<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
_______________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
---------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ended______________________________________________
Commission file number: 0-10990
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CASTLE ENERGY CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Delaware 76-0035225
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One Radnor Corporate Center, Suite 250,
100 Matsonford Road, Radnor, Pennsylvania 19087
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (610)995-9400
------------
------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check /x/ whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes /x/ No ________.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date: 6,683,646 shares of Common
Stock, $.50 par value.
<PAGE>
CASTLE ENERGY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page #
-------
<S> <C>
Part I. Financial Information
---------------------
Item 1. Financial Statements:
Consolidated Balance Sheets - June 30, 1995 (Unaudited) and September 30, 1994.. 1
Consolidated Statements of Operations - Three Months Ended June 30, 1995
and 1994 (Unaudited)............................................................ 2
Consolidated Statements of Operations - Nine Months Ended June 30, 1995
and 1994 (Unaudited)............................................................ 3
Consolidated Statements of Cash Flows - Nine Months Ended June 30, 1995
and 1994 (Unaudited)............................................................ 4
Consolidated Statements of Stockholders' Equity - Year Ended September 30, 1994
and Nine Months Ended June 30, 1995 (Unaudited).................................. 5
Notes to the Consolidated Financial Statements (Unaudited)....................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................ 14
Part II. Other Information
-----------------
Item 1. Legal Proceedings........................................................ 27
Item 3. Defaults Upon Senior Securities.......................................... 28
Item 4. Submission of Matters to a Vote of Security Holders...................... 28
Item 6. Exhibits and Reports on Form 8-K......................................... 29
Signatures........................................................................................... 32
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CASTLE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
------------ -------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 9,989 $ 18,118
Restricted cash................................................... 5,914 12,525
Temporary investments............................................. 3,000 4,436
Accounts receivable............................................... 61,613 22,413
Accounts receivable - related party............................... 19,941
Inventories....................................................... 37,159 83,711
Prepaid expenses and other current assets......................... 2,818 7,341
Deferred income taxes............................................. 91,216 68,088
-------- ----------
Total current assets........................................... 211,709 236,573
Property, plant and equipment, net:
Refining.......................................................... 292,612
Natural gas transmission.......................................... 23,148 24,535
Furniture, fixtures and equipment................................. 290 3,245
Oil and gas properties............................................... 17,970 16,146
Gas contracts, net................................................... 36,859 43,889
Goodwill............................................................. 5,413
Other assets, net.................................................... 10,046 24,078
---------- ----------
Total assets................................................... $300,022 $646,491
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................. $ 24,370 $ 84,297
Current portion of long-term debt - related party................. 250 9,974
Accounts payable.................................................. 23,677 53,999
Accrued expenses.................................................. 57,486 27,169
Due to related parties............................................ 17,663
Deferred revenue.................................................. 62,333
Income taxes payable.............................................. 84,686 136
Other liabilities................................................. 3,112 3,771
----------- -----------
Total current liabilities...................................... 193,581 259,342
Long-term debt....................................................... 30,326 51,361
Long-term debt - related party....................................... 248,491
Other long-term liabilities.......................................... 30,656 34,191
Deferred income taxes................................................ 6,530 15,186
----------- -----------
Total liabilities.............................................. 261,093 608,571
----------- -----------
Commitments and contingencies........................................
Stockholders' equity:
Series B participating preferred stock; par value - $1.00;
10,000,000 shares authorized; no shares issued
Common stock; par value - $0.50; 25,000,000 shares authorized;
6,683,646 shares and 7,627,646 issued and outstanding at
June 30, 1995 and September 30, 1994, respectively................
3,342 3,814
Additional paid-in capital......................................... 62,724 73,490
Accumulated deficit................................................ (27,137) (39,384)
---------- ----------
38,929 37,920
---------- ----------
Total liabilities and stockholders' equity..................... $300,022 $646,491
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
-1-
<PAGE>
CASTLE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------
1995 1994
---- ----
Revenues:
<S> <C> <C>
Refining ........................................................................ $ 177,298 $ 255,389
Natural gas transmission and marketing .......................................... 17,800 10,697
Exploration and production ...................................................... 2,966 1,859
------------- -------------
198,064 267,945
------------- -------------
Expenses:
Refining ........................................................................ 194,350 241,449
Natural gas transmission and marketing .......................................... 13,450 9,929
Exploration and production ...................................................... 1,729 1,489
Corporate ....................................................................... 1,204 1,627
(Gain) on MG Settlement ......................................................... 8
Provision for impairment loss (recovery of) refining assets .................... (6,702)
------------- -------------
204,039 254,494
------------- -------------
Operating income ................................................................... (5,975) 13,451
------------- -------------
Other income (expenses):
Interest income ................................................................. 283 362
Other income .................................................................... 589 85
Interest expense ................................................................ (2,603) (6,643)
------------- -------------
(1,731) (6,196)
------------- -------------
Income before provision for (recovery of) income taxes ............................. (7,706) 7,255
------------- -------------
Provision for (recovery of)income taxes:
Federal ......................................................................... (5,104) 2,546
State ........................................................................... (729) 364
------------- -------------
(5,833) 2,910
------------- -------------
Net income (loss) .................................................................. ($ 1,873) $ 4,345
============= =============
Net income (loss) per share - primary .............................................. ($ .28) $ .37
============= =============
- fully diluted ........................................ ($ .28) $ .35
============= =============
Weighted average number of common and common equivalent
shares outstanding - primary ..................................................... 6,668,976 12,040,849
============= =============
- fully diluted ............................................... 6,712,505 12,374,493
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
-2-
<PAGE>
CASTLE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
----------------------------------
1995 1994
---- ----
<S> <C> <C>
Revenues:
Refining ...................................................................... $ 670,913 $ 631,203
Natural gas transmission and marketing ........................................ 58,989 45,361
Exploration and production .................................................... 7,106 6,439
-------------- --------------
737,008 683,003
-------------- --------------
Expenses:
Refining ...................................................................... 665,640 585,081
Natural gas transmission and marketing ........................................ 43,681 37,560
Exploration and production .................................................... 4,568 4,545
Corporate ..................................................................... 3,426 3,539
(Gain) on MG Settlement ....................................................... (391,135)
Provision for impairment loss on refining assets .............................. 339,404
-------------- --------------
665,584 630,725
-------------- --------------
Operating income ................................................................. 71,424 52,278
-------------- --------------
Other income (expenses):
Interest income ............................................................... 1,476 953
Other income .................................................................. 1,052 353
Interest expense .............................................................. (7,894) (21,178)
-------------- --------------
(5,366) (19,872)
-------------- --------------
Income before provision for income taxes ......................................... 66,058 32,406
-------------- --------------
Provision for income taxes:
Federal ....................................................................... 46,877 11,356
State ......................................................................... 6,934 1,623
-------------- --------------
53,811 12,979
-------------- --------------
Net income ....................................................................... $ 12,247 $ 19,427
============== ==============
Net income per share - primary ................................................... $ 1.80 $ 1.72
============== ==============
- fully diluted ............................................. $1.80 $ 1.69
============== ==============
Weighted average number of common and common equivalent
shares outstanding - primary .................................................. 6,797,492 11,345,037
============== ==============
- fully diluted ............................................ 6,785,861 11,546,532
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
-3-
<PAGE>
CASTLE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income ............................................................................... $ 12,247 $ 19,427
---------- ----------
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Depreciation, depletion and amortization ................................................. 17,645 40,340
Deferred tax expense (benefit) ........................................................... (31,784) 10,675
Gain on MG Settlement .................................................................... (396,166)
Provision for impairment loss ............................................................ 339,404
Decrease in restricted cash .............................................................. 6,611 1,776
Decrease in temporary investments ........................................................ 1,436
Decrease in accounts receivable .......................................................... 5,153 1,214
(Increase) decrease in inventories ....................................................... 46,552 (41,675)
(Increase) decrease in prepaid assets .................................................... 4,522 (4,139)
(Increase) decrease in other assets ...................................................... 6,637 (1,135)
Increase (decrease) in accounts payable .................................................. (30,321) 30,485
Increase in accrued expenses, including income taxes ..................................... 78,027 1,321
(Decrease) in amounts due to related parties ............................................. (17,663) (12,035)
(Decrease) in other current liabilities .................................................. (659) (137)
(Decrease) in deferred revenues .......................................................... (12,124) (37,031)
Increase (decrease) in other long-term liabilities ....................................... (434) 1,371
---------- ----------
Total adjustments ..................................................................... 16,836 (8,970)
---------- ----------
Net cash by provided (used in) operating activities ................................... 29,083 10,457
---------- ----------
Cash Flows From Investing Activities:
Proceeds from sale of oil and gas properties ............................................. 75
Purchase of oil and gas properties ....................................................... (4,066) (552)
Purchase of furniture, fixtures and equipment ............................................ (283) (1,882)
Investment in refining plant ............................................................. (32,471) (45,209)
Purchase of pipeline ..................................................................... (8)
Business acquisition, net of cash acquired ............................................... (8,230)
---------- ----------
Net cash provided by (used in) investing activities ................................... (36,828) (55,798)
---------- ----------
Cash Flows From Financing Activities:
Repayment of long-term debt .............................................................. (28,781) (33,632)
Proceeds of long-term debt - revolving credit facility ................................... 20,860 12,485
Proceeds from issuance of common stock, net .............................................. 48,205
Proceeds from exercise of stock options .................................................. 144
Proceeds of related party debt, net ...................................................... 7,393 35,365
Other.....................................................................................
---------- ----------
Net cash provided by financing activities ............................................. (384) 62,423
---------- ----------
Net increase (decrease) in cash and cash equivalents ....................................... (8,129) 17,082
Cash and cash equivalents - beginning of period ............................................ 18,118 4,304
---------- ----------
Cash and cash equivalents - end of period .................................................. $ 9,989 $ 21,386
========== ==========
Supplemental disclosures of cash flow information are as follows:
Cash paid during the period for:
Interest .............................................................................. $ 9,633 $ 13,759
========== ==========
Income taxes .......................................................................... $ 145 $ 6,140
========== ==========
Interest capitalized during the period ................................................... $ 1,087
==========
Supplemental schedule of noncash investing and financing activities:
Purchase of Powerine Oil Company:
Basis in assets acquired .............................................................. $ 188,082
Cash paid for capital stock and transaction costs ..................................... (8,230)
----------
Basis in liabilities assumed .......................................................... $ 179,852
==========
Treasury Stock retired ................................................................... $ 364
==========
</TABLE>
The accompanying notes are an integral part of these financial statements
-4-
<PAGE>
CASTLE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands except shares)
(Unaudited)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings Treasury Stock
----------------------- Paid-In (Accumulated -------------------
Shares Amount Capital Deficit) Shares Amount Total
-------- --------- ---------- ----------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - September 30, 1993 ...... 7,782,506 $3,891 $ 65,387 ($78,301) 59,860 ($364) ($ 9,387)
Stock issuance .................... 3,500,000 1,750 46,428 48,178
Treasury stock retired ............ (59,860) (30) (334) (59,860) 364
Options exercised ................. 5,000 3 26 29
Shares repurchased with cash
participations .................. (3,600,000) (1,800) (38,017) (39,817)
Net income ........................ 38,917 38,917
---------- ------ -------- ---------- ------- ------ --------
Balance - September 30, 1994 ...... 7,627,646 3,814 73,490 (39,384) 0 0 37,920
Stock surrendered ................. (969,000) (485) (10,897) (11,382)
Stock options exercised ........... 25,000 13 131 144
Net income ........................ 12,247 12,247
---------- ------ -------- ---------- ------- ------ ---------
Balance - June 30, 1995 ........... 6,683,646 $3,342 $ 62,724 ($27,137) 0 0 $ 38,929
========== ====== ======== ======== ======= ====== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
-5-
<PAGE>
CASTLE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Note 1 - Basis of Preparation
The unaudited consolidated financial statements of Castle Energy
Corporation (the "Company") included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Although
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, the
Company believes that the disclosures included herein are adequate to make the
information presented not misleading. Results for the three and nine month
periods ended June 30, 1995 are not necessarily indicative of the results that
may be expected for the fiscal year ending September 30, 1995. These unaudited
consolidated financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1994, as amended.
Reference should be made to such Form 10-K for capitalized (defined) terms used
herein.
In the opinion of the Company, the unaudited consolidated financial
statements contain all adjustments necessary for a fair statement of the results
for the three and nine month periods ended June 30, 1995 and 1994.
Note 2 - September 30, 1994 Balance Sheet
The amounts presented in the balance sheet as of September 30, 1994
were derived from the Company's audited consolidated financial statements which
were included in its Annual Report on Form 10-K for the fiscal year ended
September 30, 1994, as amended.
Note 3 - Accounting Matters
Gain from MG Settlement
The MG Settlement is described in detail in Note 26 to the September
30, 1994 financial statements of the Company. Such financial statements are
included as Item 8 in Form 10-K of the Company for the year ended September 30,
1994, which has been filed with the Securities and Exchange Commission. As MG is
no longer a stockholder of the Company, items in the financial statements
related to MG subsequent to October 14, 1994 have been classified as those of an
unrelated party.
Provision for Impairment Loss on Refining Assets
In the first quarter of fiscal 1995, the Company decided to dispose
of its refining business.
-6-
<PAGE>
CASTLE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
On December 5, 1994 the Company entered into an agreement to sell
all of its refining assets and operations to CORE Refining Corporation ("CORE")
(previously SIPAC Inc). In February of 1995, CORE informed the Company that it
was unable to raise the financing needed to purchase the refining assets and
operations. Thereafter, the Company sought to sell the assets and/or operations
of both of its Refineries - combined or separately to several outside parties
including CORE. A description of the initial CORE Agreement and negotiations
conducted by the Company is found in Note 26 to the September 30, 1994 financial
statements of the Company (which is included in Item 8 of Form 10-K for the
fiscal year ended September 30, 1994) and in the Company's definitive proxy
which was filed with the Securities and Exchange Commission on May 11, 1995.
As of August 15, 1995, the situation with respect to the sale of
the Company's refining assets/refining subsidiaries was as follows:
Powerine Refinery:
The Powerine Refinery was shut down on June 30, 1995.
Three outside offers to purchase the refinery assets have been
received. The Company is currently negotiating with two of those making offers.
Two offers to acquire the land at Powerine have also been received. These offers
are contingent upon a sale of the refinery assets.
Two additional outside parties have expressed an interest in
purchasing the stock of the Powerine subsidiaries but no definitive offer has
been received. However, a preliminary offer has been received from one party.
The Company is conducting discussions with all parties.
The Company expects to enter into a definitive agreement to sell
either the Refinery assets or the stock of the Powerine refining subsidiaries
before September 30, 1995 but there can be no assurance the Company will be able
to do so.
Indian Refinery:
On May 25, 1995, the Company entered into an agreement to sell
Indian to CORE Refining Corporation, a company formed by William S. Sudhaus, a
director and the President of Castle Energy Corporation. The agreement provides
for CORE to acquire all of the assets of the Indian Refinery on an "as is, where
is" basis. CORE will pay to Castle Energy at closing an amount equal to the
adjusted working capital, plus certain capital expenditures of the Indian
Refinery and reimbursements of transaction costs, payable in the form of a
$5,500 subordinated promissory note and the balance in cash. The adjusted
working capital of the Indian Refinery, including catalyst, and the estimated
capital expenditure and transaction cost reimbursements approximated $21,000 as
of June 30, 1995. CORE will assume all of the environmental and certain other
liabilities relating to the Indian Refinery. In addition, CORE will pay Castle
Energy over eight years a royalty of up to $20,000 based on deliveries of
Caroline condensate by Shell Canada Limited and its affiliates under an existing
long-term supply contract. The payment of the royalty will be contingent on
continued performance by Shell Canada under the supply contract, which is
currently the subject of certain litigation between Castle Energy and Shell
Canada.
-7-
<PAGE>
CASTLE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
CORE's obligations under the CORE agreement are subject to a number
of conditions, including there being no material adverse change in the
operations or financial condition of the Indian Refinery, CORE securing
financing for the transaction, and receipt of certain regulatory approvals.
Corral Petroleum and Gulf Interstate Oil Company have placed into escrow $16,500
million to provide the equity financing for the transaction. CORE has also
obtained a "highly confident" letter for up to $100,000 of high-yield debt
financing and a commitment letter for a $125,000 revolving credit facility from
major financial institutions.
Castle Energy's obligations under the CORE agreement are also subject
to a number of conditions, including receipt of a fairness opinion from Lazard
Freres & Co. LLP with respect to the transaction, CORE receiving its financing,
and receipt of regulatory approvals.
Under the CORE agreement, Castle Energy may respond to other offers
for the Indian Refinery and may accept another offer and terminate the CORE
agreement. The CORE agreement provides for Castle Energy to pay CORE's legal and
other expenses pending the closing. If the closing occurs, CORE will repay such
expenses, including one-half of the expenses incurred by Castle Energy in
connection with Indian Refinery's interim credit facility.
Castle Energy's Board of Directors, based in part on the
recommendation of a Special Committee of the Board, has approved the CORE
agreement.
In addition to CORE, one outside party has made an offer for the
Refinery assets.
Since the Company had decided to dispose of the Refineries but had
not closed a transaction to sell one or both Refineries, it made the following
adjustments to the refining assets and liabilities as of December 31, 1994 in
order to reflect their estimated fair market values:
a. A loss provision of $325,351 was recorded reducing the book
value of the refining property, plant and equipment, furniture
and fixtures and acquired goodwill to zero.
b. An additional net loss provision of $19,657 relating to
anticipated severance and closing costs of the Refineries was
accrued as of December 31, 1994. The provision was net of an
offer received from a third party to purchase the refining
plant of the Powerine Refinery.
c. An additional loss provision of $1,098 was recorded at
March 31, 1995.
During the period from January 1, 1995 to June 30, 1995, the Company
charged $6,488 of expenditures against the closing cost accrual. In addition,
the Company reduced the closing costs accrual by $6,702 based upon current
offers to buy the Powerine refining assets and updated estimates of costs to
close both refineries. At June 30, 1995, the remaining net closing cost accrual
was $7,565, consisting of estimated proceeds from the sale of refining assets of
$31,306 offset against estimated closing costs of $38,871.
-8-
<PAGE>
CASTLE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
The provision for losses is provided pursuant to paragraphs 15 and 16
of Statement of Financial Accounting Standards #121 - "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of." The
loss was not accounted for as a discontinued operation because a) the Company is
still uncertain as to the expected method of disposal of both of the refineries,
i.e., by sale of stock, sale of assets or abandonment and b) the estimated loss
on the disposal can be expected to vary materially depending on the method of
disposition ultimately utilized.
In addition to the $7,564 of accrued net closing costs, the Company
had accrued approximately $32,500 for environmental liabilities as of June 30,
1995.
The adjusted impairment loss of $339,404 on assets to be disposed of
is based upon management's best estimate of the loss that would be realized if
the refining assets were sold and the Refineries were closed. In calculating the
loss provision, proceeds assumed to be realized from the sale of the refining
property, plant and equipment were offset against the estimated costs to close
the Refineries, including employee severance, employee benefits, plant closing
costs, plant security costs and losses on the assumed sale of feedstocks and
tank bottoms. The resulting loss provision reflects the minimum provision and
the ultimate loss may be greater than the amount provided. If the Company is
able to sell one or both Refineries as going concerns rather than selling the
refining assets and closing the Refineries, most of the estimated plant closing
costs may be avoided and some or all estimated environmental liabilities may be
assumed by the purchaser. As a result, the ultimate proceeds to be received and
loss upon disposition of the Refineries may be less than that recorded.
Note 4 - Inventories
The Company's inventories consist of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
------------ -------------
(Unaudited)
<S> <C> <C>
Crude oil ............................................. $ 5,885 $49,029
Unfinished products ................................... 23,401 19,549
Finished products ..................................... 854 4,458
Materials and supplies ................................ 10,568 10,675
-------- -------
40,708 83,711
Provision to reduce inventory to market value ......... (3,549)
--------- -------
$37,159 $83,711
======= =======
</TABLE>
The decrease in inventories is attributable to the bulk sale of
Powerine's inventories to Wickland Oil Company in conjunction with the
settlement with MGTFC (see Note 5) and to IRLP's reduced level of operations.
-9-
<PAGE>
CASTLE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Note 5 - Debt
On March 31, 1995, two of the Company's refining subsidiaries, IRLP
and Powerine, did not pay MGTFC under their respective revolving credit
facilities with MGTFC. The repayment of such indebtedness was guaranteed by the
Company. On April 3, 1995, MGTFC filed a complaint against the Company to
collect $105,011, plus interest. MGTFC claimed that this was the total amount
due to MGTFC from IRLP and Powerine under their revolving credit facilities as
of March 31, 1995. MGTFC thereafter filed individual actions to recover $24,289
from Powerine and $80,722 from IRLP.
On April 14, 1995, Powerine repaid all of the indebtedness owed by
it to MGTFC, including $10,828 of disputed amounts (the "Disputed Amount"). On
the same day, the Company and two of its subsidiaries and MG and two of its
subsidiaries, entered into the Payoff Loan and Pledge Agreement ("Payoff
Agreement"), which provided the following:
a. MG released Powerine from all liens and claims.
b. MG loaned the Company $10,000.
c. Powerine transferred its claim with respect to the Disputed
Amount to the Company.
d. The claim with respect to the Disputed Amount is to be
submitted to binding arbitration.
e. MG can offset the $10,000 loan to the Company against the
$10,000 note it issued to the Company as part of the MG
Settlement, to the extent the arbitrator decides the claim
with respect to the Disputed Amount in MG's favor.
The Disputed Amount relates primarily to disputes over the prices
paid by subsidiaries of MG for 388,500 barrels of refined products lifted by MG
subsidiary, MGR&M, and over MGR&M's failure to lift and pay for refined products
that were processed after January 31, 1995 but for which the related crude and
feedstocks were purchased prior to February 1, 1995. At the present time, the
$10,000 MG note to the Company is offset by the $10,000 note of the Company to
MG. To the extent that the arbitrator decides in favor of the Company, the
Company's note to MG will be reduced and the net amount due to the Company from
MG will be increased. If the arbitrator settles the Disputed Amount entirely in
the Company's favor, the Company's note to MG will be cancelled, MG will still
owe the Company its $10,000 note (due October 14, 1997) and MG will owe the
Company an additional $828. If the arbitrator settles the Disputed Amount
entirely in MG's favor, the Company's note to MG will be offset against MG's
note to the Company, and the Company will owe MG $828. The Company's management
believes that the claim will be settled in favor of the Company and the Company
has recorded the related refining revenues assuming the Company's position will
be upheld. To the extent it is not upheld, pre-tax earnings will be adversely
affected. Arbitration has commenced and a hearing is anticipated in late 1995.
-10-
<PAGE>
CASTLE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Powerine obtained the funds to repay MGTFC by selling its
inventories and petroleum products to Wickland Oil Corporation ("Wickland"), an
unrelated party, for $22,328, subject to certain post closing adjustments.
Concurrently, Powerine entered into a feedstock, supply and processing agreement
with Wickland. For the term of the feedstock, supply and processing agreement,
Powerine purchased certain crude oil, intermediate products, and feedstocks
exclusively from Wickland, for purchase 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 had the
option to purchase Wickland's inventories of such commodities. If Powerine did
not purchase all of Wickland's inventories of such commodities, either at the
end of the term or at the Product Purchase Date, Powerine would be required to
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 had 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-upon discounts. The agreement terminated on July 1,
1995 and Powerine ceased purchasing crude oil and feedstocks from Wickland and
began to close its refining plant. Powerine and Wickland are currently
finalizing a settlement. To secure its obligations to Wickland under the
agreement, Powerine granted Wickland a security interest in all of Powerine's
assets and provided Wickland with a $3,000 letter of credit. The Company has
guaranteed Powerine's obligations to Wickland. The letter of credit expires
October 31, 1995.
On May 25, 1995, IRLP obtained a $30,000 interim credit facility.
Concurrently, the Company and its affiliates entered into a Payoff Agreement
with MG and its affiliates which accomplished the following:
1. Utilizing the interim credit facility, IRLP repaid the
MGTFC Revolving Loan and Credit Facility.
2. MG released all liens and claims against IRLP.
3. MG returned all collateral.
The interim credit facility bears interest at prime plus 2% and
will provide up to $30,000 for letters of credit and other funds for the
operations of the Indian Refinery pending the closing of the transaction with
CORE. All indebtedness under the facility is due on demand by the lenders and,
in any case, on August 31, 1995 or, if earlier, the termination of or closing
under the CORE agreement. The interim credit facility has been secured by the
pledge of the working capital assets for the Indian Refinery. In addition, the
Company and two of its subsidiaries engaged in the gas business have guaranteed
the interim credit facility and have pledged certain assets as security for such
guarantees. IRLP and the interim credit lenders are currently negotiating an
extension of the facility and other amendments.
-11-
<PAGE>
CASTLE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Note 6 - Stockholders' Equity
On December 2, 1993, the Company consummated a public offering of
its common stock. Pursuant to the terms of the offering, the Company sold
2,800,000 shares of common stock to the public and 700,000 shares of common
stock to MG at a gross offering price of $15.00 per share.
On September 9, 1994, the Company acquired and cancelled 3,600,000
shares of its common stock from MG. On October 14, 1994, 969,000 shares of
common stock were tendered by MG as part of the MG Settlement and cancelled by
the Company, reducing MG's ownership of the Company's common stock to zero. In
addition, a convertible debenture held by MG and certain warrants held by
employees of MG were surrendered. See Note 26 to the Company's consolidated
financial statements included in Item 8 of Form 10-K for the year ended
September 30, 1994, as amended.
Note 7 - Earnings Per Share
Earnings per share are computed based upon the weighted average
number of shares of common stock and equivalents outstanding during each period.
Common stock equivalents are attributed primarily to outstanding stock options,
warrants and a convertible debenture in 1994 and stock options and warrants in
1995.
Note 8 - Acquisitions
ARCO Royalty
In October 1994, one of the Company's exploration and production
subsidiaries purchased certain royalty interests held by ARCO in wells purchased
by another of the Company's exploration and production subsidiaries from ARCO in
December 1992. The purchase price was $3,822.
Powerine Oil Company
As of October 1, 1993, the Company acquired from MG an option to
acquire Powerine Oil Company, the owner of a 49,500 barrel per day refinery
located in Santa Fe Springs, California. The results of Powerine Oil Company are
included in the Company's operating results effective October 1, 1993.
Note 9 - Contingencies
See Item 1, in Part II.
-12-
<PAGE>
CASTLE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Note 10 - Name Change
In May 1995, IRLP changed its name to Indian Refining I Limited
Partnership but is nevertheless referred to herein as IRLP.
Note 11 - Subsequent Events
Operating Industries, Inc. - see Powerine in Part II, Item 1, Legal
Proceedings.
On July 5, 1995, Powerine Oil Company failed to make a payment to
Wickland Oil Company which constituted a default under its Sale and Storage
Agreement with Wickland Oil Company. Wickland has acknowledged the default and
reserved its rights and remedies under the agreement. Wickland continues to hold
a $3,000 letter of credit from Powerine which amount exceeds the amounts claimed
under the default. The parties have tentatively agreed that if Powerine should
be unable to pay amounts due, such amounts would be drawn against the letter of
credit.
-13-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
(Dollars in thousands, except per share and per barrel amounts)
GENERAL
The Company is currently engaged in three segments of the oil and gas
industry - refining, natural gas marketing and exploration and production. Until
October 1994, a large percentage of the Company's common stock was owned by MG
and the Company had entered into a large number of material transactions with MG
and its subsidiaries. In December 1993, the international financial press
reported that MG's parent, MGAG, incurred losses in excess of $1,000,000
primarily as a result of the crude oil trading losses of MG. In January 1994,
the international financial press reported that MGAG's lending banks had
provided additional loans to avoid MGAG's filing for bankruptcy.
On August 31, 1994, the Company entered into two agreements with MG
and certain of its affiliates, comprising the MG Settlement, pursuant to which
the parties thereto agreed to amend or terminate a number of contractual
relationships among them. In the first step of the MG Settlement, which closed
on September 9, 1994, MG transferred 3,600,000 shares of the Company's Common
Stock to the Company in exchange for approximately $39,800 of participations the
Company held in debt obligations of the Company and its subsidiaries to MGTFC.
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 to repay $73,041 under its senior
facility with Societe Generale (the "Senior Facility"), together totaling
approximately $322,000, (b) transferred back to the Company its remaining
969,000 shares of Common Stock of the Company, (c) issued the Company a $10,000
note payable in three years, (d) terminated all of its equity interests in the
Company's natural gas operations, (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 and (f) cancelled $5,500 of
convertible debentures. In exchange for the foregoing, IRLP and Powerine (i)
amended the Offtake Agreements to terminate on February 1, 1995 for IRLP and for
Powerine on a date when all crude and feedstocks in inventory at January 31,
1995 had been processed and sold, (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, another MG
subsidiary, also entered into a four-year natural gas swap agreement, which has
been terminated (see Part II, Item 1).
The completion of the transactions contemplated by the MG Settlement
has, among others, three consequences for the Company. First, the Offtake
Agreements terminated in February and March 1995 and the Company is now
responsible for marketing its own products and, therefore, is subject to market
risks. Second, effective March 31, 1995, the working capital facilities provided
by MGTFC terminated. Such facilities were fully repaid as of May 25, 1995.
Third, for Federal and state income tax purposes, the Company recognized income
of $391,135. Federal and state income taxes payable of $84,686 were accrued as
of June 30, 1995 on this gain less other tax losses incurred during the period
October 1, 1994 to June 30, 1995.
-14-
<PAGE>
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 its Refinery
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
entail significant expense. On the other hand, closing the Refineries would
result in substantial shut-down 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. The Company believed that the working capital of the Refineries would be
adequate to provide for such severance obligations and environmental costs.
Based upon these factors, the Company early on determined to focus its efforts
on seeking to sell its Refinery operations.
On December 5, 1994, the Company entered into an agreement pursuant
to which it agreed to sell certain assets, including the assets of IRLP and the
capital stock of Powerine, to CORE, a newly formed corporation organized by
William S. Sudhaus, President and Chief Operating Officer of the Company. As of
February 16, 1995, CORE had been unable to raise the financing necessary to
purchase both Refineries and the agreement with CORE was terminated.
Subsequent to February 16, 1995, the Company sought to sell the
refining assets and/or stock of the Powerine and Indian Refineries separately.
The Company has received three outside offers to purchase the refining assets of
the Powerine Refinery and is also currently discussing the sale of the stock of
the Powerine refining subsidiaries with two outside parties. On May 25, 1995,
the Company entered into an agreement to sell the Indian Refinery to CORE
Refining Corporation, subject to certain conditions.
The factors contributing to the variances associated with the results
of operations for the current three and nine months are similar unless otherwise
noted.
-15-
<PAGE>
RESULTS OF OPERATIONS
The Company has three business segments - refining, natural gas
transmission and marketing, and oil and gas exploration and production. The
following represents the disaggregated elements of operating income with respect
to each segment:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Increase
Income (Loss) (Decrease)
For Nine Months Ended In Net
June 30, Income
----------------------- ----------
1995 1994
------- ------
(Unaudited)
<S> <C> <C> <C>
Revenues:
Refining................................................... $670,913 $631,203 $ 39,710
Natural gas marketing...................................... 58,989 45,361 13,628
Exploration and production ................................ 7,106 6,439 667
---------- ---------- -----------
Total 737,008 683,003 54,005
-------- -------- ---------
Operating Expenses:
Refining:
Costs of materials sold ................................... 565,281 452,248 (113,033)
Operating costs ........................................... 83,787 95,491 11,704
Selling, general and administrative ....................... 11,634 15,713 4,079
Depreciation and amortization ............................. 4,938 21,629 16,691
Gain on MG Settlement ..................................... (391,135) 391,135
Provision for impairment loss ............................. 339,404 (339,404)
Natural gas transmission and marketing:
Gas purchases ............................................. 33,709 27,378 (6,331)
Operating costs ........................................... 789 980 191
General and administrative ................................ 645 686 41
Depreciation and amortization ............................. 8,538 8,516 (22)
Exploration and Production:
Oil and gas production .................................... 1,947 2,179 232
General and administrative ................................ 369 652 283
Depreciation, depletion and amortization .................. 2,252 1,714 (538)
Corporate:
General and administrative ................................ 3,367 3,539 172
Depreciation .............................................. 59 (59)
-------- -------- ----------
Total ..................................................... 665,584 630,725 (34,859)
-------- -------- ----------
Operating Income ............................................. 71,424 52,278 19,146
Other income (expense):
Interest income ........................................... 1,476 953 523
Interest expense .......................................... (7,894) (21,178) 13,284
Other income, net ......................................... 1,052 353 699
---------- -------- ----------
Income before provision for income taxes ..................... 66,058 32,406 33,652
Provision for income taxes ................................... (53,811) (12,979) (40,832)
--------- -------- ----------
Net income ................................................ $ 12,247 $ 19,427 ($ 7,180)
========= ======== ==========
-16-
</TABLE>
<PAGE>
Revenues
Refining
Revenues for the refining segment increased $39,710 or 6% during the
nine month period ended June 30, 1995 versus the corresponding period in 1994.
