ........ 3,329
Additional paid-in
capital ................... 62,593
Retained Earnings
(deficit) ................. (25,300) 18,734 2,546 2,952 (16,686) 7,546
--------- -------- --------- ---- ------- -------- --------
40,622 18,734 2,546 0 2,952 (16,686) 7,546
--------- -------- --------- ---- ------- -------- --------
Total liabilities and
stockholder's equity
(deficit) .............. $376,306 $ 0 ($ 69,170) $0 $ 0 ($ 16,686) ($ 85,856)
======== ======== ======== ==== ======= ========= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------------------------------------------------------------------------------
Powerine Refinery (c)
-----------------------------------------------------------------------------------------------
Adjustment: Working
Accrued Capital, Plat- Property, Plant Environ- Maximum
Closing inum & Other Equip, F & F mental Stipulated
ASSETS Costs(a) Items & Goodwill(e) Liabilities(f) Reduction Total
---------- -------- ------------ ------------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents .. $11,467(g) ($ 18,803) ($ 7,336)
Restricted Cash ............ (3,963) (3,963)
Temporary Investments ......
Accounts Receivable --
Trade ..................... (1,436) (1,436)
Accounts Receivable --
Related Party .............
Inventories ................ (34,933) (34,933)
Deferred Income Taxes ......
Other ...................... (5,898) (5,898)
---- -------- ---- -------- -------- -------
Total Current Assets ..... 0 (34,763) 0 0 (18,803) (53,566)
Due from related parties
Property, Plant and equipment,
net:
Refining....................
Natural Gas Transmission ...
Furniture and Fixtures .....
Exploration and Production ..
Gas Contracts ...............
Other Assets ................ (1,859) (1,859)
---- -------- ---- -------- -------- -------
Total Assets ............. $ 0 ($36,622) $0 $ 0 ($ 18,803) ($ 55,425)
==== ======== ==== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of
long-term debt ............ ($ 164) ($ 164)
Current portion of
long-term debt -- RP.......
Accounts Payable ........... (21,466) (21,466)
Accrued expenses ........... ($ 923) (13,986) (14,909)
Due to related parties .....
Income Taxes Payable .......
Other ......................
---- -------- ---- -------- -------- -------
Total current
liabilities .............. (923) (35,616) 0 0 0 (36,539)
Long-term debt .............
Long-term debt -
related party ...........
Deferred Income Taxes ....
Other long-term
liabilities ............. ($27,880) (27,880)
---- -------- ---- -------- -------- -------
Total liabilities ....... (923) (35,616) 0 (27,880) 0 (64,419)
Commitments and
contingencies
Stockholders' equity
(deficit):
Series B participating
preferred stock;
Common stock; par value -- $.50;
6,658,646 shares issued and
outstanding at
December 31, 1994 ........
Additional paid-in
capital ...................
Retained Earnings
(deficit) ................. 923 (1,006) 27,880 ($18,803) 8,994
---- -------- ---- -------- -------- -------
923 (1,006) 0 27,880 (18,803) 8,994
---- -------- ---- -------- -------- -------
Total liabilities and
stockholder's equity
(deficit) .............. $ 0 ($36,622) $0 $ 0 ($18,803) ($55,425)
==== ======== ==== ======== ========= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------------------------------
Other
---------------------------------------------
Payment
of UI/
Sullivan Tax Pro
ASSETS Notes(h) Effects(i) Forma
---------- --------- -----
<S> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents .. ($ 2,750) $ 16,174
Restricted Cash ............
Temporary Investments ......
Accounts Receivable --
Trade ..................... 18,625
Accounts Receivable --
Related Party .............
Inventories ................
Deferred Income Taxes ...... ($101,278)
Other ...................... 27
------ --------- --------
Total Current Assets ..... (2,750) (101,278) 34,826
Due from related parties
Property, Plant and equipment,
net:
Refining....................
Natural Gas Transmission ... 24,074
Furniture and Fixtures ..... 320
Exploration and Production .. 19,259
Gas Contracts ............... 41,545
Other Assets ................ 10,973
------ --------- --------
Total Assets ............. ($ 2,750) (101,278) $130,997
======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of
long-term debt ............ $ 7,833
Current portion of
long-term debt -- RP.......
Accounts Payable ........... 1,067
Accrued expenses ........... 11,570
Due to related parties .....
Income Taxes Payable ....... (100,136) 1,143
Other ...................... 2,575
------ --------- --------
Total current
liabilities .............. 0 (100,136) 24,188
Long-term debt ............. (2,500) 46,544
Long-term debt -
related party ........... (250)
Deferred Income Taxes .... 4,162
Other long-term
liabilities ............. 83
------ --------- --------
Total liabilities ....... (2,750) (100,136) 74,977
Commitments and
contingencies
Stockholders' equity
(deficit):
Series B participating
preferred stock;
Common stock; par value -- $.50;
6,658,646 shares issued and
outstanding at
December 31, 1994.......... 3,329
Additional paid-in
capital ................... 62,593
Retained Earnings
(deficit) ................. (1,142) (9,902)
------ --------- --------
0 (1,142) 56,020
------ --------- --------
Total liabilities and
stockholder's equity
(deficit) .............. ($2,750) ($101,278) $130,997
======= ========= ========
</TABLE>

The accompanying notes to the Pro Forma Consolidated Balance Sheet are an
integral part of this Pro Forma Consolidated Balance Sheet

<PAGE>
CASTLE ENERGY CORPORATION
NOTES TO THE PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
(UNAUDITED)
("000'S" OMITTED)

GENERAL

Gives effect to Refinery Plan assuming the Refineries and related assets
were sold on December 31, 1994 for the following consideration:

<TABLE>
<CAPTION>
Indian Powerine
Refinery Refinery Total
---------- ---------- ----------
<S> <C> <C> <C>
Estimated market value of working capital, platinum
and other assets:
Book value $ 35,301 $ 14,511 $ 49,812
Adjustment 2,549 (1,929) 620
---------- ---------- ----------
Estimated market value 37,850 12,582 50,432
Plant, property and equipment, furniture and acquired
goodwill
Assumed/avoided liabilities:
Net plant closing costs 18,734 923 19,657
Environmental liabilities 2,952 27,880 30,832
---------- ---------- ----------
Gross purchase price 59,536 41,385 100,921
Maximum stipulated reduction (16,686) (18,803) (35,489)
---------- ---------- ----------
Minimum purchase price $ 42,850 $ 22,582 $ 65,432
========== ========== ==========
</TABLE>

The Company expects that the actual amount of working capital recovered will
be significantly lower due to anticipated negative cash flow between January
1, 1995 and the date the Refinery Plan is actually consummated.

(a) Reverses the plant closing costs that were accrued as of December 31,
1994 assuming the Refineries were abandoned rather than sold.

(b) Includes all of the assets of the following entities: Indian Refining
Limited Partnership, Indian Powerine Limited Partnership, Indian Refining
Company, Castle Refining Company and Castle Energy Canada Ltd. Together
these entities own all the assets of and conduct all operations of the
Indian Refinery.

(c) Includes all the assets of Powerine Holding Corp., Powerine Oil Company
and Anglo Petroleum Inc. Together these entities own all the assets of
and conduct all operations of the Powerine Refinery.

(d) $37,850 received for working capital, platinum and other assets less
$16,490 of cash included in such working capital.

(e) Represents transfer of refining property, plant and equipment, furniture
and fixtures and acquired goodwill for one dollar.

(f) Represents transfer of environmental liabilities.

(g) $12,582 received for working capital, platinum and other assets less
$1,115 of cash included in such working capital.

(h) As a result of the assumed sale of the Refinery assets, the Company will
be required to repay $2,750 principal amount of debt due to noteholders
having a security interest in the assets being transferred. See "Certain
Relationships and Related Transactions -- Transactions With Other Related
Parties."