The increase was primarily attributable to the following factors: (i) contract
sales to third parties in 1995 with no corresponding sales in the prior years,
(ii) a bulk sale of inventory to Wickland Oil in April 1995 with no
corresponding sale in the prior year, (iii) increased throughput at the Indian
Refinery for the first half of the nine month period. These increases were
offset by the following: (i) the Company ceased operating under the Offtake
Agreements as of January 31, 1995 at IRLP and in March 1995 at Powerine and
sales under alternative marketing arrangements were less than they would have
been under Offtake Arrangements, (ii) Indian and Powerine reduced throughput
subsequent to January 1995 as a result of the lack of adequate financing, low
refining margins and in anticipation of potential plant closings, (iii) IRLP
conducted turnaround operations during the third quarter, reducing its feedstock
processing capability.
Revenues for the quarter ended June 30, 1995 versus the same period
in the prior year declined $78,091 or 31%. The primary factors contributing to
this decline were: (i) three monthly sales under the Forward Sale Contract in
fiscal 1994 with no counterpart in fiscal 1995, (ii) low throughputs resulting
from the lack of adequate financing, low refining margins and the anticipated
closing down of the Powerine Refinery, (iii) turnaround operations conducted at
Indian during 1995, (iv) sales under arrangements at prices which were less than
those realized in the prior year under the Offtake Arrangement. These decreases
were offset by (i) a bulk sale of inventory to Wickland Oil Company.
Of the total refining revenues of $670,913 for the first nine months
of fiscal 1995, $474,917 or 71% represented sales of refined products to MG
under the Offtake Agreements.
Natural Gas Marketing
Revenues from natural gas marketing increased by $13,628 or 30% and
$7,103 or 66% for the nine and three months ended June 30, 1995, respectively,
when compared with the same period in 1994. The reason for the increase was
higher average daily volumes sold to Lone Star under the Lone Star Contract, a
take-or-pay contract with a February 1 - January 31 contract year. Under the
Lone Star Contract, Lone Star is required to take a fixed volume of gas each
contract year but such takes are not required evenly throughout each contract
year. As the Company's sales to Lone Star are at a fixed price, sales are not
affected by changes in natural gas prices but are directly proportional to the
gas volumes sold to Lone Star. If Lone Star had taken the annual gas volumes
required under the Lone Star contract ratably rather than on an accelerated
basis for the period October 1, 1994 to June 30, 1995, gas sales would
approximate $52,500, which is roughly three quarters of the expected annual
sales in a given gas contract year.
-17-
<PAGE>
Exploration and Production
Exploration and production revenues increased $667 or 10% and $1,107
or 60% for the nine and three months ended June 30, 1995, respectively, as
compared to the corresponding periods in 1994. The increase during the nine
month period is attributable to the revenues derived from the royalty acquired
from ARCO in October 1994 ($420) and non-recurring gas balancing and other
recoveries ($650) but was offset by lower gas prices during the period ($403).
Although decreases in the prices received for natural gas adversely impacted the
Company's exploration and production revenues, such impact is partially offset
by lower gas purchase costs in the Company's natural gas marketing segment.
Expenses
Refining
The cost of materials sold increased from 72% of refining revenues
during the first nine months of fiscal 1994 to 84% of refining revenues during
the first nine months of fiscal 1995. The increase in the cost of materials sold
as a percentage of refining revenues is attributable to (i) significantly better
refining margins under the Offtake Agreements (under which sales had ceased in
January 1995 for IRLP and in March 1995 for Powerine), (ii) the increased
absorption of operating costs into cost of material sold rather than operating
expenses at IRLP ($2,346) since IRLP did not previously own any material amount
of refined product inventories (since all refined products sold to MGR&M were
sold at IRLP's tanks), (iii) a market write-down of $3,463 at June 30, 1995 for
which there was no counterpart in fiscal 1994 since the termination of the
Offtake Arrangement occurred during the second quarter of fiscal 1995 and (iv)
extremely low refining margins on refined products sold by IRLP and, to a lesser
extent, by Powerine, during much of the period. The market write-down occurred
because the book value of inventories exceeded the market prices. Under the
Offtake Agreements, similar write-downs did not occur because IRLP and Powerine
were able to process and sell their inventories at an operating profit even when
feedstock and crude inventories had a book value less than market. Without the
Offtake Agreements such a presumption could not yet be made.
As a result of the termination of the Offtake Agreements, neither
IRLP nor Powerine are insulated from fluctuations in refining margins but, when
operating, are now subject to the results of such fluctuations as are most other
independent refiners.
Operating costs decreased $11,704 or 12% from 1994 to 1995 and
selling, general and administrative costs decreased $4,079 or 26% over the same
period. The decrease in operating costs is primarily due to the absorption of
operating costs into refined products cost of material and inventories in 1995
for which there was no counterpart in 1994 and the reduction in workforce
described below. Selling, general and administrative costs decreased because of
a $2,200 charge for stock appreciation rights in the first half of 1994 that had
no counterpart in 1995 and the workforce reductions described below.
During the second quarter of fiscal 1995, IRLP and Powerine laid off
a total of approximately 110 people and implemented wage reductions. Subsequent
to June 30, 1995, Powerine reduced its workforce by an additional 250 employees
as part of the process of closing the refining plant. The Company has accrued
the costs of closing and, accordingly, does not expect to incur related expenses
in the future. There can be no assurance, however, that the costs accrued are
sufficient and that future closing costs in excess of those accrued will not be
incurred.
-18-
<PAGE>
Gain on MG Settlement
The gain on the MG Settlement results from the Company's agreement to
terminate the Offtake Agreements in exchange for MG's cancellation of the
Company's debt to it, MG's assumption of the Company's debt to other parties and
cancellation of MG's equity interests in the Company. The gain on the MG
Settlement essentially represents the negotiated future value of the Offtake
Agreements. No similar transactions occurred in the prior year.
The $16,691 or 77% decrease in depreciation and amortization is
primarily attributable to the Company's decision to write-down and reclassify
the refining property, plant and equipment as assets held for sale effective
October 14, 1994 at which time the Company began depreciating the assets at a
reduced value. On October 14, 1994, the Company reduced the book value of the
refining property, plant and equipment to $66,750, the expected value under the
initial CORE (SIPAC) transaction, and recorded depreciation and amortization
thereafter based upon the reduced book value. On December 31, 1994, the Company
reduced the refinery property, plant and equipment, furniture and fixtures and
acquired goodwill to zero and ceased recording depreciation thereon.
Accordingly, for the six months ended June 30, 1995, the Company recorded no
depreciation on refining property, plant and equipment.
The provision for loss on assets to be disposed of for the nine
months ended June 30, 1995 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Refining, property, plant and equipment ............................ $318,250
Refining furniture and fixtures .................................... 2,898
Acquired goodwill .................................................. 5,301
----------
326,449
Provision for severance and closing costs, net of offers by third
parties for refining plant of Powerine ........................... 12,955
----------
$339,404
==========
</TABLE>
The refining, property, plant and equipment, furniture and fixtures
and acquired goodwill were written down to zero because the Company has not yet
been able to sell the Refineries. The remaining net closing cost accrual of
$7,565 at June 30, 1995 represents the excess of anticipated remaining closing
and severance costs related to abandoning the Refineries and selling related
crude oil and refined product inventories and supplies assuming the Refineries
are closed rather than sold (($38,871) over the anticipated proceeds to be
realized from selling the refining assets ($31,306)). Since management intends
to dispose of the refining assets by sale or abandonment and has not yet sold
the Refineries as going concerns, the above loss provision was recorded assuming
the Refineries will be closed and not sold as going concerns. The provision
reflects the minimum loss assuming both Refineries are closed rather than sold
as going concerns. As noted previously, management is pursuing the sale of one
or both Refineries to several parties and it is possible that one or both
Refineries will ultimately be sold as going concerns and not closed, and that
the loss on the sale will be less than that recorded. There can, however, be no
assurance that such will be the case or that losses in excess of those provided
will not ultimately be incurred.
-19-
<PAGE>
Natural Gas Marketing
Gas purchase expense increased $6,331 or 23% in the first nine months
of 1995 versus the same period in 1994. In fiscal 1995, gas purchases were 57%
of gas sales versus 60% in fiscal 1994. The decrease results primarily from the
termination of the Net Cash Flow Agreement as part of the MG Settlement on
October 14, 1994. The effect of such cancellation is that the Company's cost of
gas decreased approximately 7% because a deferred purchase price to be paid to
MGNG was terminated and no longer added to current gas purchases. This decrease
was offset by higher prices for natural gas not purchased from MGNG. Since most
of the Company's gas purchases are from MGNG under a fixed price contract,
increases or decreases in the prices of natural gas do not significantly impact
gas purchase costs.
Operating and general and administrative expenses decreased $232 or
14% from 1994 to 1995 primarily because of decreased legal and insurance costs
and decreased maintenance costs. These decreases were offset by a one-time fee
in 1995 paid to a financial institution when the Company was evaluating a
refinancing of its loan.
Exploration and Production
The Company's exploration and production segment incurred operating
and general and administrative expenses of $2,316 for the nine months ended June
30, 1995 versus $2,831 for the same period in 1994. The decrease results
primarily from decreased well operating costs, legal fees, insurance costs and
property taxes.
Corporate
Corporate general and administrative expenses decreased $172 or 5 %
primarily as a result of a charge related to stock appreciation rights in 1994
with no corresponding charge in 1995.
Other Income (Expense)
Interest Income and Expense
Interest expense decreased approximately $13,284 or 63% during the
first nine months of fiscal 1995 as compared with the first nine months of
fiscal 1994. This decrease was primarily attributable to the elimination of
interest expense on debt exchanged in conjunction with the MG Settlement and a
decrease in amortization expense on deferred debt issuance costs related to
those loans which were discharged on October 14, 1994. In addition, the debt
owed by the Company's natural gas subsidiaries has decreased by $21,230 during
the nine month period ended June 30, 1995.
Interest income increased by $523 primarily as a result of $566 of
interest earned on the $10,000 note received from MG on October 14, 1994. This
increase was offset by a decrease in interest earned on invested cash funds.
Provision for Income Taxes
The combined state and Federal tax provision for the first three
quarters of fiscal 1994 approximated the expected blended statutory rate of 40%.
The combined state and Federal tax provision for the first three quarters of
fiscal 1995 consists of primarily two components as follows:
-20-
<PAGE>
<TABLE>
<CAPTION>
$ Rate
-- -----
<S> <C> <C>
State and Federal provision .................................. $26,423 40%
Valuation reserve for state and Federal deferred taxes ....... 27,088 N/A
--------
$53,511
========
</TABLE>
The valuation reserve for state and Federal taxes resulted primarily
because the loss recorded on the assumed closing of the Refineries is greater
than the loss on the then anticipated sale of the Refineries to CORE. At
September 30, 1994, the Company assumed the Refineries would be sold for $38,750
in notes and assumption of environmental liabilities and provided deferred tax
assets on the entire amount of its net operating loss carryforwards and
depletion carryforwards in anticipation of using all such tax carryforwards to
offset taxable income from the MG Settlement. At December 31, 1994, March 31,
1995 and June 30, 1995, the Company assumed the Refineries would be closed. The
result was that the Company did not utilize all of its tax carryforwards but
instead retained net operating losses and percentage depletion carryforwards of
approximately $40,000. The Company thus recognized deferred tax assets on such
operating losses only to the extent of deferred taxes of approximately $6,500.
In addition, the Company has previously accrued approximately $32,000 of
environmental liabilities for book purposes which have not yet been deducted for
tax purposes.
Anticipated Discontinuance of Refining Operations
As noted, the Company intends to sell or close its Refineries not
later than September 30, 1995. The planned disposition of the Refineries has not
been accounted for as discontinued operations because management has not yet
decided on the method of disposition, i.e., by sale of the stock of the refining
subsidiaries or by sale of the refining assets and closing of the Refineries. As
soon as management is able to determine the method of disposition, the loss on
disposition, including anticipated future operating losses prior to disposition,
if any, will be estimated. To the extent such loss exceeds the loss provision
recorded through June 30, 1995, additional losses will be provided. To the
extent the loss provision recorded through June 30, 1995 exceeds the estimated
loss on disposition, such recovery will be recorded as a reduction of the loss
provision recorded through June 30, 1995.
Once the Company has disposed of the Refineries, its operations will
be materially reduced and will be limited to those of its natural gas marketing
and exploration and production segments and its corporate headquarters. The
anticipated effects of the discontinuance of refining operations are as follows:
<TABLE>
<CAPTION>
March 15, After
1995 Disposition
---------- -----------
<S> <C> <C>
Annual revenues .................................... $1,000,000 $ 75,000
Number of employees ................................ 850 30
Offices ............................................ 9 5
Property, plant and equipment and gas contracts..... $ 400,000 $ 70,000
</TABLE>
-21-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
$29,083 of cash was provided by operating activities during the nine
months ended June 30, 1995 compared to $10,457 of cash provided by operating
activities for the comparable period in the prior year.
In addition to operating activities, the Company also had cash
requirements for capital expenditures related to improvements at the Indian
Refinery and the Powerine Refinery. Such expenditures were $32,471 for both
Refineries during the nine months ended June 30, 1995 compared with $45,209 for
the same period in the prior year. Of such amount, $23,682 related to
environmental expenditures with the remainder relating to sustaining and other
capital expenditures. Also, the Company acquired Powerine during the first
quarter of fiscal 1994 and acquired a royalty interest from ARCO during the
first quarter of fiscal 1995. (Cash paid for these acquisitions was $8,230 and
$3,822, respectively.)
To provide the cash needed to fund refinery operations and capital
expenditures, the Company initially renegotiated its working capital and letter
of credit facility arrangements (in conjunction with the MG Settlement) pursuant
to which MGTFC agreed to provide an aggregate of up to $130,000 to Indian and
$100,000 to Powerine through March 31, 1995. These facilities also allowed the
Company to borrow up to $32,000 through January 31, 1995 to fund capital
expenditures, all of which was utilized. In April 1995, Powerine Oil Company
sold all of its feedstocks to Wickland Oil Company and entered into a feedstock
supply and processing agreement which financed the operations through closing in
early July 1995. In May 1995, IRLP refinanced its working capital facility with
a third party lender. This facility, which is in the aggregate amount of
$30,000, is payable on demand or August 31, 1995. This facility has financed
IRLP's operations since May 1995.
The Company anticipates that it will limit future capital
expenditures at the Indian Refinery to sustaining capital expenditures until the
Refinery is sold or closed and abandoned. Such funds are expected to be
generated from working capital.
Debt Service
As of June 30, 1995, the Company's debt service requirements,
excluding working capital loans, were as follows: $3,254 for the remainder of
fiscal 1995, $11,768 and $26,614 in fiscal 1996 and 1997, respectively. Of the
$41,636 of total debt service requirements, $38,886 is due to General Electric
Credit ("GECC"), the natural gas marketing lender, and the remaining $2,750 is
due to a stockholder and a former stockholder of the Company in June 1996.
Although the Company expects its natural gas marketing segment to generate cash
flow of approximately $25,000 annually, and although the Company has reduced the
GECC principal approximately $10,000 below the minimum required principal,
essentially all cash flow from natural gas marketing operations is dedicated to
the GECC loan and cannot be used for other purposes, including the repayment of
the stockholder loans, until the GECC loan is repaid. The Company expects to
repay the stockholder and former stockholder loans from the proceeds of the sale
of the Refineries. If the Refineries are not sold, the Company anticipates
repaying the stockholder and former stockholder loans in equal quarterly
installments commencing in September 1995 and ending in June 1996.
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Significant Considerations
The following are significant considerations of the Company affecting
cash flow, liquidity and capital resources as of August 15, 1995. The discussion
of such items is by business segment rather than on a consolidated basis because
of the Company's decision to dispose of its Refineries and certain restrictions
on the movement of cash from one business segment to another.
Refining
The Company is currently trying to sell both of the Refineries, if
possible, as operating businesses. The Company believes that the sale of either
Refinery as an operating business may be more beneficial to the Company because
the purchaser may be required to assume environmental liabilities and the
Company will avoid the costs associated with closing, e.g., employee severance,
shut-down costs, plant security, etc. However, the proceeds from the sale of an
operating business are expected to be significantly less than the proceeds from
an asset sale. As previously announced, the Company intends to retire or dispose
of the Refineries not later than September 30, 1995 so that it is entitled to
resulting tax deductions which will offset the $391,135 gain it realized on the
MG Settlement. Without such tax deductions, the Company would owe approximately
$84,700 of Federal and state income taxes after offset for the Company's
existing Federal and state net operating loss carryforwards and other tax
carryforwards. In addition, the Company will bear any cash losses before the
ultimate sale or closing of the Refineries. If the Company is unable to sell the
Refineries, any cash losses during the interim until the Refineries are closed
will adversely affect the Company's financial condition.
Indian Refinery
As previously noted, IRLP refinanced its MGTFC working capital
facility in May 1995. As of August 15, 1995, the balance of IRLP's revolving
credit facility debt was $6,865. In addition, IRLP has approximately $500 of
unrestricted funds to fund operations. Furthermore, cash from the Company's
other segments is effectively not available to IRLP because such cash is either
committed to another lender or, in the case of cash from the exploration and
production segment, is needed to fund the corporate operations. The practical
consequences are that IRLP has sufficient funds to continue operations through
September 30, 1995. However, at the present time, the management of IRLP is
renegotiating its interim financing facility with its interim lender, but there
can be no assurance such financing facility will be extended beyond August 31,
1995, its current expiration. Such facility is due upon demand and contains
cross collateral provisions applicable to the assets of the Company and its
subsidiaries.
If the CORE transaction closes prior to September 30, 1995, the
Company expects to receive approximately $14,000 - $15,000, representing the
estimated working capital at closing plus certain transaction cost
reimbursements and capital expenditures of Indian, of which $5,500 would be in
the form of a subordinated promissory note payable in 10 years and the balance
paid in cash. In addition, the Company would receive a royalty of up to $20,000
over the next eight years based upon deliveries of Caroline Condensate by Shell
Canada Limited and its affiliates under an existing long-term supply contract.
The payment of the royalty will be contingent on continued performance by Shell
Canada under the supply contract which is currently the subject of certain
litigation between Castle Energy and Shell Canada. In addition to the cash,
notes and royalty, CORE would assume all of the environmental and certain other
liabilities and the Company would avoid approximately $19,000 of shut down
costs, which have been accrued.
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If the interim working capital is not extended or the CORE
transaction fails, the Company plans to shut down the Indian Refining by
September 30, 1995 and anticipates selling the Indian Refinery for its salvage
value. Based upon a previous offer received, the Company would expect to receive
$12,500 - $15,000 in salvage value for the plant and equipment. Management
believes that the working capital would be sufficient to liquidate any balance
outstanding under the interim credit facility and that remaining working capital
and the proceeds from the sale of the refinery's assets would be available for
closing costs. In addition, IRLP would have to fund the environmental closure
costs. Although management believes that a sale of the assets would generate
sufficient cash to fund the known shut down costs, it is possible that the funds
for the asset sales would not be received in time to fund the shut down
obligations when incurred. Further, there can be no assurance that additional
costs would not be required to close or abandon the facility including security,
clean up and land remediation, if necessary. If such turns out to be the case,
IRLP would have to seek additional financing or alternative purchasers of its
refining assets.
Powerine Refinery
As noted above, Powerine obtained an interim working capital facility
through July 1, 1995 from Wickland and continued to operate the Powerine
Refinery through June 30, 1995 at which time the facility was shut down.
To date, three offers have been received to purchase the refining
plant of Powerine and two outside parties are preparing offers to purchase the
stock of the Powerine subsidiaries. In addition, two parties have offered to
acquire the Powerine land if the operating assets are sold and removed. The
Company expects that it will be in a position to make a decision as to the
ultimate disposition of the Powerine Refinery not later than August 31, 1995.
Through July 1, 1995, Powerine operated under the Wickland Oil Company agreement
which provided sufficient cash to fund operations. Since that time, Powerine has
idled the facility, reducing its workforce to approximately 70 people as of
August 15, 1995. These individuals are responsible for security, removal and
sale of the remaining barrels of product, interaction with regulatory
authorities and maintenance of the assets for purposes of a sale. In order to
fund these continuing operations, Powerine has begun to liquidate non-current
assets including some equipment, certain catalysts and the sale of a portion of
its air emissions credits. Management estimates that if Powerine is not sold
within the next month, Powerine will have to continue to sell assets to finance
operations.
If Powerine is sold as a stock transaction, the Company expects to
receive a nominal amount of cash. However, the buyer will assume all
liabilities, including $10,000 of accounts payable and $28,000 of accrued
environmental costs. Further, the Company would avoid approximately
$8,000-$10,000 of additional closing costs.
If the operating assets of Powerine are sold, the Company expects to
receive $24,000-$30,000 for the operating assets, a substantial portion of which
would be paid at closing and the remainder, over a one to two year period as the
assets are dismantled and removed. The Company anticipates that the deferred
payments would be utilized to fund closing operations and fund environmental
liabilities and site remediation.
In addition to the above sale, Powerine has approximately $7,000 of
assets which would not be transferred to the buyer of the operating assets.
Powerine intends to sell these assets prior to December 1995 and utilize the
proceeds for the continuing operations obligations under the proposed sale
agreement, payments to vendors and funding of environmental costs.
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<PAGE>
If the above asset sales are consummated, Powerine will continue to
own the 88 acres of land on which the facility is located in Santa Fe Springs,
California, the Santa Fe Springs terminal, the Southern Pacific Pipeline Pumping
Station, offsite pipelines and a lease on the Long Beach, California terminal.
Powerine's options regarding these remaining assets are as follows:
1. Conduct limited operations such as a terminal facility.
2. Sale of the land for a nominal fee in exchange for assumption
of the remediation costs.
3. Remediate the land over the next several years in
anticipation of selling the land in the future.
Powerine intends to consummate a sale of the operating assets prior
to the consummation of a transaction regarding the land.
General
The Offtake Agreements with MG ended January 31, 1995 although sales
under the Powerine Agreement continued for Powerine into March 1995. The Company
is currently attempting to sell both of its Refineries. The Company is
responsible for marketing its refined products until the Refineries are sold or
abandoned. As noted above, the refining margins earned during this period have
been and are expected to continue to be significantly less than those earned
under the Offtake Agreements.
As of July 31, 1995, the Company estimated that the working capital
of the Refineries was approximately $13,000. To the extent the Company is unable
to sell the Refineries, the Company will bear any losses incurred by the
Refineries until they are sold or abandoned and such losses, if any, will reduce
the aforementioned working capital.
Natural Gas Marketing
Pursuant to the terms of the MG Settlement, the Company had the
opportunity to replace MG as the supplier of natural gas for its long-term
contract with Lone Star. The Company, however, was not able to obtain the
consent of GECC, which was required for the Company to replace MG. Accordingly,
the Company will continue to purchase its natural gas from MGNG under the
existing contract through June 1999. Although the cash flow generated from the
natural gas marketing segment aggregates approximately $25,000 annually, such
cash flow is dedicated to the GECC loan and cannot be used to fund refining or
corporate operations. The Company expects that the GECC loan, which is
approximately $36,450 as of July 31, 1995, will be repaid by December 1996. At
such time, the cash flow from natural gas marketing operations will be available
for other purposes.
Exploration and Production
Exclusive of the cash flow dedicated to the GECC loan, the
exploration and production segment is currently generating approximately $3,000
annually but is expected to generate $2,000-$2,500 annually hereafter. Such cash
flow is currently used to fund corporate operations.
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Corporate
As of August 15, 1995, Castle and the exploration and production
subsidiaries have unrestricted cash of approximately $4,000. If the CORE
transaction fails, Castle has agreed to pay the stockholder and former
stockholder loans which aggregate $2,750 in four equal installments commencing
September 30, 1995. In addition, Castle has accrued liabilities of approximately
$900. The other sources of revenues for Castle are as follows:
1. $2,000-$2,500 per year of cash flows from exploration and
production businesses, decreasing as reserves are depleted.
2. Interest on the $10,000 MG note at 8% per annum, which note is
currently pledged to MG pending the outcome of an arbitration
(see Note 5 - Debt in Part I, Item I of this Form 10-Q).
3. Principal on the MG note in October 1997, if the arbitration
is decided in Castle's favor.
4. If the CORE transaction closes prior to September 30, 1995,
the Company expects to receive approximately $8,500-$9,500 in
cash, a $5,500 note bearing interest annually with the
principal payable in 10 years and royalties based on
deliveries of condensate by Shell Canada Limited.
5. Cash flows from the natural gas marketing segment, averaging
$25,000 annually, once the senior facility has been repaid in
December 1996.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
MG Matters
In connection with the MG Settlement, the Company entered into an
Amended and Restated Guaranty pursuant to which the Company guaranteed to MGTFC
the performance of Powerine and IRLP under their respective loan agreements with
MGTFC. On April 3, 1995, MGTFC filed complaints in New York, Delaware and
California state courts to recover under the IRLP and Powerine loan agreements
and the related guarantees. Those actions were dismissed on or around June 1,
1995 with prejudice pursuant to payment of the amounts due. See "Legal
Proceedings -- MG Matters" in the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995.
MG Natural Gas
In April 1995, IRLP terminated a Natural Gas Swap Agreement, dated
October 14, 1994 between MGNG and IRLP, claiming the right to do so based on
breaches of other agreements by MG and its affiliates. MGNG disregarded IRLP's
termination notice and sent IRLP a termination notice alleging IRLP was the
defaulting party and claiming $1.2 million of losses. IRLP has refused to pay
MGNG's claim. In June 1995, MGNG filed suit in Delaware and informed IRLP that
it was applying a $707,000 receivable owing by its affiliate (MGRM) to IRLP
against the claim. The Company's management believes that IRLP has good defenses
to the claim, expects to prevail and expects to recover the $707,000 receivable.
Powerine
Powerine has been identified as a potentially responsible party
("PRP") in litigation regarding the clean-up of a former waste disposal site in
Monterey Park, California known as the Operating Industries, Inc. site (the "OII
Site"). The OII site operated as a permitted landfill from 1948 to 1984,
accepting both municipal and industrial waste. The OII Site now is listed on
both state and federal superfund lists. Certain waste materials from Powerine's
refinery and from joint venture oil field operations with the City of Long Beach
were transported to the OII Site by approved independent trucking contractors.
Powerine has notified the City of Long Beach that the city could be liable for a
portion of the waste shipped at the OII Site based on the terms of their
petroleum drilling joint venture, which generated some of the waste allegedly
sent to the site. In addition to the City of Los Angeles, which use the OII Site
for municipal waste, Powerine is one of over 250 industrial companies identified
to date as PRPs.
The government plaintiffs and most PRPs have executed several partial
consent decrees for the first three portions of the clean-up at the OII Site.
Under those decrees, the private PRPs are either undertaking or financing the
remedial work. Powerine elected not to become a party to any of these partial
consent decrees. On October 31, 1994, the USEPA offered all non-settling PRPs,
including Powerine, another opportunity to resolve their liability with respect
to the first three Partial Consent Decrees at the OII Site. However, as part of
the offer, USEPA raised Powerine's volume from its former 4.17 million gallons
to 6.06 million gallons. On January 3, 1995, Powerine submitted a challenge to
approximately 1.3 million gallons of those attributed to Powerine by the USEPA.
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<PAGE>
On July 25, 1995, the USEPA informed Powerine that it had accepted
virtually all of Powerine's challenges and was assigning Powerine a revised
volume of approximately 4.81 million gallons. Based on this revised volume, the
USEPA offered to resolve Powerine's liability for the first three Partial
Consent Decrees in exchange for a cash payment of approximately $13 million.
This sum represents Powerine's volumetric share multiplied by a 42 percent
multiplier based on Powerine's prior status as a non-settling party. The USEPA
has established a deadline of September 1, 1995 for Powerine's response and has
stated that the terms of the settlement offer are not negotiable. Powerine is
currently evaluating the USEPA's offer and has scheduled a meeting with its
insurers to discuss the offer. Three of Powerine's insurers have agreed to
assume defense costs while reserving their rights to contest coverage for any of
Powerine's potential liability. Powerine also has notified the Port of Long
Beach (the "Port") regarding the USEPA's settlement offer and the Port's
indemnification obligations. The Port declined to indemnify Powerine.
The USEPA is currently developing the final remedy for the OII Site,
which will address contaminated groundwater, leachate, and landfill gas, and
will include long-term operation and maintenance of all environmental control
facilities at the OII Site. Because the cost of the final remedy has not yet
been determined, it is impossible to calculate Powerine's volumetric share as
approximately 1.7 percent of the total site volume contributed by the top 250
industrial PRP's.
Other Matters
In May 1995, Powerine was served with a personal injury complaint
relating to asbestos exposure, James Todd and Virginia Todd v. Abex Corporation,
et. al., in California Superior Court. The suit alleges that James Todd suffers
from exposure to asbestos fibers during his employment with various contractors
in California and that Virginia Todd has been injured based on loss of
consortium. Powerine is one of numerous defendants and has filed an answer
denying liability.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See Item 1 of Part II of this Form 10-Q and Note 5 to the June 30,
1995 financial statements included in Part I of this Form 10-Q.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on June 5, 1995. Proxies
were solicited pursuant to the Notice of Annual Meeting of Stockholders, dated
May 8, 1995 and the accompanying Proxy Statement. A total of 6,668,646 shares
were eligible to vote of which 5,894,648 were present in person or by proxy.
The selection of accountants was ratified by the vote of a majority
of the votes cast at the Annual Meeting.
The directors elected to the Board and the number of votes cast with
respect to each nominee are as follows:
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<PAGE>
Martin R. Hoffmann
For 5,440,657
Against 453,991
William S. Sudhaus
For 5,440,930
Against 453,718
Joseph L. Castle II
For 5,883,726
Against 10,921
Sidney F. Wentz
For 5,884,061
Against 10,586
In Addition to the above, Sheldon Bonovitz and John Sullivan
continued on the Board of Directors.
The First Amendment to the Company's 1992 Executive Equity Plan was
approved. The number of votes cast with respect thereto was as follow:
Affirmative 5,576,614
Negative 114,057
Abstain 24,664
The Refinery Plan, which provides 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, was approved. The
number of votes cast with respect thereto was as follows:
Affirmative 5,656,800
Negative 14,388
Abstain 18,103
No other matters were voted upon.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
10.1 Letter Agreement, dated February 21, 1995, between William S.
Sudhaus and Castle Energy Corporation
10.2 Letter Agreement, dated February 24, 1995, between William S.
Sudhaus and Castle Energy Corporation
10.3 Powerine Petroleum Sale and Storage Agreement, dated April 8, 1995,
between Wickland Oil Company and Powerine Oil Company.
10.4 The Castle Agreement, dated April 8, 1995, among Wickland Oil
Company, Castle Energy Corporation, and Indian Powerine L.P.