(i) Gives effect to Federal and state income tax provision resulting from
Refinery Plan assuming Refineries are sold before September 30, 1995, the
end of the Company's next tax year. The resulting income taxes payable of
$1,143 consist of Federal alternative minimum income taxes payable. The
deferred income taxes of $4,162 result from timing differences applicable
to the Company's natural gas marketing and exploration and development
businesses. The tax provision was computed at a combined state and
Federal rate of 40% and are after application of the Company's net
operating losses and depletion carryforward.

<PAGE>
CASTLE ENERGY CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
QUARTER ENDED DECEMBER 31, 1994
(UNAUDITED)
("000'S" OMITTED)

Adjustments: Pro Forma Adjustments
MG Settlement ---------------------------
and Provision Sale of Interest on
Historical for Loss on Adjusted Refining Shareholders' Pro Forma
12/31/94 Asset Disposal 12/31/94 Operations(d) Notes (e) 12/31/94
----------- --------------- --------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
<C>
REVENUES:
Refining ..................................... $ 290,666 $290,666 ($290,666)
Natural Gas Production and Transmission ...... 20,055 20,055 $20,055
Exploration and Production ................... 2,359 2,359 2,359
--------- -------- --------- -------
Total Revenues ............................. 313,080 313,080 (290,666) 22,414
--------- -------- --------- -------
EXPENSES:
Refining:
Cost of Materials Sold ..................... 225,916 225,916 (225,916)
Operating Costs ............................ 32,053 32,053 (32,053)
Selling, General and Administrative ........ 4,214 4,214 (4,214)
Depreciation and Amortization .............. 2,796 2,796 (2,796)
--------- -------- ---------
264,979 264,979 (264,979)
Natural Gas Production and Transmission:
Gas Purchases .............................. 11,322 11,322 11,322
Operating Costs - Pipeline ................. 305 305 305
General and Administrative ................. 232 232 232
Depreciation and Amortization .............. 2,846 2,846 2,846
--------- -------- -------
14,705 14,705 14,705
Exploration and Production:
Oil and Gas Production ..................... 781 781 781
General and Administrative ................. 103 103 103
Depreciation, Depletion and Amortization ... 747 747 747
--------- -------- -------
1,631 1,631 1,631
Corporate
General and Administrative ................. 1,273 1,273 1,273
Depreciation ............................... 21 21 21
--------- -------- -------
1,294 1,294 1,294
--------- -------- -------
Total Expenses ........................... 282,609 282,609 (264,979) 17,630
--------- -------- -------- -------
Operating Profit (Loss) ....................... 30,471 30,471 (25,687) 4,784
--------- -------- -------- -------
Other Income (Expense):
Interest Income .............................. 555 555 (350) 205
Interest Expense ............................. (3,569) (3,569) 2,755 $ 31 (783)
MG Settlement ................................ 391,139 ($391,139)(a),(c)
Provision for Loss on Assets to be Disposed of (345,008) 345,008 (b),(c)
Other Income (Expense) ....................... 159 159 159
--------- --------- -------- -------- ------ -------
43,276 (46,131) (2,855) 2,405 31 (419)
--------- --------- -------- -------- ------ -------
Income (Loss) From Continuing Operations Before
Provision for (Recovery of) Income Taxes ..... 73,747 (46,131) 27,616 (23,282) 31 4,365
Provision for (Recovery of) Income Taxes (f) .. 59,663 (48,617) 11,046 (9,313) 12 1,745
--------- --------- -------- -------- ------ -------
Net Income (Loss) from Continuing Operations .. $ 14,084 $ 2,486 $ 16,570 ($ 13,969) $ 19 $ 2,620
========= ========= ======== ========= ====== =======
Net Income (Loss) Per Share from Continuing
Operations ................................... $ 1.97 $ 0.35 $ 2.32 ($ 1.95) $ 0.00 $ 0.37
========= ========= ======== ========= ====== =======
Weighted Average Number of Common and Common
Equivalent Shares Outstanding ................ 7,157 7,157 7,157 7,157 7,157 7,157
========= ========= ======== ========= ====== =======
</TABLE>

The accompanying notes to the Pro Forma Consolidated Statement of Operations
are an integral part of this
Pro Forma Consolidated Statement of Operations.

62
<PAGE>
CASTLE ENERGY CORPORATION
NOTES TO PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
QUARTER ENDED DECEMBER 31, 1994
UNAUDITED
("000'S" OMITTED)

GENERAL

Gives effect to the Refinery Transactions as though they occurred on
October 1, 1994. See "Proposal to Approve the Refinery Plan."

(a) Reverses gain from sale of MG Settlement. Of the total gain resulting
from the MG Settlement of $391,139, $378,597 applied to the refining
segment and the remaining $12,542 applied to the natural gas marketing
segment.

(b) The provision for loss on assets to be disposed of relates to the assumed
abandonment of the Refineries and consists of the following:

<TABLE>
<CAPTION>
<S> <C>
Book value of Refineries $320,051
Acquired goodwill related to the Refineries 5,300
Loss provision for closing costs of Refineries, net
of $15,000 recovery from sale of plant 19,657
----------
$345,008
==========
</TABLE>

If the Refineries are assumed to be sold pursuant to the Refinery Plan,
such loss provision is no longer applicable.

(c) As a result of the MG Settlement and the assumed sale of the Refineries
pursuant to the Refinery Plan, the Company would record a net gain of
approximately $85,609 as follows. This net gain is nonrecurring and
accordingly is not reflected in the pro forma consolidated statement of
operations.

<TABLE>
<CAPTION>
<S> <C>
Gain from MG Settlement $ 391,139
-----------
Loss on sale of Refineries:
Proceeds:
Working capital 50,432
Assumption of environmental
liabilities 30,832
Avoidance of net plant closing costs 19,657
Less: Maximum stipulated reduction (35,489)
-----------
65,432
Book Value:
Working capital 49,812
Property, plant and equipment 315,850
Acquired goodwill 5,300
-----------
370,962
-----------
(305,530)
-----------
Net Gain $ 85,609
===========
</TABLE>

As a result of this net gain the Company would incur income taxes of
approximately $1,143 after application of Federal and state income tax
carryforwards consisting of Federal alternative minimum income taxes.

(d) Represents the sale of the refining operations.

(e) Represents the decrease in interest expense resulting from the payment of
$2,750 principal amount of notes as of October 1, 1994. Such notes are
required to be repaid upon the sale of the Refinery assets.

(f) Reflects use of the Company's net operating loss and other tax
carryforwards. Assumes 40% tax rate (Federal and state combined) once tax
carryforwards are fully utilized.

<PAGE>
CASTLE ENERGY CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
("000" OMITTED)