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<PAGE>
10.5 Security Agreement, dated April 8, 1995, between Powerine Oil
Company and Wickland Oil Company
10.6 Supplemental Letter Agreement, dated April 13, 1995, between
Powerine Oil Company and Wickland Oil Company amending the Powerine
Petroleum Sale and Storage Agreement
10.7 Payoff Loan and Pledge Agreement, dated April 13, 1995, among
Powerine Oil Company, CEC, Inc., Castle Energy Corporation,
Metallgesellschaft Corp., MG Refining & Marketing, Inc., and MG
Trade Finance Corp.
10.8 Promissory Note, dated April 13, 1995, by CEC, Inc. in favor of
Metallgesellschaft Corp., in the principal amount of $10,000,000.
10.9 Letter Agreement, dated May 10, 1995, between John D. R. Wright and
Castle Energy Corporation
10.10 Letter Agreement, dated May 10, 1995, between William S. Sudhaus
and Castle Energy Corporation
10.11 Payoff Agreement, dated May 25, 1995, between Indian Refining
Limited Partnership, Indian Refining & Marketing, Inc., Castle
Energy Corporation, Indian Powerine L.P., Metallgesellschaft Corp.,
MG Refining and Marketing, Inc., and MG Trade Finance Corp.
10.12 Stock and Asset Purchase Agreement, dated May 25, 1995, among CORE
Refining Corporation, Castle Energy Corporation, Indian Refining &
Marketing, Inc., Indian Refining Limited Partnership, IP Oil Co.,
Indian Powerine L.P., and Indian Oil Company
10.13 Supplemental Letter Agreement, dated June 1, 1995, between Powerine
Oil Company, Castle Energy Corporation, Indian Powerine L.P., CEC,
Inc. and Wickland Oil Company to the Powerine Petroleum Sale and
Storage Agreement
10.14 Supplemental Letter Agreement, dated June 30, 1995, between
Powerine Oil Company, Castle Energy Corporation, Indian Powerine
L.P., CEC, Inc. and Wickland Oil Company to the Powerine Petroleum
Sale and Storage Agreement
10.15 Line of Credit Agreement, dated May 25, 1995, between Indian Oil
Company, BT Commercial Corporation, MeesPierson N.V., and Bankers
Trust Company
10.16 Borrower Security Agreement, dated May 25, 1995, by Indian Oil
Company in favor of BT Commercial Corporation.
10.17 Guaranty Agreement, dated May 25, 1995, made by Castle Energy
Corporation, Castle Production Resource Company, and Castle
Production Company in favor of BT Commercial Corporation.
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<PAGE>
10.18 Amendment to Stock and Asset Purchase Agreement, dated July 31,
1995, among Castle Energy Corporation, Indian Refining and
Marketing I, Inc., Indian Refining I, Limited Partnership., IP Oil
Co., Indian Powerine L.P., Indian Oil Company and CORE Refining
Corporation
10.19 Second Amendment to Stock and Asset Purchase Agreement, dated
August 15, 1995, among Castle Energy Corporation, Indian Refining
and Marketing I, Inc., Indian Refining I, Limited Partnership, IP
Oil Co., Indian Powerine L.P., Indian Oil Company and CORE Refining
Corporation
11.1 Statement re: Computation of Earnings Per Share
27 Financial Data Schedule
(B) Reports on Form 8-K:
On April 14, 1995, the Registrant filed a Form 8-K regarding Powerine Oil
Company's repayment of its working capital facility with MGTFC.
On May 30, 1995, the Registrant filed a Form 8-K regarding its agreement
to sell Indian Refining to CORE Refining Corporation.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 18, 1995 CASTLE ENERGY CORPORATION
/s/ Joseph L. Castle II
--------------------------------------------------
Chairman of the Board and Chief Executive Officer
/s/ Richard E. Staedtler
--------------------------------------------------
Chief Financial Officer
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<PAGE>
February 21, 1995
Mr. William S. Sudhaus
606 Pugh Road
Strafford, PA 19087
Re: Amended and Restated Employment Agreement
Made as of January 1, 1994
Dear Bill:
This is to confirm the agreement between Castle Energy Corporation and
you to amend the above-referenced agreement to eliminate from the description of
your "Office" in section 2(a) your service as Chairman and Chief Executive
Officer of Powerine Oil Company and its subsidiaries.
Please sign in the place indicated below signifying your agreement to
this amendment.
Sincerely,
/s/ Joseph L. Castle II
------------------------------
Joseph L. Castle II
AGREED TO AND ACCEPTED
/s/ William S. Sudhaus
-----------------------
William S. Sudhaus
February ___, 1995
<PAGE>
February 24, 1995
Mr. Joseph L. Castle II
Castle Energy Corporation
One Radnor Corporate Center
Suite 250
100 Matsonford Road
Radnor, PA 19087
Re: Amended and Restated Employment Agreement
Made as of January 1, 1994
Dear Joe:
Effective as of the date set forth below and pursuant to our letter
agreement dated February 21, 1995 (the "Letter Agreement"), I hereby resign as
Chairman and Chief Executive Officer of Powerine Oil Company and its
subsidiaries. I understand that the reference to the "Office" in the letter
Agreement is a mistake - the correct reference is to the "Position" (per Section
2(a) of the Employment Agreement). I also understand that, except as amended by
the Letter Agreement the subject Employment Agreement remains in full force and
effect.
Dated: February 24, 1995
/s/ William S. Sudhaus
----------------------------------
William S. Sudhaus
Accepted as of the above date.
CASTLE ENERGY CORPORATION
By: /s/ Joseph L. Castle II
--------------------------
Joseph L. Castle II
<PAGE>
POWERINE PETROLEUM SALE AND STORAGE AGREEMENT
This Powerine Petroleum Sale and Storage Agreement together with the exhibits
referred to herein (this "Agreement") is signed on April 8, 1995, and is made
between Wickland Oil Company, a California corporation ("Wickland"), and
Powerine Oil Company, a California corporation ("Powerine"), with reference to
the following facts:
(a) Wickland has agreed to purchase Powerine's existing inventories of
crude oil, intermediate refined products, Blend Stocks and certain finished
petroleum products.
(b) Wickland has agreed to supply certain crude oil and other
commodities to Powerine.
(c) Wickland and Powerine have agreed to sell to one another certain
intermediate and finished refined products from the Powerine Refinery at Santa
Fe Springs, California (the "Powerine Refinery"), all upon the terms and
conditions more fully set forth in this Agreement.
(d) Powerine has agreed to store the foregoing commodities in the
facilities described on Schedule 1 to the attached Exhibit B (the "Powerine
Tanks") and undertake certain other obligations in favor of Wickland, all as
more fully described in this Agreement.
Accordingly, in consideration of the promises and covenants set forth herein,
Powerine and Wickland hereby agree as follows:
1. Sale of Inventory to Wickland.
(a) Purchase and Sale. On the closing date referenced in Section 6
below (the "Effective Date") and pursuant to a Bill of Sale in form and
substance satisfactory to Wickland, Powerine shall sell to Wickland, and
Wickland shall purchase from Powerine, Powerine's existing inventories of
petroleum commodities, including tank bottoms and certain pipeline fills
(collectively, the "Wickland Purchased Commodities") in the amounts, for the
purchase prices and upon the terms set forth in the attached Exhibit A. Payment
to Powerine by Wickland shall be made in immediately available federal funds on
the Effective Date. Such payment will be based on provisional measurements. As
soon as the final measurements are completed, an adjusting payment shall be made
immediately to the party entitled thereto.
<PAGE>
(b) Title Matters. Title to the Wickland Purchased Commodities and all
commodities to be supplied or purchased by Wickland in accordance with this
Agreement (collectively "Wickland-Owned Commodities") shall be vested solely in
Wickland, and Powerine shall have no ownership interest therein or with respect
thereto unless and until title passes to Powerine as expressly provided by this
Agreement. Wickland shall be entitled to identify the Wickland-Owned Commodities
as the property of Wickland by a plaque affixed to the Powerine Tanks in which
such commodities are stored. Wickland shall have the right (but not the
obligation) to resell any and all of the Wickland Purchased Commodities to third
parties in its sole discretion. If Wickland elects not to do so, however, the
provisions of this Agreement applicable to the purchase of the Wickland
Purchased Commodities by Powerine shall apply and remain in full force and
effect.
(c) Existing Commitments. Wickland shall honor existing commitments to
sell refined products to third parties which Powerine shall be unable to fill
due to the sale of such commodities to Wickland. Powerine shall be deemed to
have purchased such products on the date of delivery to the third parties at the
prices paid by Wickland for such products, plus an interest component in the
amount provided in the attached Exhibit D.
2. Commodities Oil Storage. Subject to Section 8 of this Agreement,
Powerine shall store Wickland-Owned Commodities upon the terms and conditions
set forth in the attached Exhibit B.
3. Crude and Intermediate Products. Subject to Section 8 of this
Agreement, Wickland shall supply to Powerine crude oil, non-crude oil
commodities purchased from third parties for refinery processing (the "Feed
Stocks"), and intermediate products produced by Powerine which require further
processing (the "Intermediate Products"). The parties shall also sell
Intermediate Products to one another, upon the terms and conditions set forth in
the attached Exhibit C.
4. Wickland Product Purchase. Subject to Section 8 of this Agreement,
Wickland shall purchase Blend Stocks and finished petroleum products from
Powerine, and Powerine shall sell Blend Stocks and finished products to
Wickland, upon the terms and conditions set forth in the attached Exhibit D.
5. Golden West Extension. The parties agree and understand that
Wickland may find it necessary with the consent of Powerine to extend its
current terminalling arrangements with Golden West Refining Company ("Golden
West") in connection with performing Wickland's obligations under this
Agreement. Powerine shall reimburse Wickland for all costs and expenses incurred
by Wickland under such terminalling arrangements with Golden West, as so
extended.
<PAGE>
6. Closing. The closing shall take place at the offices of Loeb and
Loeb, 1000 Wilshire Boulevard, Suite 1800, Los Angeles, California 90017, at
10:00 PDT on the date on which all of the conditions precedent to Wickland's
obligations hereunder have been satisfied or waived in writing by Wickland;
provided, however, that without the prior written consent of Wickland, the
closing shall not occur after April 11, 1995.
7. Term and Termination.
(a) Term. The term of this Agreement shall commence, and all terms and
conditions comprising this Agreement shall become effective at 05:00 (5:00 a.m.)
on the Effective Date and terminate at 05:00, Los Angeles local time, on July 1,
1995; provided, however, that either party may for any reason give notice of
termination of this Agreement to the other party on or after the 30th calendar
day following the Effective Date, in which event the Agreement shall terminate
15 calendar days following the delivery of such notice; provided further, that
in either such event, the provisions of this Agreement shall continue to apply
until the final delivery to the Powerine Tanks of all commodities to be supplied
by Wickland in relation to this Agreement which have, prior to 05:00 July 1,
1995 or the giving of such notice (as applicable), been purchased or have been
arranged to be purchased by Wickland in Ecuador or elsewhere pursuant to
instructions received by Wickland from Powerine, specifically including, without
limitation, all crude oil then scheduled to be loaded aboard vessels in Ecuador
or elsewhere for final delivery to Powerine (collectively, the "Committed
Crude"), excluding those commodities which Powerine has elected not to purchase
pursuant to Section 7(b) below. Such date of termination of this Agreement is
referred to as the "Termination Date".
(b) Purchased Commodities At Termination. Subject to Section 9 hereof,
on the Termination Date Powerine shall have the option to purchase all then
existing Wickland-Owned Commodities in the Powerine Tanks and all Committed
Crude, at the purchase prices set forth in attached Exhibits C and D hereto.
Concurrently with any notice of termination delivered by Powerine pursuant to
Section 7(a) of this Agreement (or within two business days following receipt of
such termination notice from Wickland) and at least 20 days prior to any other
Termination Date contemplated by this Agreement (the "Option Date"), Powerine
<PAGE>
shall advise Wickland in writing of whether or not it elects to exercise its
option to purchase the Wickland-Owned Commodities and Committed Crude. In the
event such option is not exercised, Powerine shall continue to take deliveries
of Wickland-Owned Commodities (except for Blend Stocks and refined products)
until Wickland's inventories of such Wickland-Owned Commodities delivered to the
Initial Crude Delivery Points on or before the Option Date and Intermediate
Products in the Powerine Tanks are exhausted. For purposes of this Section 7(b),
all cargoes from vessels for which a notice of readiness has been given on or
before the Option Date shall be deemed to be delivered on or before that Option
Date. After inventories of Wickland-Owned Commodities are exhausted as
aforesaid, Wickland shall have up to 30 days to remove its Wickland-Owned
Commodities from the Powerine Tanks.
8. Financing. Powerine may obtain financing from Congress Financial
Corporation or other person or entity in an amount of at least $15,000,000. The
date Powerine receives such financing is referred to in this Agreement as the
"Powerine Financing Date". On the later to occur of the Powerine Financing Date
or the 40th calendar day following the Effective Date, the following shall
occur:
(a) Purchase of Commodities. Powerine shall purchase for cash the then
existing Wickland-Owned Commodities other than crude oil in the Powerine Tanks
(as measured by an inventory taken in the same manner as a month-end inventory
taken pursuant to Exhibit C) for the purchase prices set forth in attached
Exhibit C. Powerine shall thereafter retain title to and sell all Products (as
defined in Exhibit D) and Intermediate Products previously purchased by
Wickland. Powerine shall also have the right to acquire the remaining
Wickland-Owned Commodities (i.e., crude oil) remaining in the Powerine Tanks for
the purchase prices set forth in attached Exhibits C and D.
(b) Continued Supply. Powerine shall continue to purchase crude oil
from Wickland on an exclusive basis and shall have the option to continue to
acquire Feed Stocks from Wickland. The remaining supply provisions of this
Agreement shall terminate.
(c) Conforming Changes. Appropriate and consistent amendments to be
agreed upon by both parties shall be made to this Agreement in order to reflect
the provisions of this Section 8, including, without limitation, that
Wickland-Owned Commodities shall continue to be segregated from commodities
owned by Powerine.
If the Powerine Financing Date has not occurred on or before May 15, 1995, then
the increased purchase price of the commodities as set forth in Exhibit C shall
apply.
<PAGE>
9. Disposal Costs. In the event all Wickland-Owned Commodities and all
Committed Crude are not purchased by Powerine as contemplated by this Agreement,
Powerine shall, when invoiced in accordance with this Agreement, reimburse
Wickland for all costs and expenses associated with the removal, relocation,
transportation, resale, handling, delivery, and measurement including, without
limitation, related reasonable legal and accounting costs, arising from the
removal of Wickland-Owned Commodities from the Powerine Tanks and the disposal
of the Committed Crude and all Losses (as defined below) incurred by Wickland in
connection with the commercially reasonable sale of such commodities to a third
party. Powerine shall purchase for cash that portion of the Wickland-Owned
Commodities which remain in the Powerine Tanks (i.e., unrecoverable heels,
unrecoverable linefills and all Waste (as defined in Exhibit B)) and certain
linefills after Wickland has removed the other Wickland-Owned Commodities from
the Powerine Tanks for the purchase prices set forth in attached Exhibits C and
D.
10. Warranties and Representations.
(a) Reciprocal Warranties. Each party hereby warrants and represents
to the other as follows:
(i) Authority. Such party has all requisite power, authority and
approvals required to enter into, sign and deliver this Agreement and the
Security Agreement, and perform fully its obligations hereunder and thereunder.
(ii) Due Authorization, Enforceability. Such party has taken all
actions necessary to authorize it to enter into and perform fully its
obligations under this Agreement and the Security Agreement, and to consummate
the transactions contemplated herein and therein.
(iii) No Violation. Neither the signing or delivery by such party
of this Agreement, the Security Agreement or any other agreement, document or
instrument contemplated pursuant hereto or thereto, will violate, conflict with
or constitute a default under, permit the termination or acceleration of, or
cause the loss of any rights or options under, any contract which is material to
the business and operations of such party (a "Material Contract"); require any
authorization, consent or approval of, exemption or other action by and notice
to, any party to any Material Contract; or result in the creation or imposition
of any lien or encumbrance upon any asset of such party.
<PAGE>
(b) Powerine Warranties. Powerine hereby warrants and represents to
Wickland as follows:
(i) Financial Condition.
(A) All financial statements of Powerine and Castle delivered
to Wickland (1) were prepared in accordance with the books and records of
Powerine; (2) were prepared in accordance with generally accepted accounting
principles; (3) fairly present Powerine's and Castle's financial condition and
the results of their respective operations as of the relevant dates thereof and
for the periods covered thereby; and (4) contain and reflect all necessary
adjustments and accruals for a fair presentation of Powerine's and Castle's
financial condition and the results of its operations for the periods covered by
said financial statements.
(B) Powerine has disclosed to Wickland in writing any change,
event, litigation, claim or condition which has had or could reasonably be
expected to have a material adverse affect upon Powerine's condition (financial
or otherwise), its assets, liabilities, business or operations, the value or
utility of its assets or Powerine's ability to remain in business without the
occurrence of a Bankruptcy Event (as defined below).
(ii) Assets. Wickland shall acquire good and marketable, lien-free
title to the Wickland Purchased Commodities, and to all Products sold to
Wickland by Powerine hereunder, free and clear of all claims and encumbrances of
any nature whatsoever.
(iii) Specifications. The Wickland Purchased Commodities shall meet
the specifications as referenced in Exhibit A, and all Products sold to Wickland
by Powerine hereunder shall comply with all applicable laws and regulations.
Such warranties and representations shall be deemed given both on the date of
this Agreement and on the Effective Date.
11. Conditions. Wickland's obligation to consummate the transactions
contemplated by this Agreement and its obligations (or continuing obligations)
under this Agreement are expressly conditioned upon the satisfaction of the
following conditions precedent and/or subsequent, as the case may be:
(a) Bringdown. On the Effective Date Powerine shall have delivered to
Wickland a certificate of the Chief Executive Officer, the Chief Financial
Officer and the Comptroller of Powerine respecting the financial condition of
Powerine, in form and substance satisfactory to Wickland.
<PAGE>
(b) Approval of Projections. Wickland shall have approved in writing,
Powerine's cash flow and financial projections for the term of this Agreement.
(c) Approval of Wickland Purchased Commodities. Wickland shall have
approved, in writing, the Wickland Purchased Commodities, including the
location, volumes and types of commodities included therein.
(d) Castle Agreement. Wickland, Castle Energy Corporation ("Castle")
and Indian Powerine L.P. ("Indian") shall have entered into an agreement (the
"Castle Agreement") in form and substance satisfactory to Wickland, and Castle
and Indian shall comply and conform in all respects with their respective
obligations and covenants set forth in the Castle Agreement. In addition, at the
Effective Time, Castle and Indian shall have delivered to Wickland a written
confirmation of their respective obligations under the Castle Agreement.
(e) Letter of Credit. No later than the first business day after the
Effective Date, Powerine shall have delivered to Wickland a standby letter of
credit in the amount of $3,000,000 from a bank acceptable to Wickland and in
form and substance of that set forth as Exhibit A to the Castle Agreement.
(f) Security Agreement. Powerine shall have entered into a security
agreement (all assets) (the "Security Agreement") in form and substance
satisfactory to Wickland in which Powerine grants to Wickland a continuing first
priority security interest in and to all of its assets to secure the payment and
performance of all of Powerine's obligations hereunder and other related
agreements.
(g) Performance of Covenants. Powerine shall perform and comply in all
respects with its obligations and covenants set forth in this Agreement and the
Security Agreement.
(h) Bankruptcy. Neither Powerine nor Castle shall, at any time prior to
or during the term of this Agreement, have committed an act of bankruptcy, made
a general assignment for the benefit of creditors or filed any petition in
bankruptcy or under federal or state insolvency laws (or had an involuntary
petition filed against it under any of such laws which was not so dismissed
within 30 calendar days after the filing thereof), or admitted its inability to
pay debts or suffered the appointment of a receiver, trustee or custodian.
<PAGE>
(i) No Adverse Change. There shall occur no material adverse change in
the financial condition of Powerine or Castle, as determined by Wickland in its
reasonable judgment.
(j) No Adverse Claims. No third party shall impose or seek to impose at
any time any lien or other encumbrance on Wickland-Owned Commodities or
challenge the validity, perfection or priority of the security interest granted
pursuant to the Security Agreement.
(k) MG Agreement. Powerine and MG Trade Finance Corp. ("MGTF") and its
affiliates (collectively "MG"), and/or any successor in interest thereto, shall
have entered into an agreement, a copy of which shall have been delivered to
Wickland, providing that MG's liens and security interests on Powerine's assets
have been irrevocably and unconditionally removed upon payment to MGTF of the
pay-off amount described in such Agreement. Copies of all applicable UCC
Termination Statements signed by MG respecting MG's release of such liens and
security interests shall have been delivered or made available to Wickland.
In addition to the foregoing, it shall be a condition precedent to each party's
obligation to consummate the transactions contemplated by this Agreement, that
each such party shall have finally approved in writing the provisions of this
Agreement as respects the prices of crude oil, Feed Stocks, Intermediate
Products and refined petroleum products. Similarly it shall be a condition
precedent to each party's obligation to consummate the transactions contemplated
by this Agreement, that each such party shall have completed and initialled
Section 5(a) of the Security Agreement.
12. Personnel. Powerine and Wickland shall each make available to the
other on a part-time basis, without charge, the services of one or more of their
employees, who shall supervise and coordinate on behalf of the other the
contractual relations between Wickland and Powerine. At the request of Wickland,
Powerine shall second to Wickland, at Wickland's expense, one or more of
Powerine's marketing employees to assist in Wickland's product marketing
activities.
13. Payments. All payments due from Wickland to Powerine and from
Powerine to Wickland during the term of this Agreement and thereafter shall be
effected as follows:
(a) Manner of Payment. All payments shall be made in immediately
available federal funds by telephonic transfer to a party's designated bank
account. All payments by Powerine shall be made in full without deductions,
<PAGE>
discounts or offsets, provided that payment due from a party to the other party
for commodities purchases may be combined and offset against each other so that
one net payment is made by a party to the other party.
(b) Wickland Invoicing and Payment.
(i) Crude Oil and Feed Stocks.
(A) Wickland shall invoice Powerine daily for crude oil and Feed Stocks
delivered to the Final Delivery Points (as defined in Exhibit C) between 05:01
the previous day and 05:00 the current day using the Provisional Daily
Measurements (as defined in Exhibit C) and the applicable formulated price
including the interest component.
(B) Not later than 12 calendar days after month end, Wickland shall
invoice or issue a credit to Powerine based upon the monthly reconciled
measurement quantities.
(ii) Subject to Section 13(d) below, all amounts due Wickland shall
be paid no later than three business days (one business day after the occurrence
of a Bankruptcy Event) following the date of invoice.
(c) Powerine Invoicing and Payment.
(i) Refined products and Blend Stocks.
(A) Powerine shall invoice Wickland daily for the refined
products and Blend Stocks delivered to the Final Delivery Points between 05:00
the previous day and 05:00 the current day using Provisional Daily Measurements
(as defined in Exhibit C) and the applicable formulated price.
(B) Not later than 12 calendar days after month end, Powerine
shall invoice or issue a credit to Wickland based on the monthly reconciled
measurement quantities.
(ii) Subject to Section 13(d) below, all amounts due Powerine shall
be paid no later than the first business day following the date of invoice.
(d) Payment Due Date Adjustments. If payment falls due on a Saturday or
bank holiday of Wickland's or Powerine's bank which is not a Monday, payment
shall be made on the preceding business day. If payment falls due on a Sunday or
a Monday bank holiday of Wickland's or Powerine's bank, payment shall be made on
the next business day.
<PAGE>
(e) Interest On Late Payments. Any amount payable by a party hereunder
shall, if not paid when due, bear interest from the due date until the date
payment is received by the other party at a rate equal to the lesser of (i) the
prime rate in effect at the opening of business on the due date at The First
National Bank of Boston (Boston, Massachusetts), plus 4%, based on a 360-day
year, or (ii) the maximum rate of interest permitted under applicable law.
14. Indemnification by Powerine. Powerine shall indemnify, defend and
hold harmless (i) Wickland, (ii) each of Wickland's affiliates, assigns and
successors in interest, and (iii) each of their respective shareholders,
directors, officers, employees, agents, attorneys and representatives, from and
against any and all damages (including, without limitation, lost profits and
unrecovered revenues on cargoes or the commodities purchased by Wickland for
Powerine hereunder which must then be resold to others), awards, judgments and
other payments, all costs and expenses of investigating any claim, lawsuit or
arbitration and any appeal therefrom, all reasonable attorneys' fees incurred in
connection therewith, all amounts paid incident to any compromise or settlement
of any such claim, lawsuit or arbitration (collectively "Losses") which may be
incurred or suffered by any such party and which may arise out of or result
from:
(a) any breach of any representation, warranty, covenant or agreement
of Powerine contained in this Agreement, the Security Agreement and/or in any
other writing delivered pursuant hereto;
(b) any act or omission on the part of Powerine, its employees, agents,
or contractors;
(c) any failure by Powerine to purchase, or election by Powerine not to
purchase, all of the Wickland-Owned Commodities and all of the Committed Crude
as set forth in this Agreement;
(d) any accident, event or omission occurring, or condition earlier
existing, within the boundary limits of the Refinery or on or about the Powerine
Tanks involving or resulting in a claim against Wickland;
(e) any claim or action from a third party challenging Wickland's title
to, or seeking to obtain a lien, levy or writ of attachment or garnishment upon,
any Wickland-Owned Commodities or challenging the validity, perfection or
priority or the security interest granted pursuant to the Security Agreement;
<PAGE>
(f) any commodities spill, discharge or other environmental liability
of any nature whatsoever, and from any cause whatsoever, relating to the
Powerine Tanks, any commodities in the Powerine Tanks (including Wickland-Owned
Commodities), the Powerine Refinery, including liabilities under any federal,
state and local laws, statutes, ordinances or regulations including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended (commonly known as "CERCLA"); and
(g) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without limitation, legal
fees and expenses, incurred in enforcing this indemnity.
15. Indemnification by Wickland. Wickland shall indemnify, defend and
hold harmless (i) Powerine, (ii) each of Powerine's affiliates, assigns and
successors, and (iii) each of their respective shareholders, directors,
officers, employees, agents, attorneys, beneficiaries and representatives, from
and against any and all Losses which may be incurred or suffered by any such
party and which arise out of or result from:
(a) any breach of any representation, warranty, covenant or agreement
of Wickland contained in this Agreement and/or in any other writing delivered
pursuant hereto or the nonfulfillment of any condition in favor of Powerine
under this Agreement;
(b) any acts or omissions on the part of Wickland, its employees,
agents or contractors; and
(c) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without limitation, legal
fees and expenses, incurred in enforcing this indemnity.
16. Inventory of Product. Wickland shall sell and deliver
Wickland-owned Product produced by Powerine hereunder to its customers on a
timely basis to ensure that Powerine's finished product storage facilities do
not fill up and cause Powerine to slow down its production of Blend Stocks and
finished products. Wickland will also endeavor to sell refined products in a
responsible manner to ensure that Powerine receives the most favorable margin
from processing crude oil into finished products. In the event that Powerine can
demonstrate that Powerine's production of Products is materially reduced for any
period of time solely due to Wickland's failure to sell and deliver Blend Stocks
and refined petroleum products on a timely basis, and provided Powerine gives
<PAGE>
advance notice to Wickland of an impending reduction in production, Powerine
shall be entitled to recover its lost margin. This margin shall be calculated by
using the build-up of Intermediate Products and/or Blend Stock inventory that
results from the production slowdown valued at the corresponding finished
product prices as set forth in Exhibit D. On the Termination Date, Wickland will
cease selling Products at Powerine's truck rack. Furthermore, Wickland will
endeavor to sell Products so as to permit the ending Blend Stock and finished
product inventory to generally approximate such inventory volume at the
Effective Date, including the volume of Wickland forward sales that have not yet
been delivered to its customers.
17. Limitation on Liability. Except as expressly provided in this
Agreement respecting reimbursement of costs and Losses to Wickland, neither
Powerine nor Wickland shall have any liability to the other for any incidental,
special, consequential or other indirect loss, damage or cost, howsoever caused.
18. No Forbearance. Wickland and Powerine intend that the purchase and
sale of commodities pursuant to this Agreement constitute bona fide sales
transactions which shift title and risk of loss to the purchasing party in
accordance with this Agreement and not a transaction involving the use,
forbearance or retention of money. In addition thereto and without limitation,
Powerine and Wickland stipulate and agree that none of the terms and provisions
contained in this Agreement, or in any other instrument or agreement signed in
connection with this Agreement, shall ever be construed to create a contract to
pay, for the use, forbearance or retention of money, for interest at a rate in
excess of the maximum interest rate permitted to be charged by applicable law
(the "Maximum Lawful Rate"). In no event shall the rate of interest payable by
Powerine or Wickland under this Agreement, taking into account all sums held to
constitute interest (the "Agreement Interest Rate"), be greater than the Maximum
Lawful Rate.
19. Confidentiality. Subject to any obligation to comply with any law,
rule or regulation or subpoena or other legal process, whether or not the
transactions contemplated by this Agreement shall be consummated, all of the
information obtained by either party about the other and all of the terms and
conditions of this Agreement shall be kept in strict confidence by each party;
provided, however, that the foregoing provision shall not apply to persons or
entities providing financing to any party hereto (including, without limitation,
MG) and the directors and senior executive officers of affiliates of the parties
hereto.
<PAGE>
20. Notices. All notices, requests and other communications hereunder
shall be in writing and shall be delivered by courier or other means of personal
service (including by means of a nationally recognized courier service or a
professional messenger service), or sent by telex or telecopy or mailed first
class, postage prepaid, by certified mail, return receipt requested, in all
cases, addressed to:
Wickland:
Wickland Oil Company
Attention: Robert L. Sanz, Vice President
3640 American River Drive
Sacramento, California 95864
Fax: (916) 978-2410
With a copy to:
Wickland Oil Company
Attention: General Counsel
3640 American River Drive
Sacramento, California 95864
Fax: (916) 978-2428
Powerine:
Powerine Oil Company
Attention: A.L. Gualtieri
12354 Lakeland Road
Santa Fe Springs, California 90670
Fax: (310) 946-1615
With a copy to:
Castle Energy Corporation
Attention: Joseph L. Castle II
One Radnor Corporate Center
Suite 250
100 Matsonford Road
Radnor, Pennsylvania 19087
Fax: (610) 995-0409
All notices, requests and other communications shall be deemed given on the date
of actual receipt or delivery as evidenced by written receipt, acknowledgement
or other evidence of actual receipt or delivery to the address. In case of
service by telecopy, a copy of such notice shall be personally delivered or sent
by registered or certified mail, in the manner set forth above, within three
<PAGE>
business days thereafter. Either party hereto may from time to time by notice in
writing served as set forth above designate a different address or a different
or additional person to which all such notices or communications thereafter are
to be given.
21. Further Assurances. Each of the parties shall use its reasonable
and diligent best efforts to proceed promptly with the transactions contemplated
herein, to fulfill the conditions precedent for such party's benefit or to cause
the same to be fulfilled and to sign such further documents and other papers and
perform such further acts as may be reasonably required or desirable to carry
out the provisions of this Agreement and the transactions contemplated herein.
22. Waivers and Consents. At any time and from time to time, a party
may waive compliance with any of the covenants, conditions or agreements of the
other party contained in this Agreement. However, each such waiver must be in
writing and no such waiver shall operate as a waiver of, or estoppel with
respect to, any subsequent breach or other failure to perform a covenant or
agreement under this Agreement or nonfulfillment or continuing nonfulfillment of
a condition in favor of such party.
23. Attorneys' Fees. If either party hereto shall bring an action
against the other by reason of any alleged breach of any covenant, provision or
condition hereof, the unsuccessful party shall pay to the prevailing party all
reasonable attorneys' fees and costs incurred by the prevailing party, in
addition to any other relief to which it may be entitled.