<TABLE>
<CAPTION>
Pro Forma Adjustments
--------------------------------
Adjustment Adjusted Sale of Interest On
MG For MG Refining Shareholders'
Historical Settlement(a) Settlement(a) Operations(b) Notes(c) Pro Forma
---------- ------------- ------------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Refining:
Crude Oil Sales ........................ $ 71,062 $ 71,062 ($ 71,062)
Sales of Refined Product -- Related
Party ................................ 849,492 849,492 (849,492)
Sales of Refined Product - Third Party .. 8,061 8,061 (8,061)
Other Revenues -- Related Party ......... 11,899 11,899 (11,899)
Natural Gas Production and Transmission:
Gas Sales ............................... 61,228 61,228 $61,228
Operating Revenue ....................... 31 31 31
Transportation...........................
Exploration and Production:
Oil and Gas Sales ....................... 8,069 8,069 8,069
Well Operations ......................... 483 483 483
---------- ---------- --------- -------
Total Revenues ..................... 1,010,325 1,010,325 (940,514) 69,811
---------- ---------- --------- -------
EXPENSES
Refining:
Cost of Materials Sold -- Refined
Products:
Third Parties ....................... 77,898 77,898 (77,898)
Related Parties ..................... 618,325 618,325 (618,325)
Operating Costs ....................... 132,281 132,281 (132,281)
Selling, General and Administrative ... 23,758 23,758 (23,758)
Depreciation and Amortization ......... 30,322 30,322 (30,322)
Natural Gas Production and Transmission:
Gas Purchases ......................... 37,029 ($ 2,246) 34,783 34,783
Operating Costs -- Pipeline ........... 1,973 1,973 1,973
General and Administrative ............ 254 254 254
Depreciation and Amortization ......... 11,360 11,360 11,360
Exploration and Production:
Oil and Gas Production ................ 3,844 3,844 3,844
General and Administrative ............ 213 213 213
Depreciation, Depletion and
Amortization ........................ 2,092 2,092 2,092
Corporate, General and Administrative ... 5,499 5,499 5,499
---------- ------- ---------- --------- -------
944,848 (2,246) 942,602 (882,584) 60,018
---------- ------- ---------- --------- -------
OPERATING INCOME (LOSS) .................. 65,477 2,246 67,723 (57,930) 9,793
---------- ------- ---------- --------- -------
OTHER INCOME (EXPENSE) ...................
Interest Income ......................... 1,292 800 2,092 (1,280) 812
Interest Expense ........................ (28,487) 16,388 (12,099) 6,260 $ 90 (5,749)
Other Income (Expense) .................. 1,161 1,161 (738) 423
---------- ------- ---------- --------- ------ -------
(26,034) 17,188 (8,846) 4,242 90 (4,514)
---------- ------- ---------- --------- ------ -------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR (RECOVERY OF) INCOME
TAXES ................................... 39,443 19,434 58,877 (53,688) 90 5,279
---------- ------- ---------- --------- ------ -------
PROVISION FOR (RECOVERY OF) INCOME TAXES
(d) ..................................... 526 7,774 8,300 (6,225) 36 2,111
---------- ------- ---------- --------- ------ -------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS .............................. $ 38,917 $11,660 $ 50,577 ($47,463) $ 54 $ 3,168
========= ======= ========== ========= ====== =======
NET INCOME (LOSS) PER SHARE FROM
CONTINUING OPERATIONS ................... $ 3.48 $ 3.84 $ 7.32 $ 6.87 $ 0.01 $ 0.46
========= ======= ========== ========= ====== =======
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING .... 11,209 (4,298) 6,911 6,911 6,911 6,911
========= ======= ========== ========= ====== =======
</TABLE>

The accompanying notes to the Pro Forma Consolidated Statement of Operations
are an integral part of this
Pro Forma Consolidated Statement of Operations.

<PAGE>
CASTLE ENERGY CORPORATION
NOTES TO PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994
UNAUDITED
("000" OMITTED)

(a) Gives retroactive effect to the MG Settlement (which closed on October
14, 1994) as though such settlement had closed on October 1, 1993. As
a result of the MG Settlement, among other things, (i) MG released the
Company from all deferred gas purchase costs, of which $2,246 was
expensed during the year ended September 30, 1994, (ii) MG released
the Company from certain debt, with respect to which interest expense
was $16,388 during the year ended September 30, 1994, and (iii) the
Company received an interest-bearing note from MG in the principal
amount of $10,000, which would have earned interest income of $800
during the year ended September 30, 1994. Does not reflect a non-
recurring net gain of $244,454 ($390,199 less $145,745 of related tax
effects) recognized by the Company as a result of the MG Settlement.
(The actual gain on the MG Settlement was $391,139 whereas the
estimate at September 30, 1994 was $390,199.) See "Certain
Relationships and Related Transactions -- MG and its Affiliates."

(b) Gives effect to the Refinery Plan as though it occurred on October 1,
1993. See "Proposal to Approve the Refinery Plan." In addition, if the
Refineries were sold pursuant to the Refinery Plan for the Minimum
Consideration, the Company would incur a book loss of approximately
$307,500.

(c) Represents the decrease in interest expense resulting from the payment
of $2,750 principal amount of notes as of October 1, 1993. Such notes
are required to be repaid upon the sale of the Refinery assets.

(d) Reflects use of the Company's net operating loss and other tax
carryforwards. Assumes 40% tax rate (Federal and state combined) once
tax carryovers are fully utilized.

<PAGE>
PROPOSAL TO APPOINT INDEPENDENT ACCOUNTANTS

The Board of Directors has selected the accounting firm of Price
Waterhouse LLP ("Price Waterhouse") to be the Company's independent
accountants to audit the books and records of the Company and its
subsidiaries for the fiscal year ending September 30, 1995. This firm has
audited the books and records of the Company for each fiscal year since 1985.
The firm has no material relationship with the Company and is considered well
qualified. Should the Stockholders of the Company not ratify the selection of
Price Waterhouse or should the fees proposed by Price Waterhouse become
excessive or the services provided by Price Waterhouse become unsatisfactory,
the selection of another firm of independent certified public accountants
will be considered by the Board of Directors.

A representative of Price Waterhouse is expected to be present at the
Annual Meeting, will have an opportunity to make a statement if he or she
desires to do so and is expected to be available to respond to appropriate
questions.

The shares represented by the enclosed Proxy will be voted as directed. If
no choice is specified in the Proxy, the shares represented by the enclosed
Proxy will be voted "FOR" the selection of Price Waterhouse as the Company's
independent accountants. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO RATIFY THE SELECTION OF PRICE WATERHOUSE AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS.

OTHER MATTERS

The Board of Directors knows of no other matters to be brought before the
Annual Meeting. Should any other matter by properly raised at the Annual
Meeting, however, it is the intention of each of the persons named in the
Proxy to vote in accordance with his judgment as to each such matter raised.

VOTE REQUIRED

The two nominees within each class for election to the Board of Directors
at the Annual Meeting who receive the greatest number of votes cast for
Directors within such class at the meeting, a quorum being present, shall
become Directors within such class. The affirmative vote of the holders of at
least a majority of the outstanding shares of Common Stock is required to
adopt the proposal to approve the Refinery Transactions. The affirmative vote
of the holders of a majority of the shares present in person or represented
by proxy at the Annual Meeting and voting on each other proposal is required
for the adoption of such proposal. Absentees and broker non-votes will not be
tabulated as negative votes with respect to any matter presented at the
Annual Meeting, but will be included in computing the number of shares of
Common Stock present for purposes of determining the presence of a quorum for
the Annual Meeting.

STOCKHOLDER PROPOSALS

Any proposals of Stockholders which are intended to be presented at the
1996 Annual Meeting of Stockholders must be received by the Secretary of the
Company by January 5, 1996 for consideration for inclusion in the Proxy
Statement. Should any matter be submitted after January 5, 1996, then it may
be omitted by the Company from the Proxy Statement and Proxy relating to that
Annual Meeting.

EXPENSES OF SOLICITATION

The cost of solicitation of Proxies will be borne by the Company.
Solicitation will be made initially by mail. The Directors and officers and
other employees of the Company may, without compensation other than their
usual compensation, solicit Proxies by mail, telephone, telegraph or personal
interview. In addition, solicitation of brokerage firms, dealer, banks,
voting trustees and their nominees will be made by the means described above
by Morrow & Co., Inc. at an anticipated cost of $6,000 plus certain
out-of-pocket expenses. The Company will also reimburse brokerage firms,
banks, voting trustees, nominees and other recordholders for their
out-of-pocket expenses in forwarding proxy materials to the beneficial owners
of Common Stock.

<PAGE>
INCORPORATION BY REFERENCE

Items 1 and 2, "Business and Properties," Item 3, "Legal Proceedings,"
Item 5, "Market for the Registrant's Common Stock and Related Stockholder
Matters," Item 6, "Selected Financial Data," Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," Item 8,
"Financial Statements and Supplementary Data," and Item 9, "Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure" of the
Form 10-K, and Item 1, "Financial Statements," and Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," of
Part I of the Form 10-Q are hereby incorporated by reference herein. The
Company will furnish to any Stockholder a copy of any exhibit to the Form
10-K, upon written request to Mr. Richard E. Staedtler, Senior Vice
President, Castle Energy Corporation, One Radnor Corporate Center, Suite 250,
100 Matsonford Road, Radnor, Pennsylvania 19087, and payment of the Company's
expenses of furnishing the same.

BY ORDER OF THE BOARD OF DIRECTORS

JOSEPH L. CASTLE II
Chairman and Chief Executive Officer

Radnor, Pennsylvania
May 8, 1995

<PAGE>
EXHIBIT A

1992 EXECUTIVE EQUITY INCENTIVE PLAN, AS PROPOSED TO BE AMENDED

CASTLE ENERGY CORPORATION
1992 EXECUTIVE EQUITY INCENTIVE PLAN

THE PLAN. Castle Energy Corporation (the "Company") hereby establishes the
Castle Energy Corporation 1992 Executive Equity Incentive Plan (the "Plan"),
effective December 22, 1992 (the "Effective Date"), subject to approval by
the holders of a majority of the shares of common stock of the Company
present or represented and voting at a meeting duly called and held. Grants
may be made hereunder prior to stockholder approval, provided that any such
grants shall be subject to such stockholder approval.

1. Purpose. The purpose of the Plan is to advance the interests of the
Company and its subsidiaries by encouraging and facilitating the acquisition
of a larger personal financial interest in the Company by directors and those
employees upon whose judgment and interest the Company and its subsidiaries
are largely dependent for the successful conduct of their operations, and by
making executive positions in the Company and its subsidiaries more
attractive. It is anticipated that the acquisition of such financial interest
will stimulate the efforts of such employees and directors on behalf of the
Company and its subsidiaries and strengthen their desire to continue in the
service of the Company and its subsidiaries. It is also anticipated that the
opportunity to obtain such a financial interest will prove attractive to
promising executive talent and will assist the Company and its subsidiaries
in attracting such employees.

2. Scope of the Plan. An aggregate of 562,500 of the Company's authorized
but unissued shares of common stock, par value $.50 per share (the "Stock"),
is hereby made available and shall be reserved for issuance under the Plan
with respect to the exercise of options. Such number of authorized but
unissued shares of Stock shall be reduced by the aggregate number of shares
of Stock acquired from time to time to be held as treasury shares reserved
for use under the Plan. The aggregate numbers of shares of Stock available
under this Plan shall be subject to adjustment upon the occurrence of any of
the events and in the manner set forth in Article 25 hereof.

If, and to the extent, an option shall expire or terminate for any reason
without having been exercised in full (including, without limitation, a
cancellation and regrant pursuant to Article 3(g), the shares of Stock
subject thereto which have not become outstanding shall (unless the Plan
shall have terminated) become available under the Plan for other options.

The Plan is intended to supersede and replace the Company's Nonqualified
Stock Option Plan for Outside Directors, the 1983 Nonqualified Stock Option
Plan for Eligible Directors and Key Employees of the Company, and the 1983
Incentive Stock Option Plan (collectively, the "Prior Plans"). However, any
outstanding stock options granted pursuant to the Prior Plans shall continue
to be governed in accordance with the terms and conditions of the Prior
Plans, respectively.

The Board of Directors of the Company (the "Board"), such committee of the
Board that the Board shall specifically authorize or direct on its behalf, or
the Committee (as defined in Article 3 hereof) shall have the authority to
cause the Company to purchase from time to time, in such amounts and at such
prices as the Board, in its discretion, shall deem advisable or appropriate,
shares of Stock to be held as treasury shares and reserved and used solely
for or in connection with grants under the Plan, at the discretion of the
Committee.

3. Administration. The Plan shall be administered by a committee, to be
known as the Stock Option Committee (the "Committee"), which shall include
not less than two persons who are directors of the Company who are not also
employees of the Company or its subsidiaries and who do not hold the position
of Chairman of the Board of the Company ("Outside Directors"), and who shall
be appointed, from time to time, by the Board. Members of the Committee shall
not participate in the Plan except as provided in Article 11 and, at any time
within one (1) year prior to the first anniversary of the Effective Date of
the Plan or within one (1) year prior to appointment to the Committee, as the
case may be, (a) shall not have been eligible to receive options hereunder
except as provided in Article 11 and (b) shall not have been a person to whom
stock options could be granted pursuant to any other plan of the Company or
any of its subsidiaries. The Committee shall have full and final authority,
in its discretion, but subject to the express provisions of the Plan, as
follows:

A-1

<PAGE>
(a) to grant options;
(b) subject to Article 5 and Article 11, to determine (i) the Option
Price (as defined in Article 5) of the Stock subject to each option, (ii)
the individuals to whom, and the time or times at which, options shall be
granted, and (iii) subject to Article 2, the number of shares of Stock
subject to an option to be granted to each Grantee (as defined in Article
5) thereof;
(c) to interpret the Plan;
(d) to prescribe, amend, and rescind rules and regulations relating to
the Plan, including, without limitation and subject to Article 16, the
rules with respect to the exercisability of options;
(e) to determine the terms and provisions of the respective option
agreements (which may, but need not be, identical), by which all options
shall be granted and, with the consent of the Grantee, to modify any such
agreements (including, without limitation, the acceleration of the
exercisability of options subject to such agreement);
(f) to prescribe the method by which grants of options shall be
evidenced;
(g) to cancel, with the consent of the Grantee thereof, outstanding
options and to grant new options in substitution therefor;
(h) to require withholding from or payment by a Grantee (as defined in
Article 5) of any federal, state, or other governmental taxes;
(i) to prohibit the election described in Article 12;
(j) to make all other determinations deemed necessary or advisable for
the administration of the Plan; and
(k) to impose such additional conditions, restrictions, and limitations
upon exercise or retention of options as the Committee may, prior to or
concurrently with the grant thereof, deem appropriate, including, but not
limited to, requiring simultaneous exercise of related identified options
and limiting the percentage of options which may from time to time be
exercised by a Grantee.

The determination of the Committee on all matters relating to the Plan or any
option agreement shall be conclusive and final. No member of the Committee
shall be liable for any action or determination made in good faith with
respect to the Plan or any grant thereunder.

The Committee shall from time to time review the implementation and
results of the Plan to determine the extent to which the Plan's purpose is
being accomplished. In addition, the Committee shall periodically meet with
senior management of the Company to review management's suggestions regarding
grants under the Plan, including the individuals who are proposed to receive
grants and the amount and terms of such grants; provided, that all such
grants shall be determined solely by the Committee in its discretion.

4. Eligibility. Options may be granted to any employee of the Company or
any of its subsidiaries or any director who holds the position of Chairman of
the Board of the Company or who is also an employee of the Company or any of
its subsidiaries ("Inside Directors") whose rates of pay or fringe benefits
are not negotiated under a collective bargaining agreement. In selecting the
individuals to whom options shall be granted, as well as in determining the
number of shares of Stock subject to each option to be granted, the Committee
shall take into consideration such factors as it deems relevant in connection
with promoting the purposes of the Plan. However, solely with respect to
Outside Directors, nonqualified options may be granted only in accordance
with Article 11 hereof.

5. Conditions to Grants. The date of the grant (the "Grant Date") of an
option shall be the date on which the Committee awards the grant or such
later date as specified in advance by the Committee. Subject to the
provisions of Article 2 hereof, an individual who has been granted an option
(a "Grantee") may, if such Grantee is otherwise eligible, be granted
additional options if the Committee shall so determine. Subject to the other
provisions of this Plan, the Committee may grant options with terms and
conditions which differ among the Grantees thereof. The term of each option

A-2

<PAGE>

granted shall be for a period of not more than fifteen (15) years from the Grant
Date, and shall be subject to earlier termination as herein provided. To the
extent not set forth in the Plan, the terms and conditions of each grant of an
option shall be set forth in a written agreement between the Company and the
Grantee thereof.