24. Entire Agreement. This Agreement (including the exhibits hereto,
and the agreements, documents and instruments to be executed and delivered
pursuant hereto or thereto) is intended to embody the final, complete and
exclusive agreement among the parties with respect to the transactions
contemplated hereby; is intended to supersede all prior agreements,
understandings and representations written or oral, with respect thereto
including, without limitation, that certain memorandum of understanding dated
March 29, 1995, and may not be contradicted by evidence of any such prior or
contemporaneous agreement, understanding or representation, whether written or
oral; provided however, this Section 24 is not intended to supersede any
indemnity or payment obligation set forth in any prior agreement between
Powerine and Wickland. For reference purposes only, the sections of this
Agreement which are not contained in the exhibits hereto are referred to as the
"Master Provisions".
<PAGE>
25. Governing Law and Venue. This Agreement is to be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and to be performed wholly within such State, and without regard
to the conflicts of laws principles thereof. Any suit brought hereon, whether in
contract, tort, equity or otherwise, shall be brought in the state or federal
courts sitting in Sacramento, California, the parties hereto hereby waiving any
claim or defense that such forum is not convenient or proper. Each party hereby
agrees that any such court shall have in personam jurisdiction over it, consents
to service of process in any manner prescribed in Section 20 or in any other
manner authorized by California law, and agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner specified by law.
26. Binding Effect; Assignment. This Agreement and the rights,
covenants, conditions and obligations of the respective parties hereto and any
instrument or agreement signed pursuant hereto shall be binding upon the parties
and their respective successors, assigns and legal representatives. Wickland may
transfer and assign this Agreement, in whole or in part, or assign, transfer and
provide commodities in storage to third parties, without the prior written
consent of Powerine, provided such assignee assumes in writing the obligations
of Wickland under this Agreement. Powerine may not transfer, assign and convey
all or any part of its rights under this Agreement.
27. Non-severability. It is expressly agreed and understood that the
material provisions of this Agreement, including the provisions set forth in the
exhibits hereto, constitute one integrated agreement, and that each such
provision goes to the essence of the consideration bargained for by the parties
hereto and shall not be deemed severable from the remaining provisions of this
Agreement.
28. Right of Offset. Wickland shall have full rights of offset
respecting the obligations of Powerine. Such rights shall not compromise any
other right of Wickland or Powerine under this Agreement, including as set forth
in Section 13(a) of this Agreement.
29. Survivability. All indemnification, payment and reimbursement
obligations of the parties hereto shall survive the Termination Date.
30. Concluding Provisions. The section headings of this Agreement are
for convenience of reference only and shall not be deemed to alter or affect any
<PAGE>
provision hereof. All payments required to be made pursuant to this Agreement
and amounts required to be paid in accordance with any indemnity provisions of
this Agreement, shall be made in United States dollars. Where the context or
construction requires, all words applied in the plural shall be deemed to have
been used in the singular, and vice versa; the masculine shall include the
feminine and neuter, and vice versa; and the present tense shall include the
past and future tense, and vice versa. References in this Agreement to exhibits
shall be deemed to include the schedules appended to those exhibits. Times
hereunder are based on a 24-hour clock. The parties acknowledge that each party
and its counsel has materially participated in the drafting of this Agreement
and consequently the rule of contract interpretation that ambiguities, if any,
in the writing be construed against the drafter, shall not apply.
IN WITNESS WHEREOF, the parties hereto have duly signed this Agreement as of the
day first above written.
Wickland Oil Company,
a California corporation
By: /s/ John W. Reho
-----------------------------
John W. Reho, Vice President
and Chief Financial Officer
By: /s/ Robert L. Sanz
-----------------------------
Robert L. Sanz, Vice
President
Powerine Oil Company,
a California corporation
By: /s/ A. L. Gualtieri
-----------------------------
A.L. Gualtieri
President
<PAGE>
AGREEMENT
This AGREEMENT (the "Agreement"), dated as of April 8, 1995, is made and entered
into by and among Wickland Oil Company, a California corporation ("Wickland"),
Castle Energy Corporation, a Delaware corporation ("Castle") and Indian Powerine
L.P., an Illinois limited partnership ("Indian"), (for purposes of Sections
1(j), (k), and (l), 8, 9 and 17 only) with reference to the following facts:
A. Concurrently herewith, Wickland and Powerine Oil Company, a California
corporation and a wholly-owned subsidiary of Castle ("Powerine") are entering
into that certain Powerine Petroleum Sale and Storage Agreement (the "Powerine
Agreement") respecting, among other things, the purchase and sale of certain
crude, intermediate refined products, blend stocks and finished petroleum
products. Capitalized terms used herein without definitions shall have the
meanings provided therefor in the Powerine Agreement.
B. Castle, as the indirect sole shareholder of Powerine, will derive substantial
benefits from the performance by Wickland of its obligations under the Powerine
Agreement, which performance by Wickland will, among other things, help
facilitate the anticipated sale by Castle of Powerine and will maximize
Powerine's available working capital for continued operations prior to such
sale.
C. The execution and delivery of this Agreement is a condi- tion precedent to
Wickland's continuing obligations under the Powerine Agreement.
Accordingly, to induce Wickland to enter into the Powerine
Agreement and in consideration thereof, Castle hereby agrees as follows:
1. Guaranty. Castle hereby guaranties to pay and/or perform for the
benefit of Wickland, in each case without any deduction whatsoever for
counterclaim, offset or otherwise and within 10 days after written demand
therefor from Wickland, the following:
(a) any indebtedness or obligation of Powerine to Wick- land under the
Powerine Agreement which is unpaid, or with respect to which Wickland has made a
refund, by reason of or in connection with, any insolvency, bankruptcy,
<PAGE>
reorganization, arrangement or other similar proceeding involving Powerine
(collectively a "Bankruptcy Event");
(b) any Loss (as defined below) attributable to any defect in title to
Commodities sold by Powerine to Wickland pursuant to Section 1 of the Powerine
Agreement;
(c) any Loss attributable to any Bankruptcy Event involving Powerine;
and
(d) any Loss attributable to any termination or suspension of all or
any part of operations at Powerine's Santa Fe Springs refinery.
The foregoing obligations are hereinafter referred to as the "Guarantied
Obligations". The Guarantied Obligations shall include any loss attributable to
the removal of the Commodities from the Tanks by Wickland and the resale of
crude oil so removed. The obligation of Castle hereunder is absolute,
unconditional, irrevocable, present and continuing. Such guaranty is a guaranty
of prompt and punctual payment and performance and is not merely a guaranty of
collection.
(e) Upon the occurrence of any default of Powerine under the Powerine
Agreement, Castle shall, within 10 days after written demand therefor from
Wickland, perform the Guarantied Obligations for the benefit of Wickland and/or
pay to Wickland the amount of the Guarantied Obligations together with all
interest on all unpaid Guarantied Obligations, fees, expenses and other amounts
referred to herein.
(f) In the event the Guarantied Obligations are paid in whole or in
part by Powerine or by any other guarantor or person, Castle's liability
hereunder shall continue and remain in full force and effect in the event that
all or any part of any such payment is recovered from Wickland by any person for
any reason, including as a part of any judgment, order, settlement or compromise
with respect to any claim against Wickland for the recovery thereof as a
preference, fraudulent transfer or similar payment under any bankruptcy,
insolvency or similar law. In addition, Castle acknowledges and agrees that by
virtue of this Agreement, it has specifically assumed any and all risks of a
bankruptcy or reorganization case or proceeding with respect to Powerine, and
that any modification of the Guarantied Obligations in any bankruptcy or
reorganization case concerning Powerine shall not affect the obligation of
<PAGE>
Castle to pay and perform the Guarantied Obligations in accordance with their
respective original terms as though no such bankruptcy or reorganization case
had occurred.
(g) Castle consents and agrees that Wickland may, at any time and from
time to time, in Wickland's sole and absolute discretion, without notice or
demand, and without affecting the enforceability or continuing effectiveness
hereof: (i) supplement, modify, amend, extend (including extensions beyond the
original term thereof), renew, accelerate, waive, discharge or otherwise change
the time for payment or the terms of the Guarantied Obligations or any part
thereof or any additional security or guaranties now or hereafter held therefor;
(ii) enter into or give any agreement, approval or consent with respect to the
Guarantied Obligations or any part thereof or any additional security or
guaranties now or hereafter held therefor; (iii) accept new or additional
instruments, documents or agreements in exchange for or relative to the
Guarantied Obligations or any part thereof; (iv) accept partial payments on the
Guarantied Obligations; (v) receive and hold additional security or guaranties
for the Guarantied Obligations or any part thereof; (vi) settle, release (by
operation of law or otherwise), liquidate and/or fail to enforce any Guarantied
Obligation; (vii) release (by operation of law or otherwise), reconvey,
terminate, waive, abandon, fail to perfect, subordinate, transfer and/or fail to
enforce any other security or guaranties now or hereafter held for the
Guarantied Obligations or any part thereof; (viii) substitute, exchange, amend
or alter any other security or guaranty now or hereafter held for the Guarantied
Obligations or any part thereof, whether or not the security or guaranty
received upon the exercise of such power is of a character or value the same as
the character or value of the item of security or guaranty so affected; (ix)
release (by operation of law or otherwise) any person from any personal
liability with respect to the Guarantied Obligations or any part thereof; (x)
consent to the transfer of any such other security and bid and purchase the same
at any sale thereof; and/or (xi) consent to any merger, acquisition, change or
other restructuring or termination of the corporate existence of Powerine or any
other person, and correspondingly restructure the Guarantied Obligations.
(h) Upon the occurrence and during the continuance of any default of
Powerine under the Powerine Agreement, Wickland may enforce this Agreement
independently as to Castle and independently of any other remedy, source of
payment or security which Wickland may at any time have in connection with the
Guarantied Obligations. Castle expressly waives any right to require Wickland to
<PAGE>
proceed against Powerine, any other guarantor or any collateral provided by any
other person and agrees that Wickland may proceed against Castle and/or any
source of payment or collateral in such order as it shall determine in its sole
and absolute discretion. Castle expressly waives trial by jury in any action to
enforce this Agreement and waives the benefit of any statute(s) of limitations
affecting Castle's liability hereunder or the enforcement of the Guarantied
Obligations or any other rights of Wickland created or granted herein. The
rights of Wickland created or granted herein and the enforceability of this
Agreement at all times shall remain effective to guaranty the full amount of all
the Guarantied Obligations even though the Guarantied Obligations, including any
part thereof or any other security or guaranty therefor, may be or may hereafter
become invalid or otherwise unenforceable as against Powerine or any other
guarantor and whether or not Powerine or any other guarantor shall have any
personal liability with respect thereto. Castle expressly waives any and all
defenses now or hereafter arising or asserted by reason of (i) any lack of
authority or other incapacity of Powerine, any other guarantor or any other
person with respect to the Guarantied Obligations or any part thereof; (ii) the
unenforceability or invalidity of any security, letter of credit or other
guaranties for the Guarantied Obligations or the lack of perfection or
continuing perfection or failure of priority of any security for the Guarantied
Obligations or any part thereof; (iii) the cessation for any cause whatsoever of
the liability of any of Powerine or any other guarantor (other than by reason of
the full payment and performance of all Guarantied Obligations); (iv) any
failure of Wickland to marshal assets in favor of Castle or any other guarantor
or any other person; (v) any act or omission of Wickland or others that
directly, indirectly, by operation of law or otherwise results in or aids the
discharge or release of Powerine, any other guarantor or any security or
guaranties now or hereafter held for the Guarantied Obligations or any part
thereof; (vi) any law which provides that the obligation of a surety or
guarantor must neither be larger in amount nor in other respects more burdensome
than that of the principal or which reduces a surety's or guarantor's obligation
in proportion to the principal obligation; (vii) any failure of Wickland to file
or enforce a claim in any bankruptcy or other proceeding with respect to any
person; (viii) the election by Wickland, in any bankruptcy proceeding of any
person, to apply or not to apply Section 1111(b)(2) of the United States
Bankruptcy Code; (ix) any extension of credit or the grant of any lien under
Section 364 of the United States Bankruptcy Code; (x) any use of cash
<PAGE>
collateral under Section 363 of the United States Bankruptcy Code; (xi) any
agreement or stipulation with respect to the provision of adequate protection in
any bankruptcy proceeding of any person; (xii) the avoidance of any lien in
favor of Wickland for any reason; (xiii) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, liquidation or dissolution
proceeding commenced by or against any person, including any discharge of, or
bar or stay against collecting, all or any of the Guarantied Obligations in or
as a result of any such pro- ceeding; (xiv) any action taken by Wickland that is
authorized by this Section 1 or any other provision of this Agreement; (xv) any
election of remedies by Wickland, which destroys or otherwise impairs the
subrogation rights of Castle or the right of Castle to proceed against Powerine
for reimbursement, or both, or (xvi) any other principle or provision of law,
statutory or otherwise, which is or might be in conflict with the terms hereof.
Without limiting the generality of the foregoing or any other provision hereof,
Castle hereby expressly waives any and all benefits which might otherwise be
available to Castle under California Commercial Code Section 3605, California
Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2849, 2850, 2899 and 3433, or
any comparable provision of any other applicable law. Castle expressly waives
all setoffs and counterclaims and all presentments, demands for payment or
performance, notices of nonpayment or nonperformance, protests, notices of
protest, notices of dishonor and all other notices or demands of any kind or
nature whatsoever with respect to the Guarantied Obligations, and all notices of
acceptance of this Agreement or of the existence, creation or incurring of new
or additional Guarantied Obligations.
(i) Castle represents and warrants to Wickland that Castle has
established adequate means of obtaining from Powerine, on a continuing basis,
financial and other information pertaining to the business, operations and
condition (financial and otherwise) of Powerine, its affiliates and its and
their properties, and Castle now is and hereafter will be completely familiar
with the business, operations and condition (financial and otherwise) of
Powerine, its affiliates and its and their properties. Castle hereby expressly
waives and relinquishes any duty on the part of Wickland (should any such duty
exist) to disclose to Castle any matter, fact or thing related to the business,
operations or condition (financial or otherwise) of Powerine, its affiliates and
its and their properties, whether now known or hereafter known by Wickland
during the life of this Agreement. With respect to any of the Guarantied
<PAGE>
Obligations, Wickland need not inquire into the powers of Powerine or the
officers or employees acting or purporting to act on Powerine's behalf, and all
Guarantied Obligations made or created in good faith reliance upon the professed
exercise of such powers shall be guarantied hereby.
(j) Each of Castle and Indian agrees that all existing and future
indebtedness of Powerine to it or to any other person owned in whole or in part,
directly or indirectly, by it and its right to withdraw, or to cause or permit
any such person to withdraw, any capital invested by such person in Powerine or
to receive from Powerine any distribution of cash or other property by way of
dividend, liquidating distribution or otherwise, is hereby subordinated to the
prior payment in full of the Guarantied Obligations to Wickland and, without the
prior written consent of Wickland, no such subordinated indebtedness or
distribution shall be paid or withdrawn in whole or in part nor will it cause or
permit any person owned in whole or in part, directly or indirectly, by it, as
the case may be, to accept any payment of or on account of any such indebtedness
or distribution or as a withdrawal of capital while this Agreement is in effect.
At Wickland's request, Castle and/or Indian shall cause Powerine to pay to
Wickland, instead of to Castle, Indian or any person owned in whole or in part,
directly or indirectly, by Castle or Indian, all or any part of any such
subordinated indebtedness and distributions and any capital which Castle or
Indian or any person owned in whole or in part, directly or indirectly, by
Castle or Indian is otherwise entitled to withdraw. Each payment by Powerine in
violation of this Subsection (j) shall be received by the person to whom paid in
trust for Wickland, and Castle or Indian, as the case may be, shall cause the
same to be paid over to Wickland immediately on account of the Guarantied
Obligations. The indebtedness of Powerine to Castle or to Indian or to any other
person owned in whole or in part, directly or indirectly, by Castle or Indian
which is subordinated hereunder shall include, without limitation, any
indebtedness acquired by right of subrogation. Each of Castle and Indian
acknowledges that by virtue of its affiliation with Powerine it will benefit
substantially as a result of the covenants of Wickland to Powerine contained in
the Powerine Agreement, that the value of the obligations owing to it by
Powerine will be significantly increased by Wickland's performance thereunder
and that without the foregoing subordination, Wickland would not have entered
into the Powerine Agreement.
<PAGE>
(k) Each of Castle and Indian agrees that so long as any Guarantied
Obligations shall be owing to Wickland, it shall not, without the prior consent
of Wickland, commence or join with any other person in commencing any
bankruptcy, reorganization or insolvency proceedings of or against Powerine.
Except as limited by applicable law, Wickland shall have the sole right to
accept or reject any plan proposed in such proceeding and to take any other
action which a party filing a claim is entitled to take. Castle acknowledges and
agrees that any interest on the Guarantied Obligations which accrues after the
commencement of any such proceeding (or, if interest on any portion of the
Guarantied Obligations ceases to accrue by operation of law by reason of the
commencement of said proceeding, such interest as would have accrued on any such
portion of the Guarantied Obligations if said proceedings had not been
commenced) shall be included in the Guarantied Obligations because it is the
intention of the parties that the Guarantied Obligations which are guarantied by
Castle pursuant to this Agreement should be determined without regard to any
rule of law or other which may relieve Powerine of any portion of such
indebtedness. Castle will permit any trustee in bankruptcy, receiver, debtor in
possession, assignee for the benefit of creditors or similar person to pay
Wickland, or allow the claim of Wickland in respect of, any such interest
accruing after the date on which such proceeding is commenced.
(l) Subject to the provisions of Subsection (k) above, each of Castle
and Indian agrees that it shall file in any bankruptcy or in any other
proceeding in which the filing of claims is required by law all claims which it
may have against Powerine relating to any indebtedness of Powerine to it and
will assign to Wickland all of its rights thereunder. If Castle or Indian do not
file any such claim, Wickland, as attorney-in-fact for Castle and Indian, is
hereby authorized to do so in the name of Castle or Indian or, in Wickland's
discretion, to assign the claim to a nominee and to cause proof of claim to be
filed in the name of Wickland's nominee. In all such cases, whether in
administration, bankruptcy or otherwise, the person or persons authorized to pay
such claim shall pay to Wickland the full amount thereof and, to the full extent
necessary for that purpose, each of Castle and Indian hereby assigns to Wickland
all of its rights to any such payments or distributions to which it would
otherwise be entitled.
(m) With or without notice to Castle, Wickland, in Wickland's sole
discretion, at any time and from time to time and in such manner and upon such
terms as Wickland deems fit, may (i) apply any or all payments or recoveries
<PAGE>
which may be received from Powerine or from any other guarantor or endorser
under any other instrument or which may be realized from any security, to any
indebtedness of Powerine to Wickland, in such manner and order of priority as
Wickland may determine, whether or not such indebtedness is guarantied hereby or
is otherwise secured or is due at the time of such application; and (ii) refund
to Powerine any payment received by Wickland upon the Guarantied Obligations,
whereupon payment of the amount refunded shall remain fully guarantied hereby.
Any recovery realized from any other guarantor under any other instrument may
first be credited upon that portion (if any) of the indebtedness of Powerine to
Wickland that is not guarantied hereby.
(n) The amount of Castle's liability and all rights, powers and
remedies of Wickland under this Agreement and under any other agreement now or
hereafter in force between Wickland and Castle, including any other guaranty
executed by Castle relating to any indebtedness of Powerine to Wickland, shall
be cumulative and not alternative, and such rights, powers and remedies shall be
in addition to all rights, powers and remedies given to Wickland by law. This
Agreement is in addition to and exclusive of the guaranty of any other guarantor
of any indebtedness of Powerine to Wickland.
(o) The obligations of Castle hereunder are independent of the
obligations of Powerine and, in the event of any default hereunder, a separate
action or actions may be brought and prosecuted against Castle whether or not
Powerine is joined therein or a separate action or actions are brought against
Powerine. Wickland may maintain successive actions for other defaults.
Wickland's rights hereunder shall not be exhausted by its exercise of any of its
rights or remedies or by any such action or by any number of successive actions
until and unless all sums owing to Wickland in connection with the Guarantied
Obligations have been paid in full and all other obligations hereby guarantied
have been fully performed.
(p) To the extent that any underlying Guarantied Obligation is not
bearing interest, payments not made when due hereunder by Castle to Wickland on
account of such Guarantied Obligation shall bear interest from the due date
hereunder until paid to Wickland at a rate equal to the lesser of (i) 10% per
annum or (ii) the maximum rate otherwise permitted under applicable law.
<PAGE>
2. Letter of Credit. On or before the date hereof, Castle shall cause
Powerine to obtain a standby letter of credit in the amount of $3,000,000 from a
bank acceptable to Wickland and in form and substance of Exhibit A hereto. Such
letter of credit may be drawn upon to pay obligations of Powerine to Wickland
existing both before and after the date of this Agreement.
3. Sale of Assets. Castle shall diligently and in good faith negotiate
with Ampton Investments, Inc. ("Ampton") to consummate the sale of the
securities or assets of Powerine to Ampton.
4. Sale Other than to Ampton. In the event Castle desires to enter into
any legal commitment (the "Commitment") to sell the securities or assets of
Powerine to a party other than Ampton (a "Third Party"), Castle shall deliver to
Wickland written notice thereof at least five business days prior to entering
into the Commitment, setting forth in full the terms of such Commitment and the
identity of the Third Party. Castle agrees to consider in good faith any counter
offer by Wickland or Ampton to purchase the same securities or assets proposed
to be sold to the Third Party; provided, however, that Castle shall have no
obligation to accept any counter offer by Wickland or Ampton for any reason
whatsoever and shall have the unencumbered right to sell Powerine or Powerine's
refinery assets to such other party. The obligations of Castle under this
Section 4 shall terminate on the termination of the Powerine Agreement.
5. Bankruptcy Proceedings. Upon, but in no event later than five
business days of, becoming aware of any proceeding instituted by or against
Powerine seeking to adjudicate Powerine a bankrupt or insolvent, Castle shall
deliver to Wickland a written statement by an officer of Castle setting forth
the details of such proceeding.
6. Representations and Warranties. Castle hereby warrants and
represents as follows:
(a) Authority to Execute and Perform. Each of Castle and Indian has all
requisite power, authority and approvals required to enter into, execute and
deliver this Agreement and to perform fully its obligations hereunder, and
Powerine has all requisite power, authority and approvals required to enter
into, execute and deliver the Powerine Agreement, that certain Security
Agreement, of even date herewith, between Powerine and Wickland (the "Security
<PAGE>
Agreement") and all other agreements executed and delivered in connection with
the Powerine Agreement and the Security Agreement and to perform fully its
obligations thereunder.
(b) Due Authorization; Enforceability. Each of Castle and Indian has
taken all actions necessary to authorize it to enter into and perform fully its
obligations under this Agreement and to consummate the transactions contemplated
herein, and Powerine has taken all actions necessary to authorize it to enter
into and perform fully its obligations under the Powerine Agreement and all
other agreements executed and delivered in connection therewith and to
consummate the transactions contemplated therein.
(c) Sale of Powerine. As of the date hereof, no officer of Castle or
Indian has expressed an intent to sell the securities or assets of Powerine to a
Third Party or to cause Powerine to file a case in bankruptcy or to seek to file
an involuntary case in bankruptcy against Powerine, nor have any recommendations
been made by any person to the Board of Directors of Castle that the securities
or assets of Powerine be sold to a Third Party. Nothing contained herein shall
limit or restrict Powerine or Castle from seeking to sell the securities or
assets of Powerine to a third party.
(d) Litigation. To the knowledge of Castle, other than lawsuits filed
against Castle, Powerine and/or Indian by M.G. Trade Finance Corp. ("MG
Litigation") and other than as set forth on Exhibit B hereto, there is no
threatened adverse claim, dispute, governmental investigation, suit, action
(including, without limitation, nonjudicial real or personal property
foreclosure actions), arbitration, legal, administrative or other proceeding of
any nature, domestic or foreign, criminal or civil, at law or in equity, which
has had or could reasonably be expected to have a material adverse affect upon
Powerine's condition (financial or otherwise), its assets, liabilities, business
or operations, the value or utility of its assets or Powerine's ability to
remain in business without the occurrence of a Bankruptcy Event. Except for the
filing of the MG Litigation, since December 31, 1994, there has not occurred any
material adverse change in the condition (financial or otherwise), assets,
liabilities (whether absolute, accrued, contingent or otherwise), business,
operations or prospects of Castle, Powerine or Indian, or in the ability of
Castle or Indian to perform their respective obligations hereunder or the
ability of Powerine to perform its obligations under the Powerine Agreement.
<PAGE>
(e) No Violation. Neither the signing or delivery by Castle or Indian
of this Agreement or any other agreement, document or instrument contemplated
pursuant hereto, will violate, conflict with or constitute a default under,
permit the termination or acceleration of, or cause the loss of any rights or
options under, any contract which is material to the business and operations of
Castle or Indian (a "Material Contract"); require any authorization, consent or
approval of, exemption or other action by and notice to, any party to any
Material Contract; or result in the creation or imposition of any lien or
encumbrance upon any asset of Castle or Indian.
(f) Financial Condition. All financial statements of Castle heretofore
delivered to Wickland, including, without limitation, its Quarterly Report on
Form 10-Q for the quarterly period ended December 31, 1994:
(i) were prepared in accordance with the books and records of
Castle;
(ii) were prepared in accordance with generally accepted accounting
principles;
(iii) fairly present Castle's financial condition and the results
of its operations as of the relevant dates thereof and for the periods covered
thereby; and
(iv) contain and reflect all necessary adjustments and accruals for
a fair presentation of Castle's financial condition and the results of its
operations for the periods covered by said financial statements.
7. Indemnification by Castle. Castle shall indemnify, defend and hold
harmless (i) Wickland, (ii) each of Wickland's affiliates, assigns and
successors in interest, and (iii) each of their respective shareholders,
directors, officers, employees, agents, attorneys and representatives, from and
against any and all damages, awards, judgments and other payments, all costs and
expenses of investigating any claim, lawsuit or arbitration and any appeal
therefrom, all reasonable attorneys' fees incurred in connection therewith,
hereof, all amounts paid incident to any compromise or settlement of any such
claim, lawsuit or arbitration which may be incurred or suffered by any such
party (collectively a "Loss") and which may arise out of or result from:
(a) any breach of any representation, warranty, covenant or agreement
of Castle contained in this Agreement and/or of Powerine contained in the
<PAGE>
Powerine Agreement or the Security Agreement and/or in any other writing
delivered pursuant hereto or thereto;
(b) any insolvency, bankruptcy, reorganization, arrangement or other
similar proceeding involving or relating to Castle, Powerine or Indian that in
any way affects the exercise by Wickland of its rights and remedies hereunder;
(c) the collection or compromise by Wickland of the Guarantied
Obligations or the enforcement by Wickland of this Agreement against Castle,
whether or not suit is filed; and
(d) the return of any amounts by Wickland to Powerine or to Powerine's
trustee in bankruptcy, whether voluntarily or involuntarily and whether or not
suit is filed, in response to any claim that Wickland had theretofore received
preferential payments or transfers in fraud of creditors within the meaning of
any bankruptcy, insolvency or other similar law, now or hereafter existing.
8. Notices. All notices, requests and other communications hereunder
shall be in writing and shall be delivered by courier or other means of personal
service (including by means of a nationally recognized courier service or a
professional messenger service), or sent by telex or telecopy or mailed first
class, postage prepaid, by certified mail, return receipt requested, in all
cases, addressed to:
Wickland:
Wickland Oil Company
Attention: Robert L. Sanz, Vice President
3640 American River Drive
Sacramento, California 95864
Fax: (916) 978-2410
With a copy to:
Wickland Oil Company
Attention: General Counsel
3640 American River Drive
Sacramento, California 95864
Fax: (916) 978-2428
<PAGE>
Castle:
Castle Energy Corporation
Attention: Joseph L. Castle II
One Radnor Corporate Center
Suite 250
100 Matsonford Road
Radnor, Pennsylvania 19087
Fax: (610) 995-0409
Indian:
Indian Powerine L.P.
c/o Castle Energy Corporation
Attention: Joseph L. Castle II
One Radnor Corporate Center
Suite 250
100 Matsonford Road
Radnor, Pennsylvania 19087
Fax: (610) 995-0409
All notices, requests and other communications shall be deemed given on the date
of actual receipt or delivery as evidenced by written receipt, acknowledgement
or other evidence of actual receipt or delivery to the address. In case of
service by telecopy, a copy of such notice shall be personally delivered or sent
by registered or certified mail, in the manner set forth above, within three
business days thereafter. Either party hereto may from time to time by notice in
writing served as set forth above designate a different address or a different
or additional person to which all such notices or communications thereafter are
to be given.
9. Further Assurances. Each of the parties shall use its reasonable and
diligent best efforts to proceed promptly with the transactions contemplated
herein, to fulfill the conditions precedent for such party's benefit or to cause
the same to be fulfilled and to sign such further documents and other papers and
perform such further acts as may be reasonably required or desirable to carry
out the provisions of this Agreement and the transactions contemplated herein.
10. Waivers and Consents. At any time and from time to time, a party
may waive compliance with any of the covenants, conditions or agreements of the
other party contained in this Agreement. However, no such waiver shall operate
as a waiver of, or estoppel with respect to, any subsequent breach or other
failure to perform a covenant or agreement under this Agreement or
<PAGE>
nonfulfillment or continuing nonfulfillment of a condition in favor of such
party.
11. Attorneys' Fees. If either party hereto shall bring an action
against the other by reason of any alleged breach of any covenant, provision or
condition hereof, the unsuccessful party shall pay to the prevailing party all
reasonable attorneys' fees and costs incurred by the prevailing party, in
addition to any other relief to which it may be entitled.
12. Entire Agreement. This Agreement (together with any agreement
referred to herein) is intended to embody the final, complete and exclusive
agreement among the parties with respect to the transactions contemplated
hereby; is intended to supersede all prior agreements, understandings and
representations written or oral, with respect thereto including, without
limitation, that certain memorandum of understanding dated March 29, 1995; and
may not be contradicted by evidence of any such prior or contemporaneous
agreement, understanding or representation, whether written or oral.
13. Governing Law and Venue. This Agreement is to be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and to be performed wholly within such State, and without regard
to the conflicts of laws principles thereof. Any suit brought hereon, whether in
contract, tort, equity or otherwise, shall be brought in the state or federal
courts sitting in Sacramento, California, the parties hereto hereby waiving any
claim or defense that such forum is not convenient or proper. Each party hereby
agrees that any such court shall have in personam jurisdiction over it, consents
to service of process in any manner prescribed in Section 8 or in any other
manner authorized by California law, and agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner specified by law.
14. Binding Effect; Assignment. This Agreement and the rights,
covenants, conditions and obligations of the respective parties hereto and any
instrument or agreement executed pursuant hereto shall be binding upon the
parties and their respective successors, assigns and legal representatives.
Wickland may transfer and assign this Agreement, in whole or in part, without
the prior written consent of Castle. Castle may not transfer, assign or convey
any of its obligations under this Agreement without the prior written consent of
Wickland.
<PAGE>
15. Severability. Should any one or more of the provisions of this
Agreement be determined to be illegal or unenforceable, all of the provisions
shall nevertheless be effective to the fullest extent permitted by law.
16. Concluding Provisions. The section headings of this Agreement are
for convenience of reference only and shall not be deemed to alter or affect any
provision hereof. All payments required to be made pursuant to this Agreement
and amounts required to be paid in accordance with any indemnity provisions of
this Agreement, shall be made in United States dollars. Where the context or
construction requires, all words applied in the plural shall be deemed to have
been used in the singular, and vice versa; the masculine shall include the
feminine and neuter, and vice versa; and the present tense shall include the
past and future tense, and vice versa. The parties acknowledge that each party
and its counsel has materially participated in the drafting of this Agreement
and consequently the rule of contract interpretation that ambiguities, if any,
in the writing be construed against the drafter, shall not apply.
17. TRIAL BY JURY. EACH OF CASTLE AND INDIAN HEREBY WAIVES, AND
COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION, ARISING OUT OF OR BASED UPON THIS
AGREEMENT, THE SUBJECT MATTER HEREOF, THE POWERINE AGREEMENT, THE SECURITY
AGREEMENT OR ANY AGREEMENT RELATED THERETO OR ANY GUARANTIED OBLIGATION, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR IN TORT
OR OTHERWISE.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly signed this Agreement as of the
day and year first above written.