(a) Grants of Options and Option Price. Before the grant of any option,
the Committee shall determine the per share purchase price of the Stock
subject to such option (the "Option Price"); provided that the Option
Price shall not be less than fifty percent (50%) of the Fair Market Value
(as defined in Article 6) of the Stock on the Grant Date.
(b) Grants of Incentive Stock Options. At the time of the grant of any
option, the Committee may designate that such option shall be made subject
to additional restrictions to permit it to qualify as an "incentive stock
option" under the requirements of Section 422 (or any successor provision)
of the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code"). Any option designated as an incentive stock option
(i) shall have an Option Price of (1) not less than 100% of the
Fair Market Value of the Stock on the Grant Date or (2) in the case of
an employee who owns stock (including stock treated as owned under
Section 424(d) of the Internal Revenue Code) possessing more than 10%
of the total combined voting power of all classes of stock of the
Company or any of its subsidiaries (a "10% Owner"), not less than 110%
of the Fair Market Value of the Stock on the Grant Date;
(ii) shall be for a period of not more than ten (10) years (five
(5) years, in the case of a 10% Owner) from the Grant Date, and shall
be subject to earlier termination as herein provided;
(iii) notwithstanding the provisions relating to termination of
employment set forth in Article 16(a)(i), (ii), (iii), and (iv) hereof,
shall not be exercisable more than three (3) months (or one (1) year,
in the case of a Grantee who is disabled within the meaning of Section
22(e)(3) of the Internal Revenue Code) after termination of employment;
(iv) shall not have an aggregate Fair Market Value (determined for
each incentive stock option at the time it is granted) of Stock with
respect to which incentive stock options are exercisable for the first
time by such Grantee during any calendar year (under this Plan and any
other employee stock option plan of the Grantee's employer or any
parent or subsidiary thereof ("Other Plans"), determined in accordance
with the provisions of Section 422 of the Internal Revenue Code (after
amendment by the Tax Reform Act of 1986), which exceeds $100,000 (the
"$100,000 Limit");
(v) shall, if the aggregate Fair Market Value of Stock (determined
on the Grant Date) with respect to all incentive stock options
previously granted under this Plan and the Other Plans ("Prior Grants")
and any incentive stock options under such grant (the "Current Grant")
which are exercisable for the first time during any calendar year would
exceed the $100,000 Limit, be exercisable as follows:
(1) The portion of the Current Grant exercisable for the first
time by the Grantee during any calendar year which would be, when
added to any portions of any Prior Grants exercisable for the first
time by the Grantee during any such calendar year with respect to
stock which would have an aggregate Fair Market Value (determined
at the time of each such grant) in excess of the $100,000 Limit
shall, notwithstanding the terms of the Current Grant, be
exercisable for the first time by the Grantee in the first
subsequent calendar year or years in which it could be exercisable
for the first time by the Grantee when added to all Prior Grants
without exceeding the $100,000 Limit;
(2) If, viewed as of the date of the Current Grant, any portion
of a Current Grant could not be exercised under the provisions of
the immediately preceding sentence during any calendar year
commencing with the calendar year in which it is first exercisable
through and including the last calendar year in which it may by its
terms be exercised, such portion of the Current Grant shall not be
an incentive stock option, but shall be exercisable as a separate
option at such date or dates as are provided in the Current Grant;

A-3

<PAGE>
(vi) shall be granted within ten (10) years from the earlier of the
date the Plan is adopted or the date the Plan is approved by the
stockholders of the Company; and
(vii) shall require the Grantee to notify the Committee of any
disposition of any Stock issued pursuant to the exercise of the
incentive stock option under the circumstances described in Section
421(b) of the Internal Revenue Code (relating to certain disqualifying
dispositions), within ten (10) days of such disposition.

6. Definition of "Fair Market Value". The term "Fair Market Value" means

(a) if on the applicable date the Stock is listed for trading on a
national or regional securities exchange or authorized for quotation on
the National Association of Securities Dealers Inc.'s NASDAQ National
Market System ("NASDAQ/NMS"), the closing price of the Stock on such
exchange or NASDAQ/NMS, as the case may be, on the applicable date, or if
no sales of Stock shall have occurred on such exchange or NASDAQ/NMS, as
the case may be, on the applicable date, the closing price of the Stock on
the next preceding date on which there were such sales,
(b) if on the applicable date the Stock is not listed for trading on a
national or regional securities exchange or authorized for quotation on
NASDAQ/NMS, the mean between the closing bid price and the closing ask
price of the Stock as reported by the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") with respect to the
applicable date or, if closing bid and ask prices for Stock shall not have
been so reported with respect to the applicable date, on the next
preceding date with respect to which such bid and ask prices were so
reported, or
(c) if on the applicable date the Stock is not listed for trading on a
national or regional securities exchange or is not authorized for
quotation on NASDAQ/NMS or NASDAQ, the Fair Market Value of the Stock as
determined in good faith by the Committee.

Such price shall be subject to adjustment as provided in Article 25 hereof.

7. Employees' Agreement to Serve. Each Grantee who is granted an option
shall, by the terms of such Grantee's option agreement, agree that such
Grantee will remain in the employ of the Company or any of its subsidiaries
for at least one (1) year after the Grant Date unless earlier terminated by
the Company or its subsidiaries. No obligation of the Company or any of its
subsidiaries as to the length of employment shall be implied by the terms of
this Plan or any grant of an option hereunder. The Company and its
subsidiaries reserve the same rights to terminate employment of any Grantee
as existed prior to the effective date of this Plan.

8. Non-transferability. Each option granted hereunder shall by its terms
not be assignable or transferable other than by will or the laws of descent
and distribution and may be exercised, during the Grantee's lifetime, only by
the Grantee.

9. Exercise of Options. Subject to the provisions of Article 15 and such
terms and conditions as the Committee may impose, each option shall be
exercisable in one or more installments commencing six months after the Grant
Date of such option. Each option shall be exercised by delivery to the
Company of written notice of intent to purchase a specific number of shares
of Stock subject to the option. The Option Price of any shares of Stock as to
which an option shall be exercised shall be paid in full at the time of the
exercise. Payment may, at the election of the Grantee, be made in (i) cash,
(ii) Stock valued at its Fair Market Value on the date of exercise, or (iii)
any combination of cash and Stock. In the discretion of the Committee and to
the extent permitted by law, payment may also be made in accordance with
Article 12.

10. Accelerated Exercise. Notwithstanding any other provisions of the
Plan, all unexercised options granted under the Plan, except unexercised
options held by those persons who for purposes of Section 16 of the 1934 Act
are treated as officers, directors or 10% stockholders of the Company, may be
disposed of commencing on the date of a Change of Control, as defined in
Article 17; provided, however, that the Company may cancel all such options
under the Plan as of the date of a Change of Control by giving notice to each
Grantee thereof of its intention to do so and by permitting the purchase
during the thirty-day period next preceding such effective date of all of the
shares subject to such outstanding options.

A-4

<PAGE>
In the event of such acceleration, regardless of whether the Grantee remains
employed for one (1) year after the applicable Grant Date, Article 7 shall
not be construed to prevent the exercise of such Grantee's options.

11. Grant of Stock Options to Outside Directors.
(Note: Items in brackets [ ] in this Section 11 reflect the words edited
out of the original Plan. Words capitalized represent the proposed
Amendments to the Plan.)

(a) Eligibility. Each Outside Director shall be eligible to be granted
nonqualified options exclusively under this Article 11.

(b) Granting of Options. Each YEAR, BEGINNING WITH THE CALENDAR YEAR
1994, EACH individual who [becomes] IS an Outside Director [after April 6,
1993 shall] on the first trading day coinciding with or immediately
following the fifteenth [(15th) day after election to the Company's
Board] DAY AFTER THE COMPANY'S REGULAR ANNUAL MEETING (BUT IN NO EVENT
LATER THAN THE FIRST TRADING DAY IN MAY), SHALL automatically be granted ON
THAT DATE an option to purchase 5,000 shares of Common Stock.

(c) Terms of Options.
(i) Option Agreement. Each option shall be evidenced by a written
stock option agreement which shall be executed by an Outside Director
and the Company and which shall contain such terms and conditions as
the Committee determines are required by the Plan.
(ii) Option Price. The price of the shares subject to each option
shall be 100% of the Fair Market Value for such shares on the date the
option is granted, as determined by the Committee in accordance with
Article 6 herein.
(iii) Commencement of Exercisability. The option granted under this
Article 11 shall be exercisable in one or more installments commencing
six months after the Grant Date of such option.
(IV) OPTION TERM. THE OPTION GRANTED UNDER THIS ARTICLE 11 SHALL
TERMINATE TEN YEARS FROM THE DATE OF GRANT UNLESS EARLIER TERMINATED
PURSUANT TO ARTICLE 16 HEREOF.
(d) Notwithstanding Article 26 herein, the provisions in this Article
11 may not be amended more than once every six months, other than to
comport with changes in the Internal Revenue Code, the Employee Retirement
Income Security Act, or the rules thereunder.
(E) APPLICABILITY OF ARTICLE 16. FOR THE PURPOSES OF ARTICLE 16 WITH
RESPECT TO OUTSIDE DIRECTORS, TERMINATION OF EMPLOYMENT SHALL INCLUDE,
WITHOUT LIMITATION, FAILURE TO BE RE-ELECTED TO THE BOARD AND EARLY
TERMINATION FROM THE BOARD PURSUANT TO THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS.

12. Loans and Guarantees. The Committee may, in its discretion,

(a) allow a Grantee to defer (at no less than reasonable commercial
rates) payment to the Company of all or any portion of (i) the Option
Price of an option, or (ii) any taxes associated with a benefit hereunder
which is not a cash benefit at the time such benefit is so taxable, or
(b) cause the Company to guarantee a loan from a third party to the
Grantee, in an amount equal to all or any portion of such Option Price or
any related taxes.

Any such payment deferral or guarantee by the Company pursuant to this
Article 12 shall be, on a secured or unsecured basis, for such periods, at
commercial interest rates, and on such other terms and conditions as the
Committee may determine. Notwithstanding the foregoing, a Grantee shall not
be entitled to defer the payment of such Option Price or any related taxes
unless the Grantee (a) enters into a binding obligation to pay the portion of
the Option Price or any related taxes which are deferred and (b) pays upon
exercise of an option a minimum amount, with respect to all shares of Stock
to be then issued, equal to the amount determined by resolution of the
Committee to be capital within the meaning of Section 154 of the Delaware
General Corporation Law. If the Committee has permitted a payment deferral or
caused the Company to guarantee a loan pursuant to this Article 12, then the
Committee may, in its discretion, require the immediate payment of such
deferred amount or the immediate release of such guarantee in the event the
Grantee sells or otherwise transfers the Grantee's shares of Stock purchased
pursuant to such deferral or guarantee.

13. Notification under Section 83(b). Provided that the Committee has not
prohibited such Grantee from making the following election, if a Grantee
shall, in connection with the exercise of any option or stock appreciation

A-5
<PAGE>

right make the election permitted under Section 83(b) of the Internal Revenue
Code (i.e., an election to include in such Grantee's gross income in the year of
transfer the amounts specified in Section 83(b) of the Internal Revenue Code),
such Grantee shall notify the Committee of such election within ten (10) days of
filing notice of the election with the Internal Revenue Service, in addition to
any filing and notification required pursuant to regulations issued under the
authority of Section 83(b) of the Internal Revenue Code.

14. Withholding Taxes.

(a) Whenever under the Plan, cash or shares of Stock are to be
delivered upon exercise of an option or any other event with respect to
rights and benefits hereunder, the Company shall be entitled to require as
a condition of delivery that the Grantee remit an amount sufficient to
satisfy all federal, state, and other governmental withholding tax
requirements related thereto.
(b) In the case of a Grantee who is an officer, director or 10%
stockholder of the Company (for purposes of Section 16 of the 1934 Act),
whenever under the Plan, cash or shares of Stock are to be delivered upon
exercise of an option or any other event with respect to rights and
benefits hereunder, the Company shall withhold an amount sufficient to
satisfy all federal, state, and other governmental withholding tax
requirements related thereto.

15. Elective Share Withholding

(a) A Grantee, other than an officer, director or 10% stockholder of
the Company (for purposes of Section 16 of the 1934 Act), may, subject to
Committee approval, elect the withholding ("Share Withholding") by the
Company of a portion of the shares of Stock otherwise deliverable to such
Grantee upon such Grantee's exercise of an option having a Fair Market
Value equal to
(i) the amount necessary to satisfy such Grantee's required
federal, state, or other governmental withholding tax liability with
respect to the exercise of the option, or
(ii) a greater amount, not to exceed the estimated total amount of
such Grantee's tax liability with respect to the exercise of the
option.
(b) Share Withholding is subject to Committee approval. Each Share
Withholding election by a Grantee shall be subject to the following
restrictions:
(i) it must be made prior to the date (the "Tax Date") on which the
amount of tax to be withheld is determined;
(ii) it shall be irrevocable; and
(iii) it shall be subject to the disapproval of the Committee.

16. Termination of Employment.

(a) An unexercised option shall terminate on a Grantee's Termination of
Employment, except that
(i) if the Grantee's employment is terminated by the death of the
Grantee, unexercised options to the extent exercisable on the date of
the Grantee's death, may be exercised, in whole or in part, at any time
within one (1) year after the date of death by the Grantee's personal
representative or by the person to whom the option is transferred by
will or the applicable laws of descent and distribution;
(ii) if the Grantee's employment is terminated as a result of
retirement under the provisions of a retirement plan of the Company or
any of its subsidiaries applicable to the Grantee (or on or after age
60 if no retirement plan of the Company or any of its subsidiaries are
applicable to the Grantee), any unexercised option to the extent
exercisable at the date of such Termination of Employment, may be
exercised, in whole or in part, at any time within 90 days after the
date of such Termination of Employment; provided that, if the Grantee
dies after such Termination of Employment and before the expiration of
such 90 day period, such option may be exercised by the deceased
Grantee's personal representative or by the person to whom the option
is transferred by will or the applicable laws of descent and
distribution within one (1) year after the Grantee's Termination of
Employment;

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(iii) if the Grantee's employment is terminated as a result of the
Permanent Disability of the Grantee, any unexercised option, to the
extent exercisable at the date of such Termination of Employment, may
be exercised, in whole or in part, at any time within one (1) year
after the date of such Termination of Employment; provided that, if the
Grantee dies after such Termination of Employment and before the
expiration of such one (1) year period, such option may be exercised by
the deceased Grantee's personal representative or by the person to whom
the option is transferred by will or the applicable laws of descent and
distribution within one (1) year after the Grantee's Termination of
Employment, or, if later, within 180 days after the Grantee's death.
The term "Permanent Disability" means a mental or physical condition
which, in the opinion of the Committee, renders a Grantee unable or
incompetent to carry out the job responsibilities which such Grantee
held or tasks to which such Grantee was assigned at the time the
disability was incurred and which is expected to be permanent or for an
indefinite duration; or
(iv) if the Grantee has a Termination of Employment for any reason
other than by death, retirement or Permanent Disability, any
unexercised option, to the extent exercisable on the date of such
Termination of Employment, may be exercised, in whole or in part, at
any time within three (3) months from the date of such Termination of
Employment.
(b) Any of the provisions herein to the contrary notwithstanding, no
option shall be exercisable beyond the term specified in the related
agreement thereof.