Castle Energy Corporation,
a Delaware corporation
By: /s/ Joseph L. Castle II
------------------------------------
Wickland Oil Company,
a California corporation
By: /s/ Jack W. Reho
------------------------------------
Jack W. Reho,
Vice President and
Chief Financial Officer
By: /s/ Robert L. Sanz
------------------------------------
Robert L. Sanz
Vice President
The undersigned hereby agrees to be bound by all the provisions of
Sections 1(j), (k) and (l), 8, 9 and 17.
Indian Powerine L.P.
an Illinois limited partnership
By: IP Oil Co. Inc., an
Illinois corporation,
its general partner
By: /s/ William S. Sudhaus
------------------------------------
Its:
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), dated as of April 8, 1995,
by and between Powerine Oil Company, a California corporation ("Debtor") and
Wickland Oil Company, a California corporation ("Secured Party"), is made with
reference to the following:
A. Debtor and Secured Party have entered into that certain Powerine
Petroleum Sale and Storage Agreement, dated as of April 8, 1995 and certain
agreements referred to therein (collectively, as amended, supplemented or
otherwise modified from time to time, the "Purchase Agreement") pursuant to
which, among other things: (i) Debtor shall sell to Secured Party, among other
things, certain crude oil, feed stock and blend stock, which commodities
subsequently shall be resold by Secured Party to Debtor, and (ii) Secured Party
shall sell to Debtor additional crude oil, feed stock and blend stock (all such
commodities to be sold by Secured Party to Debtor pursuant to clauses (i) and
(ii) to be collectively referred to as the "Commodities").
B. As security for the prompt and complete payment or performance of
all obligations of Debtor under the Purchase Agreement, Debtor has agreed to
grant Secured Party a security interest in the property hereinafter described.
C. Capitalized terms used herein but not otherwise defined herein shall
have the meanings ascribed to them in the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and other agreements hereinafter contained, Debtor hereby agrees with
Secured Party for its benefit as follows:
1. Grant of Security Interest. Debtor hereby grants to Secured
Party a continuing security interest in the following property of Debtor,
wherever located, whether the same is now owned or hereafter acquired (the
"Collateral"):
a) all inventories (including, without limitation, the
Commodities, all other crude oil, feed stock and blend stock, fuel oil, refined
oil and products and all other petroleum products of every kind, grade or
nature) and merchandise, including without limitation raw materials, work in
<PAGE>
process, finished products, goods in transit, materials used or consumed in the
manufacture or production thereof, all packing materials, supplies and
containers relating to or used in connection with the foregoing, all goods in
which Debtor has an interest in mass or an interest or right as a consignee and
all goods which are returned to or repossessed by Debtor, whether used or
consumed in Debtor's business, held for sale or lease, furnished under service
contracts, or otherwise, and all bills of lading, warehouse receipts, documents
of title or general intangibles relating to any of the foregoing (collectively,
the "Inventory");
(b) all goods, farm products, equipment, machinery, tooling,
molds, dies, furniture, fixtures (whether or not attached to real property),
furnishings, trade fixtures, motor vehicles and rolling stock, materials and
parts and all other tangible personal property (collectively, the "Equipment");
(c) all rights to the payment of money or other form of
consideration, accounts, notes, accounts receivable, drafts, documents, chattel
paper, choses in action, undertakings, surety bonds, insurance policies,
acceptances and all other forms of claims, demands, instruments and receivables,
together with all guarantees, security agreements, leases and rights and
interests securing the same and all right, title and interest of Debtor in the
merchandise which gave or shall give rise thereto, including the right of
stoppage in transit, repossession and resale (collectively the "Receivables");
(d) all agreements, contracts, credits, letters of credit,
security agreements, indentures, purchase and sale orders, warranty rights and
contract rights of any nature, whether written or oral (including, without
limitation, the Purchase Agreement and all related agreements), and all consents
or other authorizations relating thereto, to the extent assignable (collectively
the "Contracts");
(e) all licenses, permits, franchises, certificates and other
governmental authorizations and approvals of any nature whatsoever, to the
extent assignable (collectively the "Licenses and Permits");
<PAGE>
(f) all deposit accounts, including without limitation, all
demand, time, savings, passbook, custodial, safekeeping, escrow or like accounts
maintained by Debtor with any bank, savings and loan association, credit union
or like organization, and all money, cash, cash equivalents, investment
securities, deposits and prepayments of Debtor in any such deposit account (all
of the foregoing being deemed to be in any such account as soon as the same is
put in transit to such account by mail or other courier);
(g) all trademarks, trade names, trade styles, and service marks
(and all prints and labels on which any of the foregoing appear), designs,
letters patent of the United States or any other country, other general
intangibles, and all registrations, recordings, reissues, extensions, renewals,
continuations, continuations-in-part and licenses thereof (including
applications for registration and recording);
(h) all other proprietary rights and confidential information,
technology, processes, trade secrets, computer programs, source codes, software,
customer lists, sales literature and catalogues, price lists, subscriber
information, formulae, goodwill and all applications and registrations relating
to any of the foregoing;
(i) all real property, leases, easements, rights-of-way and other
interests in real property;
(j) all stocks, bonds, debentures, securities, subscription
rights, options, warrants, puts, calls, certificates, partnership interests,
joint venture interests, investments and/or brokerage accounts and all rights,
preferences, privileges, dividends, distributions, redemption payments or
liquidation payments with respect thereto;
(k) all files, correspondence, books and records of Debtor,
including without limitation, books of account and ledgers of every kind and
nature, all electronically recorded data relating to the Collateral, Debtor or
the business thereof, all computer programs, tapes, discs and data processing
software containing the same, and all receptacles and containers for such
records;
(l) all other goods, accounts, general intangibles, documents,
instruments, rights, interests and properties of every kind and description,
tangible or intangible, real or personal;
<PAGE>
(m) all rights, remedies, powers and/or privileges of Debtor with
respect to any of the foregoing; and
(n) all proceeds, replacements, products, additions, accessions
and substitutions of any of the foregoing.
Nothing in this Agreement shall be deemed to constitute an assumption
by Secured Party of any liability or obligation of Debtor with respect to any of
the Collateral.
With respect to the Collateral consisting of the Commodities, the
security interest granted in this Section 1 with respect to such Collateral is
intended to be a purchase money security interest within the meaning of the
Uniform Commercial Code of the State of California (the "Code").
2. Security for Obligations.
(a) This Agreement secures and the Collateral is collateral
security for the prompt payment or performance in full when due, whether by
acceleration or otherwise (including the payment of amounts which would become
due but for the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code, 11 U.S.C. ss. 362(a)), of all obligations of Debtor to Secured
Party now or hereafter arising under the Purchase Agreement and all obligations
of Debtor now or hereinafter arising under this Agreement (all such obligations
being the "Secured Obligations").
(b) It is the intention of Debtor that the continuing grant of
security interests provided for herein shall remain as security for the payment
and performance of the Secured Obligations, whether now existing or hereinafter
incurred by future advances or otherwise, and whether or not contemplated by the
parties at the date hereof. No notice of the continuing grant of such security
interests, therefore, shall be required to be stated on the face of any document
representing any such Secured Obligation nor shall it otherwise be necessary to
identify any such Secured Obligation as being secured hereby. Any such Secured
Obligation shall be deemed to have been made pursuant to Section 9204 of the
Code.
<PAGE>
(c) Debtor acknowledges and agrees that the entire Powerine
Refinery and all components thereof, including, without limitation, all tanks,
pipelines and equipment which may be affixed to real property, are intended to
be and remain personal property or trade fixtures which are readily removable
and are not intended to be permanently affixed to real property or constitute
real property or improvements thereon for any purposes.
3. Representations and Warranties. Debtor represents and warrants
as follows:
(a) Status of Debtor. Debtor is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and is duly qualified or licensed to conduct business in each
jurisdiction in which the nature of its business or assets requires such
qualification or licensing under applicable law. Debtor has the requisite power
and authority to own its assets and to transact the business in which it is
presently engaged and in which it proposes to engage and to grant to Secured
Party the security interests in the Collateral as herein provided;
(b) Binding Agreement. This Agreement has been duly authorized and
constitutes the legal, valid and binding obligation of Debtor enforceable
against Debtor in accordance with its terms;
(c) Title to Collateral. Except for the security interests granted
to Secured Party hereby and except as otherwise disclosed on Schedule A, Debtor
has, and will at all times during the term hereof have, good and marketable
title to all and every part of the Collateral, free and clear of any mortgage,
pledge, lien, security interest, encumbrance, conditional sale contract, lease
or other title retention agreement, or any other adverse claim of any nature
whatsoever (collectively, "Lien"), except as otherwise permitted in Section 5(a)
hereof. No effective financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any recording office,
except such as may have been filed in favor of Secured Party relating to this
Agreement and except as otherwise disclosed on Schedule A or as otherwise
permitted in Section 5(a). Upon the execution and delivery of this Agreement by
Debtor and the filing of appropriate financing statements with the appropriate
governmental agencies or, as applicable, upon Secured Party's taking possession
<PAGE>
of the Collateral, Secured Party will have a perfected security interest in and
to the Collateral having, except with respect to and only to the extent of any
existing Liens disclosed on Schedule A, first priority for the full amount of
all of the Secured Obligations;
(d) No Default or Required Consent. Neither the execution and
delivery of this Agreement by Debtor nor the effectuation by Secured Party of
any of its rights and remedies hereunder, whether upon default or otherwise,
will result in a breach of or constitute a default under any charter provision
or bylaw of Debtor or any other agreement or instrument to which Debtor is a
party or by which any of the Collateral is bound, nor violate any law or any
rule or regulation of any administrative agency or any order, writ, injunction
or decree of any court or administrative agency, nor does any of the foregoing
require the consent of any person, entity or governmental agency or any notice
or filing with any governmental or regulatory body (except as may be required in
connection with any sale or disposition of the Collateral by laws affecting the
offering and sale of securities generally);
(e) Credit Information. Any and all credit or other information
heretofore furnished to Secured Party by Debtor in connection with the Secured
Obligations or Debtor's financial condition or the value or condition of the
Collateral is true and correct, and all such information hereafter furnished to
Secured Party by Debtor will be true and correct when furnished;
(f) No Litigation. Other than lawsuits filed against Debtor by
M.G. Trade Finance Corp., which shall be dismissed, there is no legal,
administrative or other proceeding pending or threatened against Debtor's title
to the Collateral or against Debtor's grant of a security interest therein
hereunder, nor does Debtor know of any basis for the assertion of any such
claim;
(g) Location of Debtor. Schedule B hereto identifies the principal
place of business of Debtor and the place where Debtor keeps all of its books
and records for its general accounting purposes, including all books and records
with respect to the Receivables;
(h) Location of Collateral. Schedule C hereto identifies all of
the locations at which Debtor keeps the Inventory; Schedule E hereto identifies
<PAGE>
all of the locations at which Debtor keeps the Equipment. Debtor has exclusive
possession and control of the Inventory except for Inventory in transit;
(i) Acquisition of Businesses. Except as specified on Schedule F
hereto, Debtor has never acquired the business of another person, nor been the
surviving or resulting company in a merger or consolidation, nor obtained assets
in a transaction subject to the bulk transfer laws or outside the ordinary
course of the seller's business; and
(j) Use of Other Names. Schedule G hereto identifies all of the
corporate and fictitious business and/or trade names which Debtor has used in
the past five (5) years.
4. Affirmative Covenants. Debtor covenants that until such time as
all of the Secured Obligations are paid or satisfied in full in cash, unless
Secured Party shall otherwise consent in writing:
(a) Conduct of Business and Maintenance of Assets and Licenses.
Debtor shall do or cause to be done all things necessary to preserve in full
force and effect its existence, its corporate powers and authority, its
qualifications to carry on business in all applicable jurisdictions, and all
rights, interests and assets necessary to the conduct of its business;
(b) Delivery of Collateral. With respect to any Collateral as to
which Secured Party's security interest need or may be perfected by, or the
priority thereof need be assured by, possession of such Collateral, Debtor shall
upon demand of Secured Party deliver possession of same in pledge to Secured
Party, endorsed or accompanied by such instruments of assignment or transfer as
Secured Party may specify and stamped or marked in such manner as Secured Party
may specify;
(c) Protection of Security and Legal Proceedings. Debtor shall, at
its own expense, take any and all actions necessary or desirable to preserve,
protect and defend the security interests of Secured Party in the inventory,
receivables and any other material items of Collateral (including, without
limitation, the Powerine Refinery) and the perfection and priority thereof
against any and all adverse claims, including appearing in and defending all
actions and proceedings which purport to affect any of the foregoing. Debtor
<PAGE>
shall promptly reimburse Secured Party for any and all sums, including costs,
expenses and reasonable attorneys' fees, which Secured Party may pay or incur in
defending, protecting or enforcing its security interests in the Collateral or
the perfection or priority thereof;
(d) Payment of Taxes. Debtor shall pay or cause to be paid all
taxes and other levies required by the Purchase Agreement and all taxes and
other levies attributable to Debtor's income taxes with respect to the
Collateral when the same become due and payable;
(e) Use and Maintenance of Collateral. Debtor shall comply with
all laws, statutes and regulations pertaining to its use and ownership of the
Collateral and its conduct of its business, the violation of which would have a
material adverse effect on the value or marketability of the Collateral or on
Debtor's business; properly care for and maintain all of the Collateral in
accordance with good industry practices; keep accurate and complete books and
records pertaining to the Collateral in accordance with generally accepted
accounting principles; and promptly and completely perform all of its
obligations under the Contracts and maintain in full force and effect all of the
Licenses and Permits, the violation of which, or the failure to maintain in full
force and effect, as the case may be, would have a material adverse effect on
the value or marketability of the Collateral or on Debtor's business;
(f) Insurance. Debtor shall, at its own expense, keep the
Collateral insured against loss by fire, theft and other extended coverage
hazards as in effect on the date hereof and as required by the Purchase
Agreement. All such insurance shall be written by companies and on forms
satisfactory to Secured Party, such policies shall provide that coverage shall
not lapse for any reason whatsoever without the insurer giving to the Secured
Party fifteen (15) days' prior written notice, and the policies of such
insurance or, at the election of Secured Party, certificates thereof
satisfactory to Secured Party, shall be delivered to Secured Party within ten
(10) days following the date of execution of this Agreement;
(g) Inspection. Debtor shall give Secured Party such information
as may be reasonably requested concerning the Collateral and shall at all
reasonable times and upon reasonable notice permit Secured Party and its agents
and representatives to enter upon any premises upon which the Collateral is
<PAGE>
located for the purpose of inspecting the Collateral. Furthermore, Secured Party
shall at all reasonable times on reasonable notice have full access to and the
right to audit any and all of Debtor's books and records pertaining to the
Collateral, to confirm and verify the value of the Collateral and to do whatever
else Secured Party reasonably may deem necessary or desirable to protect its
interests; provided, however, that any such action which involves communicating
with customers of Debtor shall be carried out by Secured Party through Debtor's
independent auditors unless an Event of Default (as defined in Section 8 below)
occurs and is continuing, in which case Secured Party shall then have the right
directly to notify such obligors;
(h) Notification. Debtor shall notify Secured Party in writing
within three (3) business days of the occurrence of (i) an Event of Default or
of the occurrence of an event which, with notice or lapse of time, or both,
would constitute an Event of Default, or (ii) any event which adversely affects
the value of the inventory, receivables and any other material items of
Collateral (including, without limitation, the Powerine Refinery), the ability
of Debtor or Secured Party to dispose of the Collateral or the rights and
remedies of Secured Party in relation thereto; and
(i) Further Assurances. Debtor agrees that at any time and from
time to time, at the expense of Debtor, Debtor will promptly execute and deliver
all further instruments and documents, and take all further action, that may be
necessary or desirable, or that Secured Party may request, in order to perfect
and to protect any security interest granted or purported to be granted hereby
or to enable Secured Party to exercise and to enforce its rights and remedies
hereunder with respect to any Collateral.
5. Negative Covenants.
Debtor covenants that until such time as all of the Secured Obligations
are paid or satisfied in full in cash, without the prior written consent of
Secured Party:
(a) Sale or Hypothecation of Collateral. Debtor shall not directly
or indirectly, whether voluntarily, involuntarily, by operation of law or
otherwise (i) sell, assign, transfer, exchange, lease, lend, grant any option
with respect to or dispose of any of the Collateral (other than inventory and
<PAGE>
other property sold or leased in the ordinary course of Debtor's business), or
any of Debtor's rights therein, nor (ii) create or permit to exist any Lien on
or with respect to any of the Collateral, except for the Lien in favor of
Secured Party, those disclosed on Schedule A and other immaterial Liens which
arise in the ordinary course of business and which do not materially adversely
effect the security interests granted to Secured Party hereunder; provided,
however, to the extent that a financing statement or Lien is filed or recorded
involuntarily against any of the Collateral, Debtor shall have a period of
thirty (30) calendar days to cause such financing statement or Lien to be
released, but provided further, however, that if the amount of indebtedness
secured by any such financing statement or Lien exceeds $____________ in any one
instance, or $____________ in the aggregate, such thirty (30) day grace period
shall not be available to Debtor. The inclusion of "proceeds" as a component of
the Collateral shall not be deemed a consent by Secured Party to any sale,
assignment, transfer, exchange, lease, loan, granting of an option with respect
to or disposition of all or any part of the Collateral other than in the
ordinary course of business;
(b) Location of Collateral; Changes of Name. Except for
inventoried goods sold or leased in the ordinary course of business or vehicles,
rolling stock or other property moved in the ordinary course of business, Debtor
shall not cause or allow, without giving to Secured Party at least thirty (30)
days' prior written notice (i) any of the Collateral to be moved; (ii) move its
principal place of business or the location of its books or records; or (iii)
change its name, its trade or fictitious business name(s) or its form of doing
business;
(c) Certain Agreements. Debtor shall not cause, suffer or permit
to occur any compromise, adjustment, amendment, modification, settlement,
waiver, substitution or termination in respect of any Receivable, other than in
the ordinary course of business; and
(d) Preservation of Collateral. Debtor shall not cause or allow
anything to be done which might impair, or fail to do anything necessary or
advisable in order to preserve, the value of the Collateral and the security
interests of Secured Party therein, the occurrence of which or the failure of
<PAGE>
the occurrence of which would have a material adverse effect on the value or
marketability of the Collateral or on Debtor's business.
6. Secured Party Appointed Attorney-in-Fact. Debtor hereby
appoints Secured Party Debtor's attorney-in-fact with full authority in the
place and stead of Debtor and in the name of Debtor or otherwise, from time to
time (whether before or after an Event of Default) in Secured Party's sole and
absolute discretion to take any action and to execute any instrument which
Secured Party may deem necessary or advisable to maintain or perfect the
security interests granted to it hereunder. Debtor acknowledges that the
foregoing grant of power of attorney is coupled with an interest and is
irrevocable.
7. Secured Party May Perform. During the continuance of an Event
of Default, if Debtor fails to perform any agreement or covenant contained
herein, Secured Party may itself perform or cause the performance of such
agreement or covenant, and the expenses of Secured Party incurred in connection
therewith, plus interest at the maximum rate permitted by law from the date of
such advance to the date of reimbursement, shall be payable by Debtor under
Section 11. However, nothing in this Agreement shall obligate Secured Party to
act.
8. Events of Default. The occurrence of any of the following shall
constitute an event of default ("Event of Default") hereunder:
(a) Default Under Purchase Agreement, Etc. (i) The default in the
prompt and complete payment or performance of the Purchase Agreement; or (ii)
the default in the prompt and complete payment and performance of any term,
condition or covenant in favor of Secured Party contained in this Agreement or
in any other instrument delivered pursuant to the Purchase Agreement or pursuant
hereto where any such default under this Clause (ii) remains unremedied five (5)
business days following delivery of written notice thereof by Secured Party to
Debtor;
(b) Bankruptcy. The insolvency, failure in business or appointment
of a receiver to take charge of the business or property of Debtor or Castle, or
the commission of an act of bankruptcy, the making of a general assignment for
the benefit of creditors or the filing of any petition in bankruptcy by or
against any such party or for relief under the Federal Bankruptcy Code, as
amended, or under any other laws, whether federal or state, for the relief of
<PAGE>
debtors, now or hereafter existing, unless the same is dismissed within thirty
(30) days after the filing thereof;
(c) Inability to Pay Debts. The admission by Debtor or Castle of
its inability to pay its debts as they mature;
(d) Certain Transfers. The transfer of property by Debtor or
Castle under circumstances which would entitle a trustee in bankruptcy or
similar fiduciary to avoid such transfer under the Federal Bankruptcy Code, as
amended, or under any other laws, whether state or federal, for the relief of
debtors, now or hereafter existing;
(e) Appointment of Receiver. The appointment of a receiver,
trustee or custodian for Debtor or Castle or for any substantial part of the
assets of any of the foregoing parties, or the institution of proceedings for
the dissolution or the full or partial liquidation of any of the foregoing
parties, unless such receiver or trustee is discharged within thirty (30) days
of his or its appointment or such proceedings are discharged within thirty (30)
days of their commencement;
(f) Liens on Collateral. The initiation of steps by any third
party to obtain a Lien, levy or writ of attachment or garnishment upon any or
all of the Collateral or substantially all of any of the other property of
Debtor or Castle or to affect any of the Collateral or any such other property
by other legal process, unless the same is dismissed within thirty (30) days
after the initiation thereof, the occurrence of which would have a material
adverse effect on the value or marketability of the Collateral or on Debtor's
business;
(g) Deterioration of Collateral. The occurrence of any
deterioration, depreciation, destruction or impairment of the condition or value
of the Collateral, or any part thereof which has a material adverse effect on
the value or marketability of the Collateral or on Debtor's business;
(h) Dissolution of Debtor, Etc. The cessation of Debtor or Castle
as a going concern;
(i) Misrepresentation. Should any representation made by Debtor or
Castle to Secured Party concerning the financial condition or credit standing of
<PAGE>
Debtor or Castle prove to be false or misleading or should any representation or
warranty of Debtor or Castle contained in this Agreement, the Purchase Agreement
or in any document, certificate or instrument delivered pursuant thereto or
hereto prove to be false or misleading in any material respect;
(j) Adverse Judgments. Should a final judgment for the payment of
money in excess of $500,000 be rendered by any court of competent jurisdiction
against Debtor or in excess of $5,000,000 against Castle, and should the same
not be discharged or execution thereunder stayed, whether pursuant to appeal or
otherwise, within thirty (30) days of the entry thereof, or should any final
order, ruling or direction of any competent authority be issued with respect to
Debtor or Castle which materially adversely affects Debtor or Castle, or which
requires a substantial or material adverse change in the business or affairs of
Debtor or Castle, or a material disposition of assets of Debtor or Castle; or
9. Remedies upon Default. If any Event of Default shall have
occurred:
(a) Acceleration of Indebtedness. Secured Party may declare any or
all Secured Obligations, or any part thereof, to be immediately due and payable
without demand or notice (and upon the occurrence of any Event of Default
specified in Sections 8(b) through 8(e) all Secured Obligations shall without
further action by Secured Party become immediately due and payable), and Secured
Party may proceed to collect the same.
(b) Notification to Third Parties. Secured Party may (i) open
Debtor's mail and collect any and all amounts due to Debtor from other persons;
(ii) notify any account debtor obligated on any of the Receivables or any
purchaser of Collateral or any other person of Secured Party's interest in the
Collateral and instruct any such persons to make payments thereon directly to
Secured Party; and (iii) notify postal authorities that all mail addressed to
Debtor is to be delivered to Secured Party.
(c) Compromise of Claims. Secured Party may grant extensions,
compromise claims and settle Collateral for less than face value, all without
prior notice to Debtor.
<PAGE>
(d) Use of Trade Names, Etc. Secured Party may use in connection
with any assembly or disposition of the Collateral, any trademark, trade name,
trade style, copyright, patent right, technical process or other proprietary
right used or utilized by Debtor.
(e) Other Rights Against Debtor Hereunder. Secured Party may
exercise in respect of the Collateral, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies of
a secured party under the Code, and Secured Party may also without notice except
as specified below sell the Collateral or any part thereof in one or more
parcels at public or private sale, for cash, on credit or for future delivery,
and upon such other terms as Secured Party in its sole and absolute discretion
may deem commercially reasonable, and in connection with any such sale may enter
upon the premises on which the Powerine Refinery is located at any time upon
reasonable advance notice to Debtor, and may, thereupon, dismantle and remove
all or any part of the Powerine Refinery. Debtor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to Debtor of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. Secured Party shall not
be obligated to make any sale of Collateral regardless of notice of sale having
been given. Secured Party may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. Debtor hereby waives any claims against Secured Party arising by
reason of the fact that the price at which any Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale, even if Secured Party accepts the first offer received and does not
offer such Collateral to more than one offeree, and in all events such sale
shall be deemed to be commercially reasonable. At any such public or private
sale, Secured Party may be the purchaser of the Collateral.
(f) Application of Proceeds. Any cash held by Secured Party as
Collateral and all cash proceeds received by Secured Party in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral may, in the direction of Secured Party, be held by Secured Party as
collateral for, and/or then or at any time thereafter applied (after payment of
any amounts payable to Secured Party pursuant to Section 11) in whole or in part
<PAGE>
by Secured Party against all or any part of the Secured Obligations in such
order as Secured Party shall elect. Any surplus of such cash or cash proceeds
held by Secured Party and remaining after payment in full of all the Secured
Obligations shall be paid over to Debtor or to whomsoever may be lawfully
entitled to receive such surplus. In a like manner, Debtor shall pay to Secured
Party, without demand, whatever amount of the Secured Obligations remains unpaid
after the Collateral has been sold and the proceeds applied as aforesaid,
together with interest thereon from the date of demand at the highest rate
specified in the Note, which interest shall also constitute a part of the
Secured Obligations.
(g) Termination of Agreements. Secured Party may terminate any
agreement or commitment of Secured Party for the granting of further credit to
Debtor.
(h) Other Rights. Secured Party shall not be obligated to resort
to its rights or remedies with respect to any other security for or guaranty or
payment of the Secured Obligations before resorting to its rights and remedies
against Debtor hereunder. All rights and remedies of Secured Party shall be
cumulative and not in the alternative.
10. Liability and Indemnification. Secured Party shall not be
liable to Debtor for any act (including, without limitation, any act of active
negligence) of or omission by Secured Party unless Secured Party's conduct
constitutes willful misconduct or gross negligence. Debtor agrees to indemnify
and to hold Secured Party harmless from and against all losses, liabilities,
claims, damages, costs and expenses (including actual attorneys' fees and
disbursements) with respect to (a) any action taken (including, without
limitation, any act of active negligence) or any omission by Secured Party with
respect to this Agreement, provided that Secured Party's conduct does not
constitute willful misconduct or gross negligence, and (b) any claims arising
out of Debtor's ownership of the Collateral or Secured Party's security interest
therein.
11. Expenses. Debtor will upon demand pay to Secured Party the
amount of any and all expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, which Secured Party may incur in
connection with (a) the custody or preservation of, or the sale of, collection
<PAGE>
from, or other realization upon, any of the Collateral, (b) the exercise or
enforcement of any of the rights of Secured Party hereunder, and (c) the failure
by Debtor to perform or observe any of the provisions hereof.
12. Security Interest Absolute. All rights of Secured Party and
security interests hereunder, and all Secured Obligations of Debtor hereunder,
shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Purchase
Agreement or any other document or any other agreement or instrument relating
thereto;
(b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations, or any other amendment
or waiver of or any consent to any departure from the Purchase Agreement or any
other document or any other agreement or instrument relating thereto;
(c) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty for all or any of the Secured Obligations; or
(d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, Debtor.
13. Amendments, Waiver. No amendment or waiver of any provision of
this Agreement nor consent to any departure by Debtor herefrom shall in any
event be effective unless the same shall be in writing and signed by Secured
Party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
14. Notices. All notices, demands and requests of any kind which
either party may be required or desires to serve upon the other hereunder shall
be in writing and shall be delivered and be effective in accordance with the
notice provision of the Purchase Agreement.
15. Continuing Security Interest; Assignment of Obligations.
<PAGE>
(a) This Agreement shall create a continuing security interest in
the Collateral and shall (i) remain in full force and effect until the Secured
Obligations have been paid or satisfied in full, subject to Section 16, (ii) be
binding upon Debtor, its successors and assigns, (iii) inure, together with the
rights and remedies of Secured Party hereunder, to the benefit of Secured Party
and its successors, transferees and assigns, (iv) constitute, along with the
Purchase Agreement and any other document or any other agreement or instrument
relating thereto, the entire agreement between Debtor and Secured Party, and (v)
be severable in the event that one or more of the provisions herein is
determined to be illegal or unenforceable. Without limiting the generality of
the foregoing clause (iii), Secured Party may assign or otherwise transfer any
Secured Obligation to any other person or entity, and such other person or
entity shall thereupon become vested with all the benefits in respect thereof
granted to Secured Party herein or otherwise. Upon the payment in full of the
Secured Obligations, Secured Party, at the request and expense of Debtor, shall
release the security interests in the Collateral granted herein and execute such
termination statements as may be necessary therefor, to the extent that such
Collateral shall not have been sold or otherwise applied pursuant to the terms
hereof.
(b) In the event Debtor consummates a refinancing transaction with
a third party (a "Refinancing") in which all of the Secured Obligations then
outstanding (other than with respect of Debtor's obligations to make payments to
Secured Party arising from purchase money transactions effected in the normal
course of business as contemplated by the Purchase Agreement) are paid or
satisfied in full in cash, Secured Party will subordinate the priority of its
Lien in the Collateral (other than (i) Collateral consisting of inventory in
which it has a purchase money security interest, and (ii) Collateral consisting
of accounts receivable and proceeds arising from Debtor's resale or other
disposition of the inventory Collateral referred to in Clause (i) above) to
Liens in favor of such third party securing the Refinancing.
(c) In the event that a sale of all or substantially all of the
assets of Debtor or all of Debtor's capital stock is consummated, following or
concurrently with a Refinancing meeting all of the requirements of Subsection
(b) above, Secured Party shall release its Liens and security interests in the
Collateral (other than (i) Collateral consisting of inventory in which it has a
<PAGE>
purchase money security interest, and (ii) Collateral consisting of accounts
receivable and proceeds arising from Debtor's resale or other disposition of the
inventory Collateral referred to in Clause (i) above) pursuant to documents
reasonably acceptable to both Secured Party and Debtor.
16. Reinstatement of Rights. Secured Party's rights hereunder
shall be reinstated and revived, and the enforceability of this Agreement shall
continue, with respect to any amount at any time paid on account of the Secured
Obligations which thereafter shall be required to be restored or returned by
Secured Party upon the bankruptcy, insolvency or reorganization of Debtor or
Castle, all as though such amount had not been paid.
17. Governing Law; Terms. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California. Unless
otherwise defined herein or in the Purchase Agreement, terms defined in the Code
are used herein as therein defined.
18. TRIAL BY JURY. DEBTOR HEREBY WAIVES, AND COVENANTS THAT IT
WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO
TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE SUBJECT MATTER
HEREOF OR ANY PURCHASE DOCUMENT OR ANY SECURED OBLIGATION, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR IN TORT OR
OTHERWISE.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
DEBTOR:
POWERINE OIL COMPANY,
a California corporation
By: /s/ A. L. Gualtieri
-----------------------------
A.L. Gualtieri
President
<PAGE>
SECURED PARTY:
WICKLAND OIL COMPANY,
a California corporation
By: /s/ John W. Reho
-------------------------------
John W. Reho
Vice President and
Chief Financial Officer
<PAGE>
April 13, 1995
Powerine Oil Company
12354 Lakeland Road
Santa Fe Springs, California 90670
Attention: A.L. Gualtieri
Gentlemen:
We refer to the Powerine Petroleum Sale and Storage Agreement dated
April 8, 1995 between you and the undersigned (the "Agreement"). Capitalized
terms used herein but not other- wise defined herein shall have the meanings
ascribed to them in the Agreement.
In connection with the consummation of the transactions contemplated by
the Agreement, you and we hereby supplementally agree as follows:
1. Extension of Closing Date. Wickland hereby consents to the
consummation of the transactions contemplated by the Agreement on the date
hereof.
2. Revised Exhibits and Schedules. The following Exhibits to the
Agreement and Schedules thereto are hereby superseded in their entirety by the
replacements to such Exhibits and Schedules attached hereto: (a) Schedule 1 to
Exhibit A, (b) Schedule 1 to Exhibit B, (c) Exhibit C, (d) Schedule 1 to
Exhibit C, (e) Schedule 2 to Exhibit C, (f) Schedule 2 to Exhibit D, and
(g) Schedule 3 to Exhibit D.
3. Taxes. Powerine shall pay or reimburse Wickland for the amount of
all excise, gross receipts, superfund tax and oil spill tax, tariffs, levies,
fees, dues, charges, duties, and all other federal, state, and local taxes,
however designated (other than taxes on income), paid or incurred by Wickland
directly or indirectly with respect to the Commodities sold under the Agreement
and/or on the value thereof (collectively, the "Commodities Taxes"). Powerine
<PAGE>
shall pay all such Commodities Taxes when due or reimburse Wickland immediately
upon receipt of Wickland's invoice. Wickland shall invoice its customers for
superfund and oil spill tax and any other appropriate fees customarily invoiced
by Powerine to such customers. Wickland shall reimburse Powerine for any taxes
or fees Wickland collects in this manner.
4. Section 13 of the Agreement. Section 13 of the Agreement shall be
amended by: (i) redesignating clause "(d)" as clause "(e)", (ii) redesignating
clause "(e)" as clause "(f)", and (iii) inserting the following clause "(d)":
"(d) Invoicing and Payment for Intermediates.
(i) Powerine shall invoice Wickland monthly for intermediates
delivered to the Final Feed Stock/ Intermediate Delivery Points (as defined in
Exhibit C) for each calendar day's deliveries occurring between 05:01 the
previous day and 05:00 the current day using the Provisional Daily Measurements
(as defined in Exhibit C) and applicable formulated price.
(ii) Wickland shall invoice Powerine monthly for intermediates
delivered to the Initial Feed Stock/ Intermediate Delivery Points for each
calendar day's deliveries occurring between 05:01 the previous day and 05:00 the
current day using the Provisional Daily Measurements and applicable formulated
price.
(iii) Payment will be made by the owing party, on the later to
occur of the Powerine Financing Date, the Termination Date, or the occurrence of
an Event of Default. Each party will summarize all invoices issued to the other
party. The net amount will be due and payable on the next business day."
5. Security Agreement. The following clause appearing in Section 5(a)
of the Security Agreement, dated as of April 8, 1995, between Powerine and
Wickland, "but provided further, however, that if the amount of indebtedness
secured by any such financing statement or Lien exceeds $_____________ in any
one instance, or $_______________ in the aggregate", is hereby amended by
deleting it in its entirety and inserting in lieu thereof, the following clause:
"but provided further, however, that if the amount of indebtedness secured by
any such financing statement or Lien exceeds $250,000 in any one instance, or
$750,000 in the aggregate".
<PAGE>
Release of Lien. Within one business day of the receipt by Powerine
from Wickland of the consideration for the crude oil and other commodities as
contemplated by the Agreement, Powerine shall pay all amounts due to American
Instrument Service Corporation ("American Instrument") and, as soon as possible
thereafter, cause American Instrument to release its liens on Powerine's assets.
6. Other Provisions. Except to the extent expressly modified hereby,
the remaining provisions of the Agreement shall remain in full force and effect.
Kindly acknowledge your agreement to the foregoing by signing this
letter where indicated below. This agreement will be effective when signed by
both parties.
Very truly yours,
Wickland Oil Company,
a California corporation
By: /s/ John W. Reho
------------------------------
Agreed:
Powerine Oil Company,
a California corporation
By: /s/ A. L. Gualtieri
----------------------------
<PAGE>
PAYOFF, LOAN AND PLEDGE AGREEMENT
PAYOFF, LOAN AND PLEDGE AGREEMENT, dated April 13, 1995, by
and among Powerine Oil Company, a California corporation ("Powerine"), CEC,
Inc., a Delaware corporation ("CEC"), Castle Energy Corporation, a Delaware
corporation ("Castle"), Metallgesellschaft Corp., a Delaware corporation ("MG
Corp."), MG Refining and Marketing, Inc., a Delaware corporation ("MGRM"), and
MG Trade Finance Corp., a Delaware corporation ("MGTF") (the "Payoff
Agreement").
In accordance with the terms of the Amended and Restated Loan
Agreement dated as of October 1, 1993 between MGTF and Powerine (as amended by
the First Amendment, dated as of October 14, 1994, the "Loan Agreement"; terms
not otherwise defined herein having the meanings set forth in the Loan
Agreement), all Obligations under the Loan Agreement (the "Powerine
Obligations") continue to be due and payable in full and are unpaid as of the
date hereof; Schedule I attached hereto lists the Powerine Obligations
outstanding as of the date hereof;
In consideration of the covenants and actions of MG Corp.,
MGRM and MGTF set forth in this Payoff Agreement, Powerine will pay in full all
outstanding Powerine Obligations under the Loan Agreement and terminate and
withdraw any demand to setoff amounts due under the Loan Agreement pursuant to
Section 10.9 thereof. Upon payment in full of the Powerine Obligations, MGTF
will terminate (i) all Liens it or its assigns may hold in the assets and equity
interests of Powerine with respect to the Powerine Obligations, (ii) all
obligations of Powerine under its guaranty, and (iii) the guaranty obligations
of Castle and Indian Refining Limited Partnership with respect to the Powerine
Obligations;
Powerine and MGRM were parties to a certain Offtake Agreement,
dated as of October 1, 1993, between Powerine and MGRM (as amended by the
Amendment dated as of October 14, 1994, the "Offtake Agreement");
Powerine and MGRM are in dispute with respect to claims
arising under or in connection with the Offtake Agreement as described on
Schedule II(a) attached hereto (the "Disputed Claims") and are also reserving
their right to dispute certain invoice(s) as described on Schedule II(b)
attached hereto (the "Disputed Invoice(s)") and Powerine is reserving its right
to recoup certain amounts delivered to Texas Commerce Bank as described on
Schedule II(c) attached hereto (the "TCB Claims");
<PAGE>
Powerine has asserted its rights to setoff the amounts of the
Disputed Claims. In return for this Agreement and other valuable consideration,
Powerine is rescinding its assertion of setoff, and each of the parties wish to
submit the Disputed Claims, and, if necessary, the Disputed Invoice(s) and TCB
Claims, to binding arbitration in accordance with the terms hereinafter set
forth;
CEC desires to receive and Powerine desires to assign outright
to CEC all right, title and interest Powerine has in and to the Disputed Claims
for at least $10,000,000 and Powerine desires to pay to MGTF the full amount of
the Powerine Obligations without offset for the amount of the Disputed Claims.
In addition, to the extent that the parties do not resolve issues relating to
the Disputed Invoice(s) and the TCB Claims by May 1, 1995, any unresolved issues
will be submitted to binding arbitration;
CEC is the holder of that certain promissory note, dated
October 14, 1994, in the principal amount of $10,000,000 made by MG Corp. and
payable to the order of Castle (the "Existing MG Note");
Metallgesellschaft AG ("MG AG") is a guarantor of the Existing
MG Note pursuant to that certain Guaranty, dated as of October 14, 1994,
executed by MG AG for the benefit of Castle (the "MG AG Guaranty");
MG Corp. wishes to make a loan to CEC in the principal amount
of $10,000,000, in consideration for, and subject to the conditions set forth,
in that certain promissory note of CEC dated the date hereof (the "CEC Note");
MG Corp. wishes to grant CEC certain rights of setoff against
the CEC Note and CEC wishes to grant to MG Corp. certain rights of setoff
against the Existing MG Note; and
The purpose of the parties hereto being to extinguish all
rights and obligations of the parties with respect to the Loan Agreement and the
Offtake Agreement except for the Disputed Claims, Disputed Invoice(s) and TCB
Claims and otherwise to extinguish all rights and obligations of the parties as
between them with respect to the business, affairs and financing of the Powerine
Refinery in Santa Fe Springs, California.
ACCORDINGLY, in consideration of the covenants and subject to
the conditions contained herein, the parties hereto hereby agree as follows, it
being the intent of the parties that all of the actions, payments and deliveries
provided for herein shall occur simultaneously upon the execution and delivery
hereof except as expressly otherwise provided:
1. Payoff and Termination of Loan Agreement. On the Effective
Date (as hereinafter defined in Section 12), Powerine shall pay to MGTF the
total sum as specified within Schedule III attached hereto in immediately
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<PAGE>
available funds by wire transfer in full satisfaction of the Powerine
Obligations, whereupon the Loan Agreement shall terminate as of the date hereof
and all rights and obligations of all of the parties thereto under the Loan
Agreement, to the extent not already terminated, shall be terminated. Powerine
hereby agrees that Powerine's assertion of a right of setoff in that certain
letter, dated as of April 4, 1995 and attached hereto as Exhibit A, is hereby
unconditionally terminated and withdrawn, provided, however, that this shall not
in any manner affect the rights of MGRM (and MG Corp. as MGRM's assignee
thereof) or Powerine (and CEC as Powerine's assignee thereof) with respect to
the Disputed Claims.
2. Release of Liens. On the Effective Date, all liens and
security interests in and to all of Powerine's assets granted to (i) MGTF in
connection with the Loan Agreement and (ii) MGRM in connection with the Offtake
Agreement, some of which have been assigned to Union Bank of Switzerland, as
collateral agent, ("UBS"), will be deemed fully and finally released. As of the
Effective Date, MGTF and MGRM hereby agree, and hereby agree to cause UBS, as
secured party of record, to execute and deliver to Powerine appropriate UCC-3
termination statements, mortgage releases and any other instruments or documents
prepared by Powerine that Powerine reasonably requests in order to effect the
releases described herein of record.
3. Return of Collateral. On the Effective Date, MGTF shall,
and shall cause UBS to, forthwith deliver to Powerine:
(a) the Amended and Restated Secured Promissory Note,
dated as of October 1, 1993, and the Allonge thereto, dated as of
October 14, 1994, both of which are to be marked cancelled;
(b) Stock Certificate #2 representing 1,000 shares of
common stock of Powerine Holding Corp. (together with its stock power);
(c) Stock Certificate #22 representing 3,330,885
shares of common stock of Powerine Oil Company (together with its stock
power);
(d) the Subordinated Offtake Note, dated October 1,
1993, in the principal amount of the lesser of $120,000,000 and the
outstanding balance of the Subordinated Offtake Debt (as defined in the
Offtake Agreement) made by Powerine and payable to the order of MGRM.
4. Termination of Certain Guaranty Obligations. As of the
Effective Date, MGTF for itself and on behalf of its affiliates and assigns, if
any, releases (i) Castle for any and all obligations it may have with respect to
the Powerine Obligations pursuant to that certain Amended and Restated Guaranty,
dated as of October 14, 1994, of Castle for the benefit of MGTF, (ii) Indian
Refining Limited Partnership, an Illinois limited partnership ("IRLP"), for
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<PAGE>
any and all obligations it may have with respect to the Powerine Obligations
pursuant to that certain Guaranty, dated as of October 14, 1994, of IRLP and
Powerine for the benefit of MGTF (the "Cross Guaranty"); and (iii) Powerine for
any and all obligations it may have under the Cross Guaranty. MGTF shall, and
shall cause its affiliates and assigns, if any, to, upon request of Castle or
IRLP, duly execute and deliver, or cause to be duly executed and delivered, such
further instruments and take and cause to be taken such further actions as may
be necessary or proper in the reasonable opinion of Castle, Powerine or IRLP to
carry out more effectually the provisions and purposes of this Section 4.
5. Submission to Arbitration; Powerine Award Amount. (a) MGTF
shall or shall, as provided in Section 12(iii)(e), instruct Texas Commerce Bank
to turn over and, if necessary, endorse or assign to Powerine all checks, sums,
cash or collections received on or after April 13, 1995, for deposit into Texas
Commerce Bank Account No. 00101438753, net of any such items which are returned
unpaid or uncollected for any reason, and bank charges related thereto. Powerine
shall repay to MGTF the amount of any such returned items and charges which are
not offset by subsequent collections. Any such amounts not turned over, endorsed
or assigned by MGTF to Powerine or not repaid by Powerine to MGTF constitute the
"the TCB Claims".
(b) As of the Effective Date, the parties agree to
submit the Disputed Claims to arbitration in accordance with the Rules
for Non-Administered Arbitration of Business Disputes and Commentary
(Amended 1993) of the Center for Public Resources, Inc. (the "Rules")
and use best efforts to bring such proceeding to a conclusion with
reasonable speed. The parties further agree that the Disputed Claims
shall be submitted to a sole arbitrator and that the parties shall
faithfully observe the Rules and shall abide by and perform any award
rendered by the arbitrator. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. ss. 1- 16, and judgment upon
the award may be entered by any court having jurisdiction thereof. In
addition, if issues relating to the Disputed Invoice(s) and the TCB
Claims have not been resolved by May 1, 1995, MGRM, MGTF, MG Corp.,
Castle, Powerine, and CEC agree to also submit such unresolved claims,
if any, relating to the Disputed Invoice(s) and/or the TCB Claims to
the same arbitration proceedings in accordance with this Section 5.
(c) The amount of the Disputed Claims, and, if
applicable, the Disputed Invoice(s) and/or the TCB Claims, shall be
arbitrated in a proceeding before an arbitrator selected from a panel
of neutrals (the "Panel") supplied by the Center for Public Resources,
Inc. ("CPR") from its National Panel. Within seven days from the date
the Panel is supplied to the parties, each party shall be permitted to
strike any Panel member for cause. Any Panel member residing or with an
office in New York, Pennsylvania, or Illinois shall automatically be
stricken. If, within fourteen days from the date the Panel is supplied
the parties cannot agree on an arbitrator from those names remaining
after strikes, the parties shall rank their preferences and submit them
to the CPR pursuant to its procedures. The CPR's selection of an
arbitrator shall be binding upon the parties.
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<PAGE>
(d) The arbitrator's fees shall be at his or her
normal hourly rate, and the arbitrator shall be reimbursed for all
reasonable out-of-pocket expenses. Each party shall pay 50% of the
arbitrator's fees and expenses on a schedule to be agreed among the
parties and the arbitrator. Except as provided in item 2 of Schedule
II(a), each party shall bear its own costs of the arbitration.
(e) The arbitration hearing shall take place in the
city where the arbitrator maintains his or her office unless the
parties shall otherwise agree.
(f) The parties shall attempt to agree on all
discovery and scheduling issues. In the event they cannot agree, their
disputes shall be presented to the arbitrator, whose decision shall be
final.
(g) The arbitrator's jurisdiction and authority shall
be limited to deciding whether (i) any amount of the Disputed Claims is
owed to Powerine, or CEC as assignee, or (ii) if necessary, whether any
net amount of the Disputed Invoice(s) or TCB Claims, respectively, is
owed to any party. The arbitrator shall decide that as to each of the
Disputed Claims, each of the Disputed Invoice(s) and each of the TCB
Claims, respectively, whether (i) the entire amount is owing, (ii) none
of the amount is owing, or (iii) a specific amount less than than the
entire amount is owing. The parties have already decided that, if any
amount(s) of the Disputed Claims or, if necessary, Disputed Invoice(s)
or TCB Claims, is owed to Powerine, CEC or Castle, in whole or in part,
Powerine, CEC, or Castle shall seek payment first by a setoff to the
amount due under the CEC Note, and second as a cash payment from MG
Corp., MGTF or MGRM. The arbitrator shall have no jurisdiction (i) to
review or alter this form of payment of the Powerine Award Amount, (ii)
to increase the Powerine Award Amount with respect to item 1 of
Schedule II(a) to an amount in excess of $10,700,000, or (iii) to
increase the Powerine Award Amount with respect to the Disputed
Invoice(s) or the TCB Claims to an amount in excess, in each case, of
the amounts of the Disputed Invoice(s) and the TCB Claims,
respectively.
(h) In reaching his or her decision, the arbitrator
shall apply the substantive laws, and not the conflict-of-laws
provisions, of the State of New York. The hearing shall be
stenographically recorded. Subject to item 2 of Schedule II(a), each of
the parties shall pay 50% of the stenographer's attendance fee, but
each party shall bear its own costs of ordering any transcripts.
Subject to item 2 of Schedule II(a), if the arbitrator requests a
transcript, each of the parties shall pay 50% of the cost.
(i) The aggregate amount, if any, awarded to
Powerine, CEC or Castle pursuant to the arbitration referred to in this
Section, together with interest thereon accruing at a rate of 8% per
annum from the date of this Payoff Agreement, is hereby referred to as
the "Powerine Award Amount" and the date of the arbitration decision
with respect to the Disputed Claims is hereby referred to as the
"Arbitration Award Date".
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<PAGE>
6. Assignment of Disputed Claims. On the Effective Date,
Powerine hereby assigns outright to CEC, for at least $10,000,000, all of
Powerine's right, title and interest in the Disputed Claims and the Powerine
Award Amount relating to the Disputed Claims.
7. Mutual Releases. On the Effective Date, the parties hereto
shall exchange absolute mutual releases in the form attached hereto as Exhibit B
(the "Releases").
8. The CEC Note. On the Effective Date, MG Corp. shall
advance, in immediately available funds by wire transfer, $10,000,000 to CEC as
a term loan, payable pursuant to the terms and conditions set forth in the CEC
Note attached hereto as Exhibit C and CEC shall execute and deliver the CEC Note
to MG Corp.
9. Amendment and Pledge of Existing MG Note. As collateral
security for the payment, performance and observance of the principal and
interest accrued under the CEC Note, on the Effective Date, (i) CEC, Castle, MG
Corp. and MGRM hereby agree to allonge the Existing MG Note with the Allonge
attached hereto as Exhibit D, and (ii) CEC shall grant a security interest in,
endorse, pledge, assign and deliver to MG Corp. (who shall, within five business
days, deliver the same to a collateral agent for MG Corp. with copies of the
applicable documents (which shall be reasonably satisfactory to Castle) to
Castle) the Existing MG Note and the MG AG Guaranty, and grant a security
interest to MG Corp. in all rights of CEC therein and all cash proceeds or
payments derived from either.
10. Setoff Against CEC Note; Payment of Amounts in Excess of
the CEC Note. (a) Each of MG Corp., MGRM, MGTF, Castle, CEC and Powerine consent
and agree that CEC, as the owner of all rights, title and interest of Powerine
in the Disputed Claims and, if necessary, the Disputed Invoice(s) and TCB
Claims, shall be deemed to have automatically on the Arbitration Award Date
setoff the amount of the Powerine Award Amount, if any, against amounts
outstanding under the CEC Note. Upon the automatic exercise of such setoff, the
obligation of MGRM, MGTF or MG Corp. to pay to Powerine, CEC or Castle the
Powerine Award Amount, if any, shall be deemed fulfilled up to the outstanding
amount of the CEC Note. Upon the effectuation of such setoff, CEC shall promptly
provide a written reconciliation to MG Corp. and MGRM of the setoff.
(b) Any amount of the Powerine Award Amount in excess
of the CEC Note shall become a joint and several obligation of MGRM,
MGTF and MG Corp. and shall be paid within five business days of the
Arbitration Award Date.
11. Setoff Against the Existing MG Note. Each of MG Corp.,
MGRM, MGTF, Castle, CEC and Powerine consent and agree that MG Corp. shall be
deemed to have automatically on the Arbitration Award Date (which shall also be
the maturity date under the CEC Note) setoff against amounts outstanding under
the Existing MG Note the full amount due and owing under the CEC Note
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<PAGE>
(after taking into account the application of the setoff by CEC, if any, as set
forth in Section 10 hereof). Upon the automatic exercise of such setoff, the
obligation of CEC to pay to MG Corp amounts outstanding under the CEC Note shall
be deemed fulfilled in full and the principal amount outstanding under the
Existing MG Note shall be deemed to be the original principal amount thereunder
as reduced by the setoff applied pursuant to this Section 11. Upon the
effectuation of such setoff, MG Corp. shall promptly provide a written
reconciliation to CEC and Powerine of the setoff.
12. Additional Conditions. This Payoff Agreement shall become
effective on the date and time (the "Effective Date") that the following
conditions precedent have been fulfilled: (i) the parties hereto shall have
received the payments, documents and deliveries provided for in this Payoff
Agreement (other than those expressly provided to be paid or delivered at a
later time); (ii) MG Corp., MGRM and MGTF shall have received on or before the
date hereof the following, each (unless otherwise indicated) dated such date, in
form and substance satisfactory to MG Corp., MGRM and MGTF:
(a) Certified copies of the resolutions of the Board of
Directors of each of Castle, CEC and Powerine approving the Payoff
Agreement, the Releases, and, in the case of Castle and CEC, the CEC
Note and Allonge, and certified copies of all documents evidencing
other necessary corporate action and governmental approvals, if any,
with respect to this Payoff Agreement, the Releases, and the CEC Note
and Allonge;
(b) An opinion of counsel from Jenner & Block, special counsel
to Castle, CEC and Powerine, with respect to the enforceability of this
Payoff Agreement, the CEC Note, the Allonge, the Releases delivered
herewith and certain other matters in the form attached hereto as
Exhibit E; and
(c) An acknowledgement by Wickland Oil Company to the
transactions contemplated hereby;
(iii) Castle, Powerine and CEC shall have received on
or before the date hereof the following, each (unless otherwise indicated) dated
such date, in form and substance satisfactory to Castle, Powerine and CEC:
(a) Certified copies of the resolutions of the Board of
Directors of each of MG Corp., MGRM and MGTF approving the Payoff
Agreement, the Releases, and, in the case of MG Corp., the CEC Note and
Allonge, and certified copies of all documents evidencing other
necessary corporate action and governmental approvals, if any, with
respect to this Payoff Agreement, the Releases, and the CEC Note and
Allonge;
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<PAGE>
(b) An opinion of counsel from Kaye, Scholer, Fierman, Hays &
Handler, counsel to MG Corp., MGRM and MGTF, with respect to the
enforceability of this Payoff Agreement, the Allonge, the Releases
delivered herewith and certain other matters in the form attached
hereto as Exhibit F;
(c) A consent by MG AG to the transactions contemplated herein
and a reaffirmation of the MG AG Guaranty;
(d) A consent by UBS to the actions contemplated by Sections 2
and 3 hereof; and
(e) Copy of a Letter directing Texas Commerce Bank to redirect
proceeds from Account No. 00101438753 in the name of MGTF to an account
in the name of Powerine.
13. Representations, Warranties and Covenants. Until the
occurrence of the Arbitration Award Date and the effectuation of the automatic
setoff herein, each of Castle, CEC and Powerine represents, warrants and
covenants that:
(a) the Existing MG Note is owned by CEC free and clear of all
claims, mortgages, pledges, liens, encumbrances and security interests of every
nature whatsoever, except in favor of MG Corp. pursuant to this Payoff
Agreement;
(b) neither Castle nor CEC will sell, transfer, assign or
pledge any right, title or interest in, or grant a security interest in, the
Existing MG Note or CEC Note to any person other than MG Corp.;
(c) CEC has not engaged, and will not engage, in any business
other than the holding of passive investment assets;
(d) CEC is not subject to any claims, mortgages, pledges,
liens, encumbrances, or security interests, other than the pledge herein on the
Existing MG Note, on or against any of its assets, and CEC will not grant or
permit any lien, security interest or other charge or other encumbrance upon or
with respect to any of its assets other than the pledge herein; after giving
effect to the transactions contemplated hereby, CEC has no creditors other than
MG Corp.
(e) each of Castle, CEC and Powerine is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the corporate power and authority to
own its properties and to transact the business in which it is engaged;
(f) each of Castle, CEC and Powerine has the corporate power
and authority to execute and deliver, and to perform its obligations under, this
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Payoff Agreement, and has taken all necessary corporate action to authorize the
execution, delivery and performance of this Payoff Agreement;
(g) this Payoff Agreement constitutes the legal, valid and
binding obligation of each of Castle, CEC and Powerine, enforceable in
accordance with its terms;
(h) the execution, delivery and performance of this Payoff
Agreement will not violate any law or regulation, or any order or decree of any
court or governmental instrumentality, or any provision of the charter or
by-laws of, or any securities issued by, any of Castle, CEC or Powerine, and
will not conflict with, or result in the breach of, or constitute a default
under, any indenture, mortgage, deed of trust, agreement or other instrument to
which Castle, CEC or Powerine is a party or by which it is bound; and
(i) except for reporting requirements applicable to Castle
under the Securities Exchange Act of 1934, no consent of any other person
(including, without limitation, stockholders and creditors of any of Castle, CEC
or Powerine) and no consent, license, permit, approval or authorization of,
exemption by, notice or report to, or registration, filing or declaration with,
any governmental instrumentality is required in connection with the execution,
delivery, performance, validity or enforceability of this Payoff Agreement.
14. Representations, Warranties and Covenants. Until the
occurrence of the Arbitration Award Date and the effectuation of the automatic
setoff herein, each of MG Corp., MGTF and MGRM represents, warrants and
covenants that:
(a) after giving effect to the transactions contemplated
herein, the CEC Note is owned by MG Corp. free and clear of all claims,
mortgages, pledges, liens, encumbrances and security interests of every nature
whatsoever, except claims relating to setoff by CEC pursuant to this Payoff
Agreement;
(b) MG Corp. will not sell, transfer, assign or pledge any
right, title or interest in, or grant a security interest in, the Existing MG
Note or the CEC Note to any person, except that MG Corp. may pledge the CEC
Note, subject to the provisions of this Agreement, to the collateral trustee for
MG Corp.'s bank lenders;
(c) each of MG Corp., MGTF and MGRM is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the corporate power and authority to
own its properties and to transact the business in which it is engaged;
(d) each of MG Corp., MGTF and MGRM has the corporate power
and authority to execute and deliver, and to perform its obligations under, this
Payoff Agreement, and has taken all necessary corporate action to authorize
-9-
<PAGE>
the execution, delivery and performance of this Payoff Agreement;
(e) MG AG is an Aktiengesellschaft duly organized, validly
existing and in good standing under the laws of the Federal Republic of Germany
with full corporate power and authority to execute and deliver its consent and
reaffirmation of the MG AG Guaranty. All corporate action necessary in order for
the consent and reaffirmation delivered hereunder to be valid and binding
agreements of MG AG, and enforceable against MG AG, has been taken by MG AG, and
the consent and reaffirmation constitute or will constitute valid and binding
obligations of MG AG, enforceable against MG AG in accordance with their
respective terms;
(f) this Payoff Agreement constitutes the legal, valid and
binding obligation of each of MG Corp., MGTF and MGRM, enforceable in accordance
with its terms;
(g) the execution, delivery and performance of this Payoff
Agreement will not violate any law or regulation, or any order or decree of any
court or governmental instrumentality, or any provision of the charter or
by-laws of, or any securities issued by, any of MG Corp., MGTF and MGRM, and
will not conflict with, or result in the breach of, or constitute a default
under, any indenture, mortgage, deed of trust, agreement or other instrument to
which MG Corp., MGTF and MGRM is a party or by which it is bound; and
(h) except for reporting requirements under the Securities
Exchange Act of 1934, no consent of any other person (including, without
limitation, stockholders and creditors of any of MG Corp., MGTF and MGRM) and no
consent, license, permit, approval or authorization of, exemption by, notice or
report to, or registration, filing or declaration with, any governmental
instrumentality is required in connection with the execution, delivery,
performance, validity or enforceability of this Payoff Agreement.
15. Further Assurances. (a) Each of Powerine, CEC and Castle
shall, upon request of MG Corp., MGTF or MGRM, duly execute and deliver, or
cause to be duly executed and delivered, such further instruments and take and
cause to be taken such further actions as may be necessary or proper in the
reasonable opinion of MG Corp., MGTF or MGRM to carry out more effectually the
provisions and purposes of this Payoff Agreement.
(b) Each of MG Corp. MGTF and MGRM shall, upon request of
Powerine, CEC or Castle duly execute and deliver, or cause to be duly executed
and delivered, such further instruments and take and cause to be taken such
further actions as may be necessary or proper in the reasonable opinion of
Powerine, CEC or Castle to carry out more effectually the provisions and
purposes of this Payoff Agreement.
-10-
<PAGE>
16. Return of Existing MG Note. Upon payment in full of all
amounts due under the CEC Note, CEC shall be entitled to the return of the
Existing MG Note (as the principal amount of such Existing MG Note may have been
reduced by the setoff rights set forth in Section 11 hereof) and such return
will be effectuated either by instructions to the collateral agent within five
Business Days or delivery of the CEC Note within five Business Days, provided,
however, that if the Existing MG Note is offset in full pursuant to Section 11,
MG Corp. will mark the Existing MG Note cancelled and retain it.
17. Notices. All notices and other communications to any party
hereunder shall be in writing and shall be personally delivered or sent by
certified mail, postage prepaid, return receipt requested, or by a reputable
courier delivery service or by prepaid telex or telecopy and shall be given to
the address or telex or telecopier number for such party set forth below such
party's signature to this Payoff Agreement, or to such other address or telex or
telecopier number as such party may hereafter specify by notice to the other
party. Each such notice or other communication shall be effective (a) if given
by telex or telecopier, when such telex or telecopy is transmitted to the telex
or telecopier number specified by this Section and the appropriate answerback or
confirmation is received, (b) if given by certified mail, 72 hours after such
communication is deposited with the post office, addressed as aforesaid or (c)
if given by any other means (including, without limitation, by courier), when
delivered at the address specified by this Section.
18. Amendments and Waivers. No amendment or waiver of any
provision of this Payoff Agreement shall in any event be effective unless the
same shall be in writing and signed by all parties hereto.
19. Survival. All representations and warranties made in this
Payoff Agreement and in any document or statement delivered pursuant hereto or
in connection herewith shall survive the execution and delivery of this Payoff
Agreement.
20. Governing Law. This Payoff Agreement and the rights and
obligations of each of Powerine, Castle, CEC, MG Corp., MGRM and MGTF hereunder
shall be construed in accordance with and governed by the law of the State of
New York (without giving effect to the conflict of law principles thereof).
21. Submission to Jurisdiction. (a) EXCEPT FOR THE ARBITRATION
PROCEDURE SET FORTH IN SECTION 5 HEREOF, ANY LEGAL ACTION OR PROCEEDING WITH
RESPECT TO THIS PAYOFF AGREEMENT MAY BE BROUGHT SOLELY IN THE COURTS OF THE
STATE OF NEW YORK, THE STATE OF CALIFORNIA OR OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF NEW YORK OR FOR THE CENTRAL DISTRICT OF CALIFORNIA,
AND, BY EXECUTION AND DELIVERY OF THIS PAYOFF AGREEMENT, EACH OF POWERINE,
-11-
<PAGE>
CEC, CASTLE, MG CORP., MGTF AND MGRM HEREBY ACCEPTS FOR THEMSELVES AND IN
RESPECT OF THEIR PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS. EACH OF POWERINE, CEC, CASTLE, MG CORP.,
MGTF AND MGRM HEREBY IRREVOCABLY WAIVE, IN CONNECTION WITH ANY SUCH ACTION OR
PROCEEDING, (I) TRIAL BY JURY, (II) ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND (III) THE RIGHT
TO INTERPOSE ANY SETOFF, COUNTERCLAIM OR CROSS-CLAIM WHICH WOULD INTERFERE WITH
THE SETOFF PROCEDURE AS SET FORTH IN SECTIONS 10 AND 11.
(b) Each of the parties hereto irrevocably consents to the
service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by certified mail, postage prepaid
at its address determined pursuant to Section 17 hereof.
22. Binding Effect. This Payoff Agreement shall be binding
upon and inure to the benefit of Powerine, CEC, Castle, MG Corp., MGTF and MGRM
and their respective successors and permitted assigns; none of the parties
hereto shall have the right to assign any of their respective rights or
obligations except as expressly provided or permitted herein.