17. Definition of "Change of Control". The term "Change of Control" means
any of the following:

(a) The acquisition, by a person or group of persons acting in concert,
of a beneficial ownership interest in the Company, resulting in the total
beneficial ownership of such persons or group of persons equaling or
exceeding 20% of the outstanding common stock of the Company. The Change
of Control shall be deemed to occur on the date the beneficial ownership
of the acquiring person or group of persons first equals or exceeds 20% of
the outstanding common stock of the Company.
(b) A change, within any period of twenty-four (24) months or less, in
the composition of the Board such that at the end of such period a
majority of the directors who are then serving were not serving at the
beginning of such period, unless at the end of such period a majority of
the directors in office were nominated upon the recommendation of a
majority of the Board at the beginning of such period. The Change of
Control shall be deemed to occur on the date the last director necessary
to result in a Change of Control takes office or resigns from office, as
applicable.
(c) The merger, consolidation or other reorganization having
substantially the same effect, or the sale of all or substantially all the
consolidated assets of the Company. The Change of Control shall be deemed
to occur on the date on which the transaction is approved by the Company's
stockholders.

If more than one of the foregoing events shall occur, each such event shall
constitute a separate Change of Control.

Notwithstanding the foregoing provisions of this Article 17, a Change of
Control shall be deemed not to have occurred with respect to any Grantee, if
such Grantee is, by written agreement, a participant on such Grantee's own
behalf in a transaction in which the persons (or their affiliates) with whom
such Grantee has the written agreement acquire the Company and, pursuant to
the written agreement the Grantee has an equity interest in the resulting
entity.

The Company shall notify all Grantees of the occurrence of a Change of
Control promptly after its occurrence, but any failure of the Company to
notify shall not deprive the Grantees of any rights accruing hereunder by
virtue of a Change of Control.

18. Substituted Options. If the Committee cancels, with the consent of a
Grantee, any option granted under the Plan, and a new option is substituted
therefor, then the Committee may, in its discretion, provide that the Grant
Date of the canceled option shall be the date used to determine the earliest
date or dates for exercising or disposing the new substituted option under
Article 9 hereof so that the Grantee may exercise or dispose of the
substituted option at the same time as if the Grantee had held the
substituted option since the Grant Date of the canceled option; provided,

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however, that no Grantee who for purposes of Section 16 of the 1934 Act is
treated as an officer, director or 10% stockholder of the Company may dispose of
a substituted stock option within less than six months after the Grant Date
(calculated without reference to this Article 18).

19. Securities Law Matters.

(a) Where an investment intent representation or restrictive legend is
deemed necessary to comply with the Securities Act of 1933, the Committee
may require a written representation to that effect by the Grantee, or may
require that such legend be affixed to certificates for shares of Stock,
at the time the option is exercised.
(b) If based upon the opinion of counsel to the Company, the Committee
determines that the exercise of any options would violate any applicable
provision of (i) state or federal securities law or (ii) the listing
requirements of any securities exchange registered under the 1934 Act on
which are listed any of the Company's equity securities, then the
Committee may postpone any such exercise; provided, however, that the
Company shall use its best efforts to cause such exercise to comply with
all such provisions at the earliest practicable date; and provided
further, that the Committee's authority under this Article 19(b) shall
expire from and after the date of any Change of Control.
(c) With respect to officers, directors and 10% stockholders of the
Company subject to Section 16 of the Securities Exchange Act of 1934,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Securities Exchange
Act of 1934. To the extent any provision of the Plan or action by the
Board or the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Board and
the Committee.

20. Funding. Benefits payable under the Plan to any person shall be paid
directly by the Company. The Company shall not be required to fund, or
otherwise segregate assets to be used for payment of, benefits under the
Plan.

21. No Employment Rights. Neither the establishment of the Plan, nor the
granting of any option under the Plan shall be construed to (a) give any
Grantee the right to remain employed by the Company or any of its
subsidiaries or to any benefits not specifically provided by the Plan or (b)
in any manner modify the right of the Company or any of its subsidiaries to
modify, amend, or terminate any of its employee benefit plans.

22. Stockholder Rights. A Grantee shall not, by reason of any option
granted hereunder, have any right as a stockholder of the Company with
respect to the shares of Stock which may be deliverable upon exercise of such
option until such shares have been delivered to him or her.

23. Nature of Payments. Any and all grants of options, payments of cash,
or deliveries of shares of Stock hereunder shall constitute special incentive
payments to the Grantee and shall not be taken into account in computing the
amount of salary or compensation of the Grantee for the purposes of
determining any pension, retirement, death or other benefits under (a) any
pension, retirement, profit-sharing, bonus, life insurance or other employee
benefit plan of the Company or any of its subsidiaries or (b) any agreement
between the Company or any subsidiary, on the one hand, and the Grantee, on
the other hand, except as such plan or agreement shall otherwise expressly
provide.

24. Non-Uniform Determinations. Neither the Committee's nor the Board's
determinations under the Plan need be uniform and may be made by the
Committee or the Board selectively among persons who receive, or are eligible
to receive, grants under the Plan (whether or not such persons are similarly
situated). Without limiting the generality of the foregoing, the Committee
shall be entitled, among other things, to make non- uniform and selective
determinations, to enter into non-uniform and selective option agreements as
to (a) the persons to receive awards under the Plan, (b) the terms and
provisions of awards under the Plan, and (c) the treatment, under Article 16,
of leaves of absence.

25. Adjustments. Any option agreement entered into hereunder may contain
such provisions as the Committee shall determine for equitable adjustment of

(a) the number of shares of Stock covered thereby, or

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(b) the Option Price

to reflect a stock dividend, stock split, reverse stock split, share
combination, recapitalization, merger, consolidation, asset spin-off,
reorganization, or similar event, of or by the Company. In any such event,
regardless of whether specified in an option agreement, the aggregate number
of shares of Stock available under the Plan shall be appropriately adjusted
to equitably reflect such event.

26. Amendment of the Plan.

(a) Subject to Article 11(d) the Board may make such modifications of
the Plan as it shall deem advisable; provided, however, no modifications
shall be made which would impair the rights of any Grantee under any
option theretofore granted without his or her consent; and provided
further, the Board may not, without further approval of the stockholders
of the Company, except as provided in Article 25 hereof,
(i) materially increase the number of shares of Stock reserved for
issuance under the Plan;
(ii) materially increase the benefits accruing to participants
under the Plan;
(iii) materially modify the requirements as to eligibility for
participation in the Plan; or
(iv) extend the date of termination of the Plan.
(b) For purposes of this Article 26, the term "material" shall be
construed in accordance with the Securities Exchange Commission's
interpretive views, as modified from time to time, regarding shareholder
approval for amendments to employee benefit plans intended to comply with
Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934.

27. Termination of the Plan. The Plan shall terminate on the fifteenth
(15th) anniversary of the Effective Date or at such earlier time as the Board
may determine. Any termination, whether in whole or in part, shall not affect
any option then outstanding under the Plan.

28. Controlling Law. The law of the State of Illinois, except its law with
respect to choice of law, shall be controlling in all matters relating to the
Plan.

29. Action by the Company. Any action required by the Company under the
Plan shall be by resolution of the Board of Directors of the Company.

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<PAGE>
EXHIBIT B

CASTLE ENERGY CORPORATION
REFINERY PLAN

1. PURPOSE OF THE PLAN

The Board of Directors (the "Board") of Castle Energy Corporation, a
Delaware corporation (the "Company"), having determined that a disposition of
the Company's (a) 86,000 barrel per day refinery located in Lawrenceville,
Illinois and related assets (the "Indian Refinery") and (b) 49,500 barrel per
day refinery located in Santa Fe Springs, California and related assets (the
"Powerine Refinery" and, together with the Indian Refinery, the "Refineries")
is in the best interests of the Company and its stockholders (the
"Stockholders"), has adopted this Refinery Plan (the "Plan") to provide for
the orderly sale or other disposition of the Refineries, all as more fully
provided herein.

2. AUTHORIZATION TO SELL

(a) Pursuant to this Plan, the Company and the Refinery Subsidiaries (as
hereinafter defined) are authorized to sell the Refineries on such terms and
conditions as the Board may approve, subject to the Minimum Price Condition
(as hereinafter defined).

(b) The Company and the Refinery Subsidiaries may sell the Refineries in
one or more transactions, by sale of assets, sale of capital stock of or
partnership interests in the Refinery Subsidiaries, by mergers involving
subsidiaries of the Company, or any combination thereof or in such other
manner as the Board may approve. Any such transaction is herein referred to
as a "Refinery Transaction."

(c) The Company and the Refinery Subsidiaries may sell one of the
Refineries, regardless of whether any transaction for the sale of the other
Refinery has been entered into or consummated.

(d) In any Refinery Transaction, the Company and the Refinery Subsidiaries
may retain certain assets or liabilities of the Refinery or Refineries
subject to such Refinery Transaction. Any such retained assets may be
disposed of in subsequent transactions or may be retained by the Company and
its subsidiaries on a long-term basis.

(e) The "Refinery Subsidiaries" shall mean, collectively, Indian Refining
& Marketing Inc., an Illinois corporation, Indian Refining Limited
Partnership, an Illinois limited partnership, IP Oil Co., an Illinois
corporation, Indian Powerine L.P., an Illinois limited partnership, Castle
Energy Canada Ltd., a Delaware corporation, Powerine Holding Corp., a
Delaware corporation, Castle Refining Company, a Delaware corporation,
Powerine Oil Company, a California corporation, Anglo Petroleum Corporation,
a Delaware corporation, and Indian Refining Company, a Delaware corporation,
and any other subsidiary of the Company which may own the Refineries or any
of their assets.

3. MINIMUM PRICE CONDITION

(a) The value of the consideration received by the Company in any Refinery
Transaction must equal or exceed a minimum (the "Minimum Considerations") of
(i) for the Indian Refinery, $5 million plus, to the extent sold in a
Refinery Transaction, the market value of its working capital, platinum, and
certain other assets described in the pro forma balance sheet presented to
the Board, (ii) for the Powerine Refinery, $10 million plus, to the extent
sold in a Refinery Transaction, the market value of its working capital,
platinum, and such other assets, and (iii) for both Refineries, $15 million
plus, to the extent sold in a Refinery Transaction, the market value of their
working capital, platinum, and such other assets (the "Minimum Price
Condition").

(b) The Minimum Considerations may be paid in cash, in securities or other
assets, by assumption of environmental or other liabilities (including
environmental or other liabilities of subsidiaries of the Company acquired by
a purchaser, but excluding liabilities included in working capital), or other
consideration, or any combination thereof. The consideration received by the
Company will also include the amount any severance or other shutdown expenses
avoided as a result of the Refinery Transaction (net of salvage cost
recoveries).

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<PAGE>
(c) The value of any non-cash consideration, including assumption of
liabilities, received by the Company in any Refinery Transaction will be
determined by the Board, whose determination shall be final and conclusive.

(d) In valuing any non-cash consideration, the Board may seek opinions,
appraisals, or other assistance from independent sources, including without
limitation investment banking firms or appraisers; provided, that the Board
may approve and consummate any Refinery Transaction, including any Refinery
Transaction in which the purchaser is an affiliate of the Company or any
member of its senior management, without seeking or obtaining any such
fairness opinion or appraisal and, in connection with any transaction
pursuant to this Plan, may waive any condition requiring any such opinion or
appraisal.

4. EXPIRATION OF THE PLAN

This Plan will expire and terminate on December 31, 1995; provided, that
any Refinery Transaction for which definitive agreements are entered into on
or before December 31, 1995 shall be deemed authorized by this Plan and may
be consummated as so authorized after such date.

5. AUTHORITY OF THE BOARD

(a) Adoption of this Plan by the Board, and approval of this Plan by
Stockholders, shall not be construed to obligate the Company to sell either
Refinery. The Board may reject an offer for one or both Refineries even if
such offer satisfies the Minimum Price Condition.

(b) Adoption of this Plan shall not be construed to limit the authority of
the Board, the Company, or the Refinery Subsidiaries to retain, dispose of,
or otherwise deal with the Refineries or any of their assets to the extent
such authority is provided by applicable law.

(c) The Board shall have the complete authority to interpret the
provisions of this Plan, and any interpretation by the Board shall be final
and conclusive.

6. STOCKHOLDER APPROVAL AND AMENDMENTS

(a) This Plan shall be effective upon adoption by the Board, subject to
approval of this Plan by the Stockholders at the next annual or any special
meeting of Stockholders.

(b) Following approval of this Plan by Stockholders, no further
Stockholder approval shall be required in connection with any proposed
Refinery Transaction which satisfies the Minimum Price Condition; provided,
that the Company may seek such Stockholder approval if the Board determines
it is appropriate in connection with any transaction.

(c) The Board shall have the right to amend, suspend, or terminate this
Plan at any time; provided, however, that, unless approved by Stockholders,
no amendment shall be made in this Plan to modify or eliminate the Minimum
Price Condition or extend the date of termination of the Plan.

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<PAGE>
CASTLE ENERGY CORPORATION
ANNUAL MEETING OF STOCKHOLDERS -- JUNE 5, 1995
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned Stockholder of Castle Energy Corporation hereby appoints
Joseph L. Castle II and Donald L. Marsh, Jr., and each of them, attorneys and
proxies, with full power of substitution, to vote at the Annual Meeting of
the Stockholders of Castle Energy Corporation to be held on Monday, June 5,
1995 at 10:00 A.M. local time, at The Radnor Hotel, 591 Lancaster Avenue, St.
Davids, Pennsylvania, and at any adjournment or postponement thereof, in the
name of the undersigned and with the same force and effect as if the
undersigned were present and voting such shares, on the following matters and
in the following manner.

1. (a) ELECTION OF DIRECTORS TO SERVE UNTIL THE 1997 ANNUAL MEETING
FOR both nominees listed below (except as marked to the contrary
below) ------
WITHHOLD AUTHORITY to vote for both nominees listed below ------
William S. Sudhaus and Martin R. Hoffmann
(b) ELECTION OF DIRECTORS TO SERVE UNTIL THE 1998 ANNUAL MEETING
FOR both nominees listed below (except as marked to the contrary
below) ------
WITHHOLD AUTHORITY to vote for both nominees listed below ------
Joseph L. Castle II and Sidney F. Wentz

INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE STRIKE
A LINE THROUGH THE NOMINEE'S NAME

2. PROPOSAL TO APPROVE THE FIRST AMENDMENT TO THE COMPANY'S 1992 EXECUTIVE
EQUITY INCENTIVE PLAN
/ / For / / Against / / Abstain

- -------------------------------------------------------------------------------

3. PROPOSAL TO APPROVE THE REFINERY PLAN, AS DESCRIBED IN THE PROXY
STATEMENT RELATING TO THE ANNUAL MEETING
/ / For / / Against / / Abstain

4. PROPOSAL TO APPOINT PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1995.
/ / For / / Against / / Abstain

5. In their discretion, the Proxies are authorized to vote on such other
business as may properly come before the Annual Meeting.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE DEEMED
TO CONSTITUTE DIRECTION TO VOTE "FOR" EACH OF THE ABOVE NOMINEES AND
PROPOSALS.

DATED ------, 1995

- -----------------------------------------------------------------------------
Signature

- -----------------------------------------------------------------------------
Name Spelled Out

- -----------------------------------------------------------------------------
Signature, if held jointly

- -----------------------------------------------------------------------------
Name Spelled Out
Please sign exactly as your name(s) appears hereon. When signing as attorney,
administrator, trustee, guardian or any other representative, please so
indicate.