23. Execution in Counterparts. This Payoff Agreement may be
executed in any number of counterparts and by the different parties hereto on
separate counterparts, each of which when so executed and delivered shall be
deemed an original and all of which shall together constitute one and the same
agreement.
24. Integration. This Payoff Agreement and the documents
delivered hereunder and herewith contain a final and complete integration of all
prior expressions by the parties hereto with respect to the subject matter
hereof and shall constitute the entire agreement among the parties hereto with
respect to the subject matter hereof, superseding all prior oral and written
understandings.
25. Captions. The captions of the sections of this Payoff
Agreement have been inserted for convenience only and shall not in any way
affect the meaning or construction of any provision of this Payoff Agreement.
-12-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Payoff Agreement to be duly executed by its respective officers duly authorized
as of the day and year first above written.
POWERINE OIL COMPANY
By: /s/ Henry Del Castillo
----------------------------------
Title: Chief Financial Officer
---------------------------------
12354 Lakeland Road
Santa Fe Springs, CA 90670-9883
Att'n: William S. Sudhaus
Telefax: (310) 946-1615
CEC, INC.
By: /s/ Joseph L. Castle II
--------------------------------
Title: President
---------------------------------
c/o Duane, Morris & Heckscher
1201 Market Street, Suite 1500
Wilmington, DE 19801
Telefax: (302) 571-5560
CASTLE ENERGY CORPORATION
By: /s/ Joseph L. Castle II
---------------------------------
Title: Chief Executive Officer
---------------------------------
One Matsonford Road
Radnor, PA 19087
Telefax: (610) 995-2477
-13-
<PAGE>
METALLGESELLSCHAFT CORP.
By: /s/ Arthur G. Taylor
-----------------------------------------------
Title: Executive Vice President and General Counsel
---------------------------------------------
520 Madison Avenue
New York, New York 10022
Att'n: Arthur G. Taylor, Esq.
Telefax: (212) 826-9042
MG TRADE FINANCE CORP.
By: /s/ Andre Guenoun
---------------------------------
Title: Vice President and Secretary
-------------------------------
520 Madison Avenue
New York, New York 10022
Att'n: Arthur G. Taylor, Esq.
Telefax: (212) 826-9042
MG REFINING AND MARKETING, INC.
By: /s/ Thomas A. McKeever
---------------------------------------
Title: Chairman and Chief Executive Officer
-------------------------------------
520 Madison Avenue
New York, New York 10022
Att'n: Arthur G. Taylor, Esq.
Telefax: (212) 826-9042
-14-
<PAGE>
PROMISSORY NOTE
$10,000,000 New York, New York
April 13, 1995
FOR VALUE RECEIVED, CEC, Inc., a Delaware corporation (the
"Debtor"), hereby promises to pay to Metallgesellschaft Corp., a Delaware
corporation (the "Payee"), at 520 Madison Avenue, New York, New York 10022, or
at such other place as the Payee may from time to time designate, the principal
sum of Ten Million Dollars ($10,000,000) on the "Arbitration Award Date" as
defined in the Payoff Agreement referred to below. On the Arbitration Award
Date, Debtor shall pay interest at said office or place from the date hereof on
the unpaid principal balance hereof at a rate of 8.0% per annum.
This Note is issued pursuant to, and is subject to, that
certain Payoff, Loan and Pledge Agreement (the "Payoff Agreement") dated April
13, 1995 among the Debtor, the Payee, Castle Energy Corporation, Powerine Oil
Company, MG Trade Finance Corp. and MG Refining and Marketing, Inc. Capitalized
terms used in this Note without definition shall have the meanings given to them
in the Payoff Agreement.
On the Arbitration Award Date all amounts owing under this
Note are immediately and automatically due and payable, whereupon the maturity
of the then unpaid balance hereof shall be accelerated and the same, together
with all interest accrued hereon, shall forthwith become due and payable in
full, without presentment, demand, protest or any notice of any kind, all of
which are hereby expressly waived by the Debtor.
The Debtor may, at its option, at any time and from time to
time, prepay all or any part of the principal balance of this Note, without
penalty or premium, provided that concurrently with each such prepayment the
Debtor shall pay accrued interest on the principal so prepaid to the date of
such prepayment.
As collateral security for the payment, performance and
observance of the principal and interest accrued under this Note, Debtor has
endorsed, pledged and delivered to Payee and granted to Payee a security
interest in the that certain Promissory Note, dated October 14, 1994, executed
by Metallgesellschaft Corp. in the amount of $10,000,000 in favor of Castle
Energy Corporation and assigned pursuant to an Assignment Agreement, dated as of
October 14, 1994, to Debtor (the "Existing MG Note"). THE PAYEE'S ONLY RECOURSE
ON THIS NOTE IS THROUGH EXERCISE OF SETOFF RIGHTS WITH RESPECT TO THE EXISTING
MG NOTE, AS MORE FULLY DESCRIBED IN THE PAYOFF AGREEMENT, AND AGAINST THE
PLEDGED COLLATERAL. ALL OTHER OBLIGATIONS OF DEBTOR ARE NON-RECOURSE TO THE
ASSETS OF DEBTOR.
On the Arbitration Award Date, the Debtor shall immediately
and automatically, with no further action or notice, be deemed to have setoff
against any amounts due and owing hereunder the full amount of the Powerine
Award Amount, if any, which shall be deemed to be satisfaction in full of the
obligation of MGRM or MG Corp. to pay the Powerine Award Amount. Following the
effectuation of such setoff by the Debtor, any amounts remaining due and payable
hereunder shall be deemed to be setoff by the Payee immediately and
<PAGE>
automatically, with no further action or notice, on the Arbitration Award
Date against any amounts owing, if any, to the Debtor by the Payee under the
Existing MG Note.
This Note may not be transferred, assigned or pledged in any
manner by the Debtor. This Note may not be changed, modified or terminated
orally, but only by an agreement in writing signed by the party to be charged.
This Note and the rights and duties of the parties hereto
shall be governed by and construed in accordance with the substantive laws of
the State of New York, without regard to principles of conflicts or choice of
law.
ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO THIS NOTE SHALL BE
INSTITUTED EXCLUSIVELY IN THE COURTS OF THE STATE OF DELAWARE, OR (IF IT HAS
JURISDICTION) THE UNITED STATES DISTRICT COURT SITTING FOR THE DISTRICT OF
DELAWARE, AND BY EXECUTION AND DELIVERY OF THIS NOTE, THE DEBTOR HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE
PERSONAL JURISDICTION OF EACH SUCH COURT. IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS NOTE, THE DEBTOR IRREVOCABLY AND
UNCONDITIONALLY WAIVES (I) ANY OBJECTION TO THE PROPRIETY OF JURISDICTION,
SERVICE OF PROCESS OR VENUE IN ANY OF SUCH COURTS, (II) ANY RIGHT TO A JURY
TRIAL, AND (III) ANY CLAIM THAT ANY ACTION OR PROCEEDING BROUGHT IN ANY OF SUCH
COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
DEBTOR: CEC, INC.
By: /s/ Joseph L. Castle II
----------------------------------
Name: Joseph L. Castle II
Title: Chairman and Chief Executive Officer
AGREED AS TO SETOFF PROVISIONS
SET FORTH IN THE SIXTH PARAGRAPH
HEREOF:
MG REFINING AND MARKETING, INC.
By: /s/ Thomas A. McKeever
----------------------------
<PAGE>
METALLGESELLSCHAFT CORP.
By: /s/ Arthur G. Taylor
-----------------------------
POWERINE OIL COMPANY
By: /s/ Henry Del Castillo
<PAGE>
May 10, 1995
Mr. John D.R. Wright, III
264 Fox Hollow Drive
Vincennes, IN 47591
Dear John:
This letter confirms our mutual agreement that, effective April 1, 1995,
your "base salary" from the Castle Energy group of companies will be reduced by
15 percent from its present level. The reduction will remain in effect until the
first to occur of (in each case, a "Restoration Event") (i) the day prior to the
date of closing of any sale or other disposition (whether by stock, partnership
interest or asset transfer, merger or otherwise) of the Indian Refinery in
Lawrenceville, Illinois, (ii) the day prior to the date any "WARN Act" notice is
issued with respect to the Indian Refinery, (iii) the date of commencement of
any general "shut down" or operation discontinuance with respect the Indian
Refinery, (iv) the day prior to the date any bankruptcy event occurs with
respect to the Indian Refinery or Indian Refining Limited Partnership, (v) the
day of any breach of your employment contract by Castle Energy Corporation or
any of its subsidiaries, or (vi) December 31, 1995. Prior to the occurrence of a
Restoration Event, your base salary (as so reduced) will be increased by any
applicable percentage cost of living adjustment to which you become entitled by
reason of any employment contract obligation. Upon the occurrence of a subject
triggering Restoration Event, your base salary will again be placed at its
current level (increased by any cost of living adjustments to which you become
entitled by reason of any employment contract obligation).
Further, upon the first occurrence of a Restoration Event (unless the
subject Restoration Event is a sale or disposition of the Indian Refinery to
CORE Refining Corp. ("CORE") and CORE enters into an employment agreement with
you within 30 days of the subject Restoration Event), the aggregate amount of
the reduction in your base salary pursuant to this letter agreement during the
period prior to the subject Restoration Event will be reimbursed to you in a
lump sum payment (net of applicable tax and other withholding) within 20 days
after the subject triggering Restoration Event. Castle Energy Corporation hereby
guarantees the full and prompt payment of the lump sum amount set forth in the
immediately preceding sentence and all other amounts due under your employment
agreement.
<PAGE>
Except as expressly set forth in this letter, any employment rights
(whether contractual or otherwise) which you may currently have remain
unmodified and in full force and effect.
CASTLE ENERGY
CORPORATION
By /s/ Joseph L. Castle, II
----------------------------
Its Chairman
and CEO
Accepted and agreed as of
the date first set forth above.
/s/ John D.R. Wright, III
------------------------------
John D.R. Wright, III
<PAGE>
May 10, 1995
Mr. William S. Sudhaus
606 Pugh Road
Strafford, PA 19087
Dear Bill:
This letter confirms our mutual agreement that, effective April 1, 1995,
your "base salary" from the Castle Energy group of companies will be reduced by
15 percent from its present level. The reduction will remain in effect until the
first to occur of (in each case, a "Restoration Event") (i) the day prior to the
date of closing of any sale or other disposition (whether by stock, partnership
interest or asset transfer, merger or otherwise) of the Indian Refinery in
Lawrenceville, Illinois, (ii) the day prior to the date any "WARN Act" notice is
issued with respect to the Indian Refinery, (iii) the date of commencement of
any general "shut down" or operation discontinuance with respect the Indian
Refinery, (iv) the day prior to the date any bankruptcy event occurs with
respect to the Indian Refinery or Indian Refining Limited Partnership, (v) the
day of any breach of your employment contract by Castle Energy Corporation or
any of its subsidiaries, or (vi) December 31, 1995. Prior to the occurrence of a
Restoration Event, your base salary (as so reduced) will be increased by any
applicable percentage cost of living adjustment to which you become entitled by
reason of any employment contract obligation. Upon the occurrence of a subject
triggering Restoration Event, your base salary will again be placed at its
current level (increased by any cost of living adjustments to which you become
entitled by reason of any employment contract obligation).
Further, upon the first occurrence of a Restoration Event (unless the
subject Restoration Event is a sale or disposition of the Indian Refinery to
CORE Refining Corp. ("CORE") and CORE enters into an employment agreement with
you within 30 days of the subject Restoration Event), the aggregate amount of
the reduction in your base salary pursuant to this letter agreement during the
period prior to the subject Restoration Event will be reimbursed to you in a
lump sum payment (net of applicable tax and other withholding) within 20 days
after the subject triggering Restoration Event. Castle Energy Corporation hereby
guarantees the full and prompt payment of the lump sum amount set forth in the
immediately preceding sentence and all other amounts due under your employment
agreement.
<PAGE>
Except as expressly set forth in this letter, any employment rights
(whether contractual or otherwise) which you may currently have remain
unmodified and in full force and effect.
CASTLE ENERGY
CORPORATION
By /s/ Joseph L. Castle, II
-------------------------
Its Chairman
and CEO
Accepted and agreed as of
the date first set forth above.
\s\ William S. Sudhaus
--------------------------
William S. Sudhaus
<PAGE>
PAYOFF AGREEMENT
PAYOFF AGREEMENT, dated May 25, 1995 (the "Payoff Agreement"), by and among
Indian Refining Limited Partnership, an Illinois limited partnership ("IRLP"),
Indian Refining & Marketing Inc., an Illinois corporation ("IRMI"), Castle
Energy Corporation, a Delaware corporation ("Castle"), Indian Powerine L.P., an
Illinois limited partnership ("IPLP"), Metallgesellschaft Corp., a Delaware
corporation ("MG Corp."), MG Refining and Marketing, Inc., a Delaware
corporation ("MGRM"), and MG Trade Finance Corp., a Delaware corporation
("MGTF"). IRLP, IRMI, Castle and IPLP are collectively referred to herein as the
"Castle Parties," and MG Corp., MGRM and MGTF are collectively referred to
herein as the "MG Parties."
The parties hereto desire to resolve their respective obligations under and
in connection with (i) the Amended and Restated Revolving Loan and Security
Agreement, dated as of May 27, 1993, among IRLP, IRMI, and MGTF (the "Loan
Agreement"), (ii) the Amended and Restated Offtake Agreement, dated as of
October 1, 1993 (as amended, the "Offtake Agreement") between MGRM and IRLP,
(iii) the Amended and Restated Guaranty dated as of October 14, 1994 (as
amended, the "Guaranty") executed by Castle for the benefit of MGTF, (iv) the
Support Agreement dated as of May 27, 1993 executed by MG Corp. in favor of IRLP
(the "MG Corp. Support Agreement"), and (v) the Support Agreement dated as of
May 27, 1993 executed by Metallgesellschaft AG ("MGAG") in favor of IRLP (the
"MGAG Support Agreement") (the Loan Agreement, the Offtake Agreement, the
Guaranty, the MG Corp. Support Agreement and the MGAG Support Agreement together
with all promissory notes and guarantees related thereto and all exhibits and
schedules attached thereto and all security granted in connection therewith, are
collectively referred to as the "Documents").
ACCORDINGLY, in consideration of the covenants and subject to the
conditions contained herein, the parties hereto hereby agree as follows, it
being the intent of the parties that all of the actions, payments, and
deliveries provided for herein shall occur simultaneously upon the execution and
delivery hereof except as expressly otherwise provided:
1. Payoff and Termination of Loan Agreement and other Documents. On the
date hereof, IRLP shall pay (on or before 4:00 p.m. New York City time) to MGTF
the sum of $18,166,765.65 in immediately available funds by wire transfer in
full satisfaction of the Obligations (as defined in the Loan Agreement), and
upon such payment, the Loan Agreement and the other Documents, to the extent not
already terminated, shall terminate as of the date hereof and all rights and
obligations of all of the parties thereto under the Loan Agreement and the other
Documents, to the extent not already terminated, shall be terminated.
2. Release of Liens. On the date hereof, all liens and security interests
in and to all of IRLP's and IPLP's assets granted to any MG Party in connection
<PAGE>
with the Documents, some of which have been assigned to Union Bank of
Switzerland, as collateral agent ("UBS"), will be deemed fully and finally
released. As of the date hereof, the MG Parties hereby agree, and hereby agree
to cause UBS, as secured party of record, to execute and deliver to IRLP or
IPLP, as applicable, the appropriate UCC-3 termination statements, mortgage
releases, and any other instruments or documents prepared by IRLP or IPLP that
IRLP or IPLP reasonably requests, and take and cause to be taken such further
actions as may be necessary or proper in the reasonable opinion of IRLP (the
form of such instruments, documents and/or actions to be subject to the review
and approval of the applicable MG Party, such approval not to be unreasonably
withheld or delayed.
3. Return of Collateral. On the date hereof, the appropriate MG Parties
shall, and shall cause UBS to, forthwith deliver to IRLP and IPLP Collateral
under the Documents and other evidences of release, including without
limitation, as set forth on Schedule I attached hereto.
4. Further Assurances. (a) Each of the Castle Parties shall, upon the
reasonable request of the MG Parties and MGAG, duly execute and deliver, or
cause to be duly executed and delivered, such further instruments prepared by an
MG Party and take and cause to be taken such further actions as may be necessary
or proper in the reasonable opinion of the MG Parties and MGAG (the form of such
instruments and/or actions to be subject to the review and approval of the
applicable Castle Party, such approval not to be unreasonably withheld) to carry
out more effectually the provisions and purposes of this Payoff Agreement.
(b) Each of the MG Parties and MGAG shall, upon the reasonable request of
the Castle Parties, duly execute and deliver, or cause to be duly executed and
delivered, such further instruments prepared by a Castle Party and take and
cause to be taken such further actions as may be necessary or proper in the
reasonable opinion of the Castle Parties (the form of such instruments and/or
actions to be subject to the review and approval of the applicable MG Party,
such approval not to be unreasonably withheld) to carry out more effectually the
provisions and purposes of this Payoff Agreement. Without limiting the
generality of the foregoing, not more than five business days after the date
hereof, MGTF and the applicable Castle Party shall execute and file stipulations
discontinuing and dismissing with prejudice the cases captioned MG Trade Finance
Corp. v. Indian Refining Limited Partnership, no. 108181/95 (Supreme Court of
the State of New York, New York County) and MG Trade Finance Corp. v. Castle
Energy Corporation, no. 95 C 04001 (Superior Court of the State of Delaware, New
Castle County).
5. Notices. All notices and other communications to any party hereunder
shall be in writing and shall be personally delivered or sent by certified mail,
-2-
<PAGE>
postage prepaid, return receipt requested, or by a reputable courier
delivery service or by prepaid telex or telecopy and shall be given to the
address or telex or telecopier number for such party set forth below such
party's signature to this Payoff Agreement, or to such other address or telex or
telecopier number as such party may hereafter specify by notice to the other
party. Each such notice or other communication shall be effective (a) if given
by telex or telecopier, when such telex or telecopy is transmitted to the telex
or telecopier number specified by this Section and the appropriate answerback or
confirmation is received, (b) if given by certified mail, 72 hours after such
communication is deposited with the post office, addressed as aforesaid or
(c) if given by any other means (including, without limitation, by courier),
when delivered at the address specified by this Section.
6. Amendments and Waivers. No amendment or waiver of any provision of this
Payoff Agreement shall in any event be effective unless the same shall be in
writing and signed by all parties hereto.
7. Binding Effect. This Payoff Agreement shall be binding upon and inure to
the benefit of the Castle Parties and the MG Parties and their respective
successors and permitted assigns; none of the parties hereto shall have the
right to assign any of their respective rights or obligations except as
expressly provided or permitted herein.
8. Execution in Counterparts. This Payoff Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which shall together constitute one and the same agreement.
9. Integration. This Payoff Agreement and the documents delivered hereunder
and herewith contain a final and complete integration of all prior expressions
by the parties hereto with respect to the subject matter hereof and shall
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof, superseding all prior oral and written understandings.
10. Captions. The captions of the sections of this Payoff Agreement have
been inserted for convenience only and shall not in any way affect the meaning
or construction of any provision of this Payoff Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Payoff
Agreement to be duly executed by its respective officers duly authorized as of
the day and year first above written.
INDIAN REFINING LIMITED PARTNERSHIP
BY INDIAN REFINING & MARKETING INC.,
ITS GENERAL PARTNER
By: /s/ William S. Sudhaus
--------------------------------------------
Title: Chief Executive Officer
---------------------------------------
South Seventh Street
Lawrenceville, IL 62439
Attention: William S. Sudhaus
Telefax: (618) 943-4180
INDIAN REFINING & MARKETING INC.
By: /s/ William S. Sudhaus
--------------------------------------------
Title: Chief Executive Officer
---------------------------------------
South Seventh Street
Lawrenceville, IL 62439
Attention: William S. Sudhaus
Telefax: (618) 943-4180
CASTLE ENERGY CORPORATION
By: /s/ Joseph L. Castle, II
--------------------------------------------
Title: Chief Executive Officer
---------------------------------------
One Matsonford Road
Radnor, PA 19087
Telefax: (610) 995-0409
-4-
<PAGE>
INDIAN POWERINE LIMITED PARTNERSHIP
BY IP OIL CO., ITS GENERAL PARTNER
By: /s/ William S. Sudhaus
--------------------------------------------
Title: Chief Executive Officer
---------------------------------------
1331 Lamar, Suite 1331
Houston, TX 77010
Telefax: (713) 650-8303
METALLGESELLSCHAFT CORP.
By: /s/ Marcelo Parra
---------------------------------------------
Title: Sr. Vice President and Treasurer
----------------------------------------
520 Madison Avenue
New York, New York 10022
Attention: Arthur G. Taylor, Esq.
Telefax: (212) 826-9042
MG TRADE FINANCE CORP.
By: /s/ Joseph P. Gallagher
---------------------------------------------
Title: Vice President
----------------------------------------
520 Madison Avenue
New York, New York 10022
Attention: Arthur G. Taylor, Esq.
Telefax: (212) 826-9042
MG REFINING AND MARKETING, INC.
By: /s/ Marcelo Parra
---------------------------------------------
Title: Vice President
----------------------------------------
520 Madison Avenue
New York, New York 10022
Attention: Arthur G. Taylor, Esq.
Telefax: (212) 826-9042
-5-
<PAGE>
STOCK AND ASSET PURCHASE AGREEMENT
AMONG
CORE REFINING CORPORATION
AND
CASTLE ENERGY CORPORATION,
INDIAN REFINING & MARKETING INC.,
INDIAN REFINING LIMITED PARTNERSHIP,
IP OIL CO., INDIAN POWERINE L.P., AND
INDIAN OIL COMPANY
MAY 25, 1995
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TABLE OF CONTENTS
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I. DEFINITIONS............................................................................................ 2
1.1 Definitions................................................................................... 2
II. SALE OF STOCK AND ASSETS............................................................................... 11
2.1 Sale of Stock................................................................................. 11
2.2 Sale of Assets................................................................................ 11
2.3 Assumption of Liabilities..................................................................... 12
2.4 "As Is" and "Where Is"........................................................................ 13
III. PURCHASE PRICE......................................................................................... 13
3.1 Payment of Purchase Price..................................................................... 13
3.2 Allocation of Purchase Price.................................................................. 16
3.3 Royalty Payments.............................................................................. 16
IV. REPRESENTATIONS AND WARRANTIES OF THE SELLERS.......................................................... 17
4.1 Organization and Good Standing................................................................ 17
4.2 Authorization; Enforceability................................................................. 18
4.3 Consents and Approvals........................................................................ 18
4.4 No Violation.................................................................................. 18
4.5 Acquired Corporations......................................................................... 18
4.6 Purchased Assets.............................................................................. 18
4.7 Compliance With Laws.......................................................................... 18
4.8 Employee Relations and Employee Benefit Plans; ERISA.......................................... 19
4.9 Financial Condition........................................................................... 22
4.10 Taxes......................................................................................... 22
4.11 Insurance..................................................................................... 24
4.12 No Broker..................................................................................... 24
4.13 No Undisclosed Liabilities.................................................................... 24
4.14 Proxy Statement............................................................................... 24
V. REPRESENTATIONS AND WARRANTIES OF THE CORE OBLIGORS.................................................... 24
5.1 Organization and Good Standing................................................................ 24
5.2 Authorization; Enforceability................................................................. 24
5.3 Consents and Approvals........................................................................ 25
5.4 No Violation.................................................................................. 25
5.5 No Broker..................................................................................... 25
5.6 Subsequent Sale............................................................................... 25
5.7 Proxy Statement Information................................................................... 25
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VI. TAX MATTERS............................................................................................ 26
6.1 Access to Information......................................................................... 26
6.2 Tax Indemnification........................................................................... 26
6.3 Transfer Taxes................................................................................ 26
6.4 Post-Closing Audits and Other Proceedings..................................................... 27
6.5 Certain Consolidated Return Matters........................................................... 27
VII. COVENANTS OF SELLERS................................................................................... 27
7.1 Access to Information......................................................................... 27
7.2 Actions Prior to Closing Date................................................................. 28
7.3 Stockholder Approval.......................................................................... 30
7.4 Consents and Approvals........................................................................ 30
7.5 Ability to Shop............................................................................... 30
7.6 Confidentiality............................................................................... 30
7.7 Insurance..................................................................................... 31
7.8 Names......................................................................................... 31
7.9 Transfer of Retirement Plans.................................................................. 31
7.10 Transfer of Welfare Benefit Contracts and Welfare Benefit Claims.............................. 31
7.11 DB Plan Funding............................................................................... 32
7.12 Intercompany Indebtedness..................................................................... 32
7.13 Commercially Reasonable Efforts; Cooperation.................................................. 32
VIII. COVENANTS OF THE CORE OBLIGORS......................................................................... 32
8.1 Financing..................................................................................... 32
8.2 Consents and Approvals........................................................................ 32
8.3 Confidentiality............................................................................... 32
8.4 Transfer of Retirement Plans.................................................................. 33
8.5 Proxy Statement Information................................................................... 33
8.6 Commercially Reasonable Efforts; Cooperation.................................................. 33
8.7 Shell Contract................................................................................ 34
8.8 CORE Subsidiaries............................................................................. 34
8.9 Waivers, Releases, and Resignations........................................................... 34
IX. CONDITIONS TO OBLIGATIONS OF BUYER..................................................................... 34
9.1 Truth of Representations and Warranties....................................................... 34
9.2 Compliance with Covenants..................................................................... 35
9.3 Absence of Suit............................................................................... 35
9.4 Receipt of Consents and Approvals............................................................. 35
9.5 Proceedings and Instruments Satisfactory; Certificates........................................ 35
9.6 Financing..................................................................................... 35
9.7 Intercompany Indebtedness..................................................................... 35
9.8 Minimum Preliminary Closing Adjustment........................................................ 35
9.9 Deliveries at Closing......................................................................... 35
9.10 No Material Adverse Change.................................................................... 35
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9.11 Stockholder Approval.......................................................................... 35
9.12 Release of Liens.............................................................................. 35
9.13 Insurance..................................................................................... 35
X. CONDITIONS TO OBLIGATIONS OF THE SELLERS............................................................... 35
10.1 Truth of Representations and Warranties....................................................... 36
10.2 Compliance with Covenants..................................................................... 36
10.3 Absence of Suit............................................................................... 36
10.4 Receipt of Consents and Approvals............................................................. 36
10.5 Proceedings and Instruments Satisfactory; Certificates........................................ 36
10.6 Financing..................................................................................... 36
10.7 Stockholder Approval.......................................................................... 36
10.8 Intercompany Indebtedness..................................................................... 36
10.9 Fairness Opinion.............................................................................. 36
10.10 Release of Liens and Interim Financing........................................................ 36
10.11 Minimum Preliminary Closing Adjustment........................................................ 36
10.12 Deliveries at Closing......................................................................... 36
XI. INDEMNIFICATION........................................................................................ 37
11.1 Requirement of Indemnification................................................................ 37
11.2 Procedures Relating to Indemnification........................................................ 37
11.3 Defense of Third-Party Claim.................................................................. 38
11.4 Payment....................................................................................... 38
11.5 Limitation on Indemnification................................................................. 39
11.6 Bulk Transfer Laws............................................................................ 40
XII. CLOSING................................................................................................ 40
12.1 Time and Place................................................................................ 40
12.2 Items to be Delivered by the Sellers.......................................................... 40
12.3 Items to be Delivered by Buyer................................................................ 41
XIII. TERMINATION............................................................................................ 42
13.1 Termination................................................................................... 42
13.2 Effect of Termination......................................................................... 43
XIV. AMENDMENT AND WAIVER................................................................................... 43
14.1 Amendment..................................................................................... 43
14.2 Extension; Waiver............................................................................. 43
XV. MISCELLANEOUS.......................................................................................... 44
15.1 Notices....................................................................................... 44
15.2 Expenses...................................................................................... 45
15.3 Governing Law................................................................................. 45
15.4 Successors and Assigns........................................................................ 45
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15.5 Partial Invalidity............................................................................ 46
15.6 Execution in Counterparts..................................................................... 46
15.7 Titles and Headings........................................................................... 46
15.8 Entire Agreement.............................................................................. 46
15.9 Announcements................................................................................. 46
15.10 Construction.................................................................................. 46
15.11 Jurisdiction.................................................................................. 46
15.12 Further Actions............................................................................... 47
15.13 Shell Litigation.............................................................................. 47
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STOCK AND ASSET PURCHASE AGREEMENT
STOCK AND ASSET PURCHASE AGREEMENT (the "Purchase Agreement"), dated
May 25, 1995, among CASTLE ENERGY CORPORATION, a Delaware corporation
("Castle"); 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, and
INDIAN OIL COMPANY, an Illinois corporation (collectively, the "Asset Sellers");
and CORE REFINING CORPORATION, a Delaware corporation ("CORE").
WITNESSETH:
WHEREAS, Castle owns directly or indirectly all of the issued and
outstanding capital stock or partnership interests of each of the Asset Sellers;
and
WHEREAS, Castle also owns, beneficially and of record, all of the
outstanding capital stock of each of Castle Energy Canada Ltd., a Delaware
corporation, and Castle Refining Company, a Delaware corporation (collectively,
the "Acquired Parents"); and
WHEREAS, Castle Refining Company owns, directly or indirectly, all of
the outstanding capital stock of Indian Refining Company, a Delaware corporation
(the "Acquired Subsidiary"); and
WHEREAS, Castle and the Asset Sellers wish to sell to Buyer (as
hereinafter defined) and Buyer wishes to purchase from the Asset Sellers all of
the assets of the Asset Sellers (other than partnership interests in the Asset
Sellers and certain other assets specified herein) upon the terms and conditions
hereinafter set forth; and
WHEREAS, Castle wishes to sell to Buyer and Buyer wishes to purchase
from Castle all of the capital stock of each of the Acquired Parents upon the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements set forth herein, and intending to be legally
bound, Castle, the Asset Sellers, and CORE hereby agree as follows:
<PAGE>
I. DEFINITIONS
Section 1.1 Definitions. When used in this Purchase Agreement, the
following words or phrases have the following meanings:
"Acquired Corporations" means the Acquired Parents and the Acquired
Subsidiary.
"Acquired Parents" has the meaning set forth in the preamble hereto.
"Acquired Shares" means the shares of outstanding capital stock of the
Acquired Parents.
"Acquired Subsidiary" has the meaning set forth in the preamble hereto.
"Adjusted Royalty Payments" shall mean (i) the Royalty Payments which
would be made by the Buyer as provided in Section 3.1 if Shell performs in full
under the Shell Contract after giving effect to any modification of the Shell
Contract resulting from any settlement of the Shell Litigation plus (ii) any
other payments the Buyer agrees in writing to make to Castle as compensation for
any reduction in the Royalty Payments.
"Arbitrator" shall mean the arbitrator appointed in accordance with
Section 3.1(d).
"Affiliate" shall mean a Person that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with another Person or beneficially owns or has the power to vote or
direct the vote of 50% or more of any class of voting stock or of any form of
voting equity interest of such other Person in the case of a Person that is not
a corporation. For purposes of this definition, "control," including the terms
"controlling" and "controlled," means the power to direct or cause the direction
of the management and policies of a Person, directly or indirectly, whether
through the ownership of securities or partnership or other ownership interests,
by contract or otherwise.
"Allocation Schedule" shall have the meaning set forth in Section 3.2
hereof.
"Asset Sellers" shall have the meaning set forth in the preamble
hereto.
"Assets" shall mean all rights, titles, franchises, and interests in
and to every species of property, real, personal, and mixed, tangible and
intangible, including, without limitation, cash and cash equivalents,
receivables, real property, together with buildings, structures, and the
improvements thereon, fixtures contained therein and appurtenances thereto, and
easements and other rights relating thereto, machinery, equipment, furniture,
fixtures, leasehold improvements, vehicles, and other assets or property,
leases, licenses, permits, approvals, authorizations, joint venture agreements,
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<PAGE>
contracts or commitments, whether written or oral, processes, trade secrets,
know-how, computer software, computer programs and source codes, protected
formulae, all other Intellectual Property, goodwill, prepaid expenses, records,
files, invoices, claims and privileges, and any other assets whatsoever.
"Assumed Liabilities" shall have the meaning set forth in Section 2.3
hereof.
"Balance Sheet" shall have the meaning set forth in Section 4.9 hereof.
"Balance Sheet Date" shall have the meaning set forth in Section 4.9
hereof.
"Buyer" shall mean (i) CORE and (ii) if and after CORE assigns to a
Subsidiary CORE's rights to purchase the Purchased Assets as permitted pursuant
to Section 15.4, such Subsidiary.
"Buyer Indemnities" shall mean Buyer, the CORE Subsidiaries, and their
respective officers, directors, employees, counsel, agents, investment bankers,
accountants, and Affiliates.
"Capital Expenditure Amount" shall equal the amount of Capital
Expenditures during the period from June 1, 1995 through the Closing Date.
"Capital Expenditures" shall mean any costs incurred by the Castle
Subsidiaries (a) that constitute capital expenditures in accordance with GAAP or
(b) for turn-around costs (excluding IRLP's turn-around costs for labor and
supplies).
"Castle" shall have the meaning set forth in the preamble hereto.
"Castle Employees" shall have the meaning set forth in Section 7.9
hereof.
"Castle Entities" shall mean, collectively, Castle, the Asset Sellers,
the Acquired Parents, and the Acquired Subsidiary.
"Castle Plan" shall have the meaning set forth in Section 7.9 hereof.
"Castle Subsidiaries" shall mean, collectively, IRLP, IOC, Indian
Refining & Marketing Inc., an Illinois corporation, IP Oil Co., an Illinois
corporation, Indian Powerine L.P., an Illinois limited partnership, Castle
Energy Canada Ltd., a Delaware corporation, Castle Refining Company, a Delaware
corporation, and Indian Refining Company, a Delaware corporation.
"Closing" and "Closing Date" shall have the respective meanings set
forth in Section 12.1 hereof.
"Closing Adjustment" shall equal the sum of the Net Working Capital
Amount and the Capital Expenditure Amount. The Closing Adjustment may be a
positive or negative amount.
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"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Consent Events" shall have the meaning set forth in Section 15.13.
"Consolidated Group" shall have the meaning set forth in Section 4.10.
"Contract" shall mean a contract, indenture, bond, note, mortgage, deed
of trust, lease, agreement or commitment, whether written or oral.
"CORE" shall have the meaning set forth in the preamble hereto.
"CORE Obligors" shall mean CORE and the CORE Subsidiaries.
"CORE Obligor Agreement" shall have the meaning set forth in Section
8.8.
"CORE Subsidiaries" shall mean all present and future, direct or
indirect, Subsidiaries of CORE.
"Damages" shall mean losses, costs, liabilities, reasonable expenses,
or other damages (including, without limitation, reasonable attorneys' fees and
expenses and any and all reasonable expenses whatsoever incurred in
investigating, preparing, or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation).
"DB Plan" shall have the meaning set forth in Section 7.9 hereof.
"DB Plan and Trust" shall have the meaning set forth in Section 7.9
hereof.
"Debt Financing" shall mean the entry by one or more CORE Obligors into
debt financing in an aggregate amount of not less than $175 million, to consist
of (i) approximately $75 million of first mortgage notes and (ii) an
approximately $100 million revolving credit facility secured by working capital,
on terms no less favorable to such CORE Obligors than the terms set forth in the
"highly confident" and commitment letters, respectively, attached as Exhibit 1.
"Employees" shall have the meaning set forth in Section 4.8 hereof.
"Environmental Claim" shall mean any claim by a Person alleging actual
or potential Liability of the Castle Subsidiaries, or of any other Seller
Indemnitee relating to the businesses of the Castle Subsidiaries, for any
investigatory cost, cleanup cost, governmental response cost, natural resources
damage, property damage, personal injury, or penalty, arising out of, based on,
or resulting from (a) the presence, transport, disposal, discharge, or release
of any Materials of Environmental Concern at any location, whether or not owned
by Castle or any of the Castle Subsidiaries, as the case may be, or
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(b) circumstances forming the basis of any violation or alleged violation of any
Environmental Law.
"Environmental Law" shall mean all Laws relating to pollution or
protection of human health or the environment, including, without limitation,
ambient air, surface water, ground water, land surface, or subsurface strata,
and including, without limitation, Laws relating to emissions, discharges,
releases or threatened releases, or the presence of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, existence, treatment, storage, disposal, transport, recycling, reporting,
or handling of Materials of Environmental Concern.
"Equity Financing" shall mean the issuance and sale by CORE of not less
than $16.5 million of equity securities.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to Castle, any trade or
business that together with Castle or any of the Castle Subsidiaries would be
deemed a "single employer" within the meaning of Section 4001(a)(14) of ERISA.
"Escrow" shall mean an escrow of funds made on or before the date
hereof by prospective purchasers of the Equity Financing, the terms of which (i)
provide that such funds shall be released to consummate the Equity Financing
upon and subject only to the consummation of the Debt Financing and the
Transactions and (ii) are reasonably acceptable to Castle.
"Fairness Opinion" shall have the meaning set forth in Section 10.9.
"Financing" shall mean the Debt Financing and the Equity Financing.
"GAAP" shall mean United States generally accepted accounting
principles consistently applied.
"Governmental Entity" shall mean a court, legislature, governmental
agency, commission, or administrative or regulatory authority or
instrumentality, domestic or foreign, including but not limited to the SEC.
"Indian Benefit Plans" shall have the meaning set forth in Section
4.8(c) hereof.
5
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"Interim Financing" shall mean the financing pursuant to the agreements
entered into on the date hereof among Castle, IOC, IRLP, BT Commercial
Corporation, MeesPierson N.V., and such other lenders as may be party thereto.
"Intellectual Property" shall mean marks, names, trademarks, service
marks, patents, patent rights, assumed names, logos, copyrights, trade names,
inventions, protected formulae, processes, proprietary information, trade
secrets, computer software, as well as related documentation and manuals, all
applications for registration of such items with any Governmental Entity, and
all licenses and research and development relating thereto.
"IOC" shall mean Indian Oil Company, an Illinois corporation.
"IOC Note" shall mean a note issued by IOC to IRLP in connection with
the Interim Financing.
"IRLP" shall mean Indian Refining Limited Partnership, an Illinois
limited partnership.
"IRS" shall mean the Internal Revenue Service.
"Issuer" shall mean the issuer of the first mortgage notes which will
comprise a portion of the Debt Financing.
"Knowledge" of or with respect to (a) any individual shall mean the
actual knowledge of such individual and any knowledge such individual reasonably
should have had under the circumstances; (b) Sellers shall mean the Knowledge of
the individuals listed on Schedule 4; and (c) any CORE Obligor shall mean the
Knowledge of the individuals listed on Schedule 5.
"Law" shall mean a law, ordinance, rule, or regulation enacted or
promulgated, or an Order issued or rendered, by any Governmental Entity.
"Liability" shall mean a liability, obligation, claim, or cause of
action of any kind or nature whatsoever, whether absolute, accrued, contingent,
or other and whether known or unknown.
"License" shall mean a license, certificate of authority, permit, or
other authorization to transact an activity or business or to use an asset or
process issued or granted by a Governmental Entity.
"Lien" shall mean a lien, mortgage, deed to secure debt, pledge,
security interest, lease, sublease, charge, levy, or other encumbrance of any
kind.
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"Litigation Expenses" shall mean all out-of-pocket expenses, including
reasonable legal fees, incurred in investigating, preparing, prosecuting,
defending, or negotiating the settlement of the Shell Litigation.
"Materials of Environmental Concern" shall mean chemicals, pollutants,
contaminants, wastes, toxic or hazardous substances, petroleum, petroleum
additives, petroleum intermediates, and petroleum products.
"MG Entities" shall have the meaning set forth in the Settlement
Agreement dated as of August 31, 1994 among the MG Entities and the Castle
Entities (as defined therein).
"Multiemployer Plan" means a "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA.
"Net Working Capital Amount" shall equal the amount of the current
assets of the Castle Subsidiaries as of the Closing Date (as determined in
accordance with GAAP except as modified by Schedule 3.1 attached hereto) minus
the amount of the current liabilities of the Castle Subsidiaries as of the
Closing Date (as determined in accordance with GAAP except as modified by
Schedule 3.1 attached hereto). The Net Working Capital Amount may be a positive
or negative amount.
"Non-Adjusted Royalty Payments" shall mean the Royalty Payments which
would be made by the Buyer as provided in Section 3.1 if Shell performs in full
under the Shell Contract without giving effect to any modification of the Shell
Contract resulting from any settlement of the Shell Litigation or any
modification of the Shell Contract entered into in accordance with Section 8.7.
"Notes" shall mean the Notes to be delivered by the Issuer in the form
attached to this Purchase Agreement as Exhibit 3.1, except as the terms of such
form are superseded by the summary of terms attached thereto.
"Order" shall mean an order, writ, ruling, judgment, injunction or
decree of, or any stipulation to or agreement with, any arbitrator, mediator, or
Governmental Entity.
"Partnerships" means IRLP and Indian Powerine L.P., an Illinois limited
partnership.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permitted Liens" shall mean (i) carriers', warehousemen's, mechanics',
repairmen's, and similar Liens arising in the ordinary course of business, (ii)
pledges or deposits under workers' compensation, unemployment insurance, and
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other similar Laws, and (iii) easements, rights-of-way, restrictions, zoning
restrictions, and other similar encumbrances on or minor imperfections in title
to real property which do not materially detract from the value or use thereof.
"Person" shall mean an individual, corporation, partnership, limited
liability company, association, joint stock company, Governmental Entity,
business trust, unincorporated organization, or other legal entity.
"Preliminary Closing Adjustment" shall equal the sum of the Preliminary
Net Working Capital Amount and the Preliminary Capital Expenditure Amount. The
Preliminary Closing Adjustment may be a positive or negative amount.
"Preliminary Capital Expenditure Amount" shall equal Castle's good
faith estimate on the Closing Date of the Capital Expenditure Amount.
"Preliminary Net Working Capital Amount" shall equal Castle's good
faith estimate on the Closing Date of the Net Working Capital Amount.
"Proxy Statement" shall mean the proxy statement of Castle relating to
the Stockholder Meeting, and any supplement or amendment thereto.
"Purchase Agreement" shall have the meaning set forth in the preamble
hereto.
"Purchase Price" shall have the meaning set forth in Section 3.1
hereof.
"Purchased Assets" shall have the meaning set forth in Section 2.2
hereof.
"Qualified Plan" shall have the meaning set forth in Section 4.8
hereof.
"Refinery" shall mean the Indian Refinery located in Lawrenceville,
Illinois.
"Required Amount" shall have the meaning set forth in Section 15.13.
"Required Filings and Approvals" of a party shall mean any filing of
this Agreement with and the approval of such by all Governmental Entities and
such other applications, registrations, declarations, filings, authorizations,
Orders, consents, and approvals as may be required to be made or obtained by
such party from any Person prior to consummation of the Transactions.
"Relevant Group" shall have the meaning set forth in Section 4.10.
"Royalty Payments" shall have the meaning set forth in Section 3.3.
"Royalty Rate" shall mean a dollar amount determined as of the date
which is six months after the Closing Date by dividing $20 million by the number
of barrels of Caroline condensate remaining to be delivered after such date by
Shell under the terms of the Shell Contract.
8
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"SEC" shall mean the Securities and Exchange Commission.
"Seller Indemnities" shall mean the Sellers, any present or future
parent or Subsidiary of the Sellers, and their respective officers, directors,
employees, counsel, agents, investment bankers, accountants, and Affiliates.
"Sellers" shall mean Castle and the Asset Sellers.
"Settlement Arbitrator" shall mean the arbitrator appointed in
accordance with Section 15.13.
"Shares" shall mean the issued and outstanding shares of capital stock
of the Acquired Corporations.
"Shell" shall mean Shell Canada Limited, a Canadian corporation, and
its wholly owned Subsidiary Salmon Resources Ltd., a Wyoming corporation.
"Shell Contract" shall mean the Long Term Supply Agreement, dated as of
November 1, 1992, as amended, among Shell, IRLP, Indian Refining & Marketing
Inc., and MG Refining and Marketing, Inc.
"Shell Litigation" shall mean (i) the litigation commenced by Shell in
the United States District Court for the Northern District of Illinois,
captioned Salmon Resources Ltd. and Shell Canada Limited v. MG Refining and
Marketing, Inc., Indian Refining Limited Partnership, and Indian Refining &
Marketing, Inc., (ii) any other litigation which may be brought raising similar
claims or requesting similar relief, and (iii) any counter-claims or
cross-claims relating to any litigation referred to in clause (i) or (ii).
"Shell Pre-Closing Claims" shall mean any claims which have been or may
be asserted in the Shell Litigation with respect to the pricing of products
delivered by Shell under the Shell Contract prior to the Closing Date.
"Shell Reduction" shall mean the excess of the present value of the
Non-Adjusted Royalty Payments over the present value of the Adjusted Royalty
Payments, determined as provided in Section 15.13.
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"Stockholder Meeting" shall mean a meeting of stockholders of Castle at
which the Transactions (or a plan to dispose of certain of Castle's assets,
pursuant to the Transactions or otherwise) will be submitted for approval by
such stockholders.
"Subsidiary" of any Person shall mean any other corporation,
partnership, or other entity of which such Person, directly or through
Subsidiaries, owns shares of capital stock or partnership or other equity
interests which either (i) represent at least 50% of the common equity of such
entity or (ii) entitle such Person to cast at least a majority of the votes
entitled to be cast generally upon election of directors or other similar
governing body.
"Sudhaus" shall mean William S. Sudhaus.
"Takeover Proposal" shall mean any proposal, other than as contemplated
by this Purchase Agreement, for the acquisition of the Refinery, whether through
a merger, consolidation, reorganization, other business combination,
recapitalization, acquisition of any shares of capital stock or Assets, or
otherwise.
"Tax" shall mean any Federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, motor fuel, environmental, capital stock, franchise,
profits, gains, withholding, social security, unemployment, disability, real
property, personal property, sales, use, rental, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
"Tax Return" shall mean any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto or amendment thereof.
"Termination Date" shall mean July 31, 1995; provided, that if, on or
before July 31, 1995, CORE shall give notice to Castle that the Issuer has
commenced marketing the first mortgage notes that comprise a portion of the Debt
Financing and that CORE reasonably believes it can obtain the Financing and
consummate the Closing on or before August 15, 1995, the Termination Date shall
be extended to August 15, 1995.
"Title IV Plan" shall have the meaning set forth in Section 4.8 hereof.
"Third Party Claim" shall have the meaning as set forth in Section
11.2.
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"Transactions" shall mean the transactions contemplated by the Purchase
Agreement other than the Financing.
"Treasury Regulations" shall mean the regulations promulgated by the
Secretary of the Treasury pursuant to the Code and any predecessor and successor
thereto.
"401(k) Plan" shall have the meaning set forth in Section 7.9 hereof.
"401(k) Plan and Trust" shall have the meaning set forth in Section 7.9
hereof.
II. SALE OF STOCK AND ASSETS
Section 2.1 Sale of Stock. Subject to the terms and conditions of this
Purchase Agreement, on the Closing Date Castle will, by appropriate instruments
of transfer, sell, transfer, and convey to Buyer, and Buyer will purchase from
Castle, all of the Acquired Shares, as listed on Schedule 2.1 attached hereto,
free and clear of all Liens, other than any Liens arising from acts of any CORE
Obligor.
Section 2.2 Sale of Assets. (a) Subject to the terms and conditions of
this Purchase Agreement, on the Closing Date the Asset Sellers will sell,
transfer, and convey to Buyer, and Buyer will purchase from the Asset Sellers,
by appropriate instruments of transfer, all of the Assets of the Asset Sellers
as of the Closing Date, including without limitation the Assets described on
Schedule 2.2 attached hereto (the "Purchased Assets"), provided that the
Purchased Assets shall not include (i) the partnership interests in the Asset
Sellers, (ii) any receivables of the Asset Sellers from Castle or any of its
Affiliates, (iii) the Assets relating exclusively to Powerine Holding Corp., a
Delaware corporation, Powerine Oil Company, a California corporation, and Anglo
Petroleum Corporation, a Delaware corporation, (iv) the IOC Note, and (v) such
other assets as are indicated as excluded assets on Schedule 2.2 attached
hereto. Buyer will purchase the Purchased Assets free and clear of all Liens,
other than (vi) those disclosed on Schedule 2.2 attached hereto, (vii) the
Assumed Liabilities, (viii) Permitted Liens, and (ix) any Liens arising from
acts of the CORE Obligors.
(b) To the extent that the assignment by the Asset Sellers to
Buyer of any Contract to be assigned to Buyer hereunder shall require the
consent of a party other than a Castle Entity which has not been obtained by the
Closing, this Purchase Agreement shall not constitute an agreement to assign
such Contract unless and until such consent is obtained. Until such time as the
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Sellers are able to obtain a consent required with respect to any Contract, such
Contract shall not be included in the Purchased Assets and the Sellers shall use
their commercially reasonable efforts to obtain a consent or enter into an
arrangement to provide to Buyer, without the Sellers incurring any expense, the
benefits under such Contract.
Section 2.3 Assumption of Liabilities. Subject to the terms and
conditions of this Purchase Agreement, on the Closing Date the Buyer shall, by
appropriate instruments, assume all of the Liabilities of each of the Asset
Sellers (the "Assumed Liabilities"), including without limitation all such
Liabilities relating to any Environmental Claims, provided that the Assumed
Liabilities shall not include, and Buyer shall have no responsibility for, (a)
Liabilities arising under the partnership agreement of any Partnership to the
partners of such Partnership or to such Partnership, (b) the IOC Note or any
other Liabilities to Castle or any of its Affiliates other than Liabilities
arising under the Compliance Cost Agreement dated April 10, 1990 between IRLP
and Indian Refining Company, (c) Liabilities relating to Assets owned by Sellers
at the Closing but not included in the Purchased Assets, (d) any Liabilities to
the extent Sellers are insured therefor under policies which are not part of the
Purchased Assets nor owned by the Acquired Corporations, (e) such other
Liabilities as are set forth in Schedule 2.3 attached hereto, (f) except for the
amount of Taxes which are included as current liabilities for purposes of the
calculation of the Net Working Capital Amount and except as expressly provided
in Section 6.3, Liabilities for Taxes of Castle, the Asset Sellers, any of their
respective Affiliates or the Consolidated Group or any Relevant Group of which
one or more of the Castle Entities is or was a member, including without
limitation any liability for Taxes of any such Castle Entity as a withholding
agent or transferee, or a Liability for Taxes arising by contract or otherwise,
(g) Liabilities of the Sellers arising under this Agreement, (h) Liabilities for
any indebtedness for borrowed money or indebtedness evidenced by notes, bonds,
debentures or similar instruments, (i) Liabilities for guaranteeing, endorsing
or otherwise becoming liable or responsible for any indebtedness, lease
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or other obligation of Castle or any of its Affiliates other than the Asset
Sellers and the Acquired Corporations, (j) Liabilities relating to the business
or operations of Castle or any of its Subsidiaries not related to the refining
operations of the Refinery, and (k) except as expressly provided herein,
Liabilities relating to the business or operations of Powerine Oil Company, a
California corporation, Powerine Holding Corp., a Delaware corporation, or Anglo
Petroleum Corporation, a Delaware corporation; provided further that no
Liability shall be excluded from the Assumed Liabilities pursuant to clause (d)
unless and until the applicable insurer acknowledges coverage or coverage is
determined by a final judgment of a competent judicial body, which judgment is
not subject to appeal.
Section 2.4 "As Is" and "Where Is". Buyer shall acquire the Purchased
Assets, the Shares, and, indirectly, the Assets of the Acquired Corporations "AS
IS" AND "WHERE IS," EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES IN ARTICLE IV
HEREOF, AND ANY AND ALL OTHER REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE
PURCHASED ASSETS, SHARES, AND SUCH OTHER ASSETS, WHETHER EXPRESS OR IMPLIED, ARE
HEREBY DISCLAIMED INCLUDING ANY REPRESENTATIONS OR WARRANTIES AS TO
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
III. PURCHASE PRICE
Section 3.1 Payment of Purchase Price. (a) The purchase price to be
paid by Buyer for the Acquired Shares and Purchased Assets shall be (i) $1.00,
which shall be paid at Closing to Castle, plus (ii) the Closing Adjustment,
payable to or by Castle for its account and the account of the Asset Sellers in
accordance with Sections 3.1(b) and 3.1(c)(iii), plus (iii) the Royalty
Payments, which shall be paid in accordance with Section 3.3 hereof (the
aggregate of such amounts being the "Purchase Price"). All amounts payable in
cash hereunder shall be paid by wire transfer of immediately available funds.
(b) If the Preliminary Closing Adjustment is a positive
number, such amount shall be paid by delivery by Buyer to Castle at the Closing
of (i) Notes in the principal amount and as otherwise hereinafter provided and
(ii) cash equal to the excess, if any, of the Preliminary Closing Adjustment
over the aggregate principal amount of Notes so delivered. If the Preliminary
Closing Adjustment is a negative number, the absolute value of such amount shall
be paid, in cash, by Castle to Buyer at the Closing.
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(c) The Notes shall be in the form set forth as Exhibit 3.1
hereto and in an aggregate principal amount of $5.5 million. The Notes shall be
executed by the Issuer and shall be payable to such of the Sellers and in such
denominations as Castle shall specify.
(d)(i) Castle shall instruct Caleb Brett to conduct a physical
inventory of the hydrocarbon inventory at the Refinery and any other location
where the Castle Subsidiaries store inventory as of the Closing Date, following
the procedures customarily performed by such firm in connection with the
year-end audit of the Refinery. Castle and Buyer shall each have the right, at
its expense, to have its representatives observe the taking of the physical
inventory. Not more than 15 days after the Closing Date, Caleb Brett shall
report the results of its physical inventory to Castle and Buyer, which report
shall be conclusive and binding as to physical quantities on all parties to this
Purchase Agreement and the Arbitrator, if any, for purposes of determining the
Closing Adjustment.
(ii) If Castle and Buyer shall not have reached written
agreement as to the Closing Adjustment prior to the 60th calendar day after the
Closing Date, then either Buyer or Castle may by notice to the other submit for
determination by arbitration in accordance with this Section 3.1(d) the question
of the amount of the Closing Adjustment to be determined in accordance with the
provisions of this Agreement. The determination by arbitration shall be made by
Deloitte & Touche (or, if Deloitte & Touche shall be unwilling or unable to
serve, such other big six accounting firm on which the parties shall agree),
provided that the Arbitrator shall not be the auditor for any of the parties
hereto. Any such determination made by such Arbitrator shall be conclusive and
binding on all parties to this Purchase Agreement. Within 15 days after the
submission of such dispute to the Arbitrator (or, if later, the selection of the
Arbitrator), Castle and Buyer shall each submit in writing to the Arbitrator,
with a copy to the other party, a proposed Closing Adjustment, together with the
reasons therefor. Within seven days of receipt of the other party's proposal,
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Castle and Buyer may each submit in writing to the Arbitrator, with a copy to
the other party, arguments rebutting the other party's proposed Closing
Adjustment. The Closing Adjustment shall be determined by the Arbitrator in
accordance with the provisions of this Purchase Agreement and not be higher than
the higher of the proposed Closing Adjustments or lower than the lower of the
proposed Closing Adjustments. The Arbitrator shall render his decision within 45
days after submission of the proposed Closing Adjustments by Buyer and Castle.
Notwithstanding the foregoing, if the difference between the proposed Closing
Adjustments shall be less than $100,000, the Closing Adjustment shall be the
average of the proposed Closing Adjustments and the arbitration procedure shall
not be followed.
(iii) Promptly, but in any event not more than 21 days, after
determination of the Closing Adjustment, whether by agreement of the parties, by
action of the Arbitrator, or pursuant to the last sentence of Section
3.1(d)(ii), any applicable adjusting payment shall be made in accordance with
this Section 3.1. If the Closing Adjustment minus the Preliminary Closing
Adjustment is a positive amount, such amount shall be paid, in cash, by Buyer to
Castle. If the Closing Adjustment minus the Preliminary Closing Adjustment is a
negative amount, the absolute value of such amount shall be paid, in cash, by
Castle to Buyer. In either case, such payment shall be accompanied by simple
interest on the entire adjusting payment at the rate of interest from time to
time announced publicly by Citibank, N.A. as its prime rate for the period from
the Closing Date to and until the date of payment.
(iv) The fee of the Arbitrator for any determination under
this Section 3.1(d) shall be shared as follows: Buyer shall bear that portion of
such fee equal to the total fee multiplied by a fraction, the denominator of
which shall be the difference between the Closing Adjustment as initially
proposed to the Arbitrator by Castle and the Closing Adjustment as initially
proposed to the Arbitrator by Buyer, and the numerator of which shall be the
difference between the Closing Adjustment as determined by the Arbitrator and
the Closing Adjustment as initially proposed by Buyer. Castle shall bear that
portion of such fee equal to the total fee multiplied by a fraction, the
denominator of which shall be the difference between the Closing Adjustment as
initially proposed to the Arbitrator by Castle and the Closing Adjustment as
initially proposed to the Arbitrator by Buyer, and the numerator of which shall
be the difference between the Closing Adjustment as determined by the Arbitrator
and the Closing Adjustment as initially proposed by Castle.
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(v) Nothing herein shall be construed (A) to authorize or
permit the Arbitrator to arbitrate or determine any question or matter whatever
under or in connection with this Agreement except the specific items in dispute
between the parties with respect to the amount of the Closing Adjustment to be
determined in accordance with the provisions of this Purchase Agreement or (B)
to require the Arbitrator to follow the rules of the American Arbitration
Association or any other body in making such determination.
Section 3.2 Allocation of Purchase Price. The Purchase Price shall be
allocated as follows: (a) the Closing Adjustment shall be allocated to the
components thereof; (b) the Royalty Payment shall be allocated to the Shell
Contract; and (c) the remainder of the Purchase Price shall be allocated to all
the other Assets acquired by Buyer hereunder. All Tax Returns and other reports
to Governmental Entities filed by Castle or Buyer or any of their respective
Affiliates insofar as they involve an allocation of the Purchase Price pursuant
to this Purchase Agreement shall be based upon and be consistent with the
provisions of this Section 3.2.
Section 3.3 Royalty Payments. From and after the Closing Date, Buyer
shall make royalty payments to Castle in an amount equal to the Royalty Rate
multiplied by the number of barrels of Caroline condensate delivered by Shell
pursuant to the Shell Contract during the applicable royalty period (the
"Royalty Payments"); provided, however, that Royalty Payments shall not in any
event exceed $20 million in the aggregate; and provided, further, that no
Royalty Payment shall be payable on any Caroline condensate delivered by Shell
during the first six months after the Closing Date. As soon as practicable
following the end of the six-month period commencing on the Closing Date, Buyer
shall deliver to Castle a statement setting forth the Royalty Rate and the
calculation thereof. Royalty Payments shall be payable by Buyer to Castle (a) on
the 20th business day following the end of the first 12 months after the Closing
Date, for all Caroline condensate delivered during the period from the end of
the first six months following the Closing Date to the end of the first 12
months following the Closing Date, and (b) thereafter, monthly in arrears, on or
before the 20th business day after the end of each month. Buyer shall furnish to
Castle, together with each Royalty Payment, documentation verifying the number
of barrels of Caroline condensate delivered by Shell during the month for which
payment is made. Late payments shall bear simple interest at a rate equal to the
lesser of (i) the one-year LIBOR rate of interest in effect from time to time
plus 4% and (ii) the maximum rate allowed by law, for the period from the due
date to and until the date of payment. For the purpose of verifying the Royalty
Rate and the Buyer's calculations of Royalty Payments, Castle shall have the
right, upon reasonable notice to Buyer and during Buyer's normal business hours,
to have its representatives audit Buyer's records with respect to the Shell
Contract and such deliveries.
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IV. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers jointly and severally represent and warrant to Buyer as
follows, subject to and qualified by any fact or facts disclosed in this
Purchase Agreement or the Schedules hereto (it being understood that
representations relating specifically to Castle do not relate to any other
Castle Entity):
Section 4.1 Organization and Good Standing. Each Castle Entity is a
corporation or limited partnership duly organized, validly existing, and, to the
extent applicable in the case of partnerships, in good standing under the Laws
of the state of its incorporation or organization, with all requisite corporate
or partnership power and authority to own, operate, and lease its properties and
to carry on its business as now being conducted. Each of the Castle Subsidiaries
is qualified or otherwise authorized to transact business, and is in good
standing, as a foreign corporation or limited partnership in the respective
jurisdictions set forth in Schedule 4.1 attached hereto. Except for the
Partnerships and the Acquired Subsidiary and as set forth in Schedule 4.1, the
Castle Subsidiaries do not directly or indirectly own any interest in any
Subsidiary or any other Person. Castle shall make available to Buyer, prior to
the Closing, true, correct, and complete copies of the Articles or Certificate
of Incorporation, bylaws, and minute books of each Acquired Corporation.
Section 4.2 Authorization; Enforceability. Each Seller has the
requisite corporate or partnership power and authority to enter into and
consummate the Transactions. The execution and delivery of this Purchase
Agreement and the consummation of the Transactions have been duly approved and
authorized by the Board of Directors and (except with respect to Castle) sole
stockholder of each Seller which is a corporation and by the partners of each
Partnership. Except for the approval of this Purchase Agreement by the
stockholders of Castle entitled to vote thereon, no other corporate or
partnership proceedings on the part of any Seller will be necessary to authorize
this Purchase Agreement and the Transactions. At the Closing, this Purchase
Agreement will have been duly authorized by each Seller. This Purchase Agreement
has been duly executed and delivered by each Seller and, assuming this Purchase
Agreement is a legal, valid, and binding obligation of Buyer, constitutes a
legal, valid, and binding obligation of each Seller, enforceable against each
Seller in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance, moratorium, or other
similar Laws now or hereafter in effect affecting the enforceability of
creditor's rights or by general principles of equity.
Section 4.3 Consents and Approvals. Listed on Schedule 4.3 hereof are
all of the Required Filings and Approvals of Castle in connection with the
execution and delivery of this Purchase Agreement and the consummation of the
Transactions. At the Closing, all such Required Filings and Approvals of Castle
will be obtained, except any listed on a schedule to be delivered by Sellers
pursuant to Section 12.2(g).
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Section 4.4 No Violation. The execution, delivery, and performance of
this Purchase Agreement by the Sellers and the consummation by them of the
Transactions contemplated hereby will not (a) violate any provision of the
charter or by-laws or similar organizational documents of any of the Castle
Entities or (b) subject to obtaining the consents set forth on Schedule 4.4,
violate, conflict with, result in a breach of any provision of, constitute a
default or an event which, with notice or lapse of time or both, would
constitute a default under, result in the termination of or accelerate the
performance required by, result in a right of termination
or acceleration under, or result in the creation of any Lien upon any of the
Shares or the Purchased Assets under any of the terms of any Contract to which
Castle is a party.
Section 4.5 Acquired Corporations. The authorized capital stock of each
Acquired Corporation and the number of Shares of each class of such stock that
is issued and outstanding are set forth on Schedule 4.5 hereof. All of the
Shares have been duly authorized and validly issued, are fully paid and
nonassessable, are owned of record as set forth in Schedule 4.5, and are
beneficially owned by Castle. There are no other shares of the capital stock of
any Acquired Corporation authorized, issued, or outstanding or reserved for
issuance, no outstanding preemptive rights or subscription rights with respect
to any such shares, and no outstanding options, warrants, rights, voting trusts,
convertible securities, or other agreements or commitments with respect to any
such shares, except as provided on Schedule 4.5 attached hereto. At the Closing,
good and valid title to the Shares will pass to Buyer, free and clear of all
Liens except as provided in Section 2.1 hereof. The Acquired Corporations have
or at the Closing will have good and valid title to the Assets held by them,
free and clear of all Liens except Permitted Liens and Liens disclosed on
Schedule 4.5 attached hereto
Section 4.6 Purchased Assets. The Asset Sellers have good and valid
title to the Purchased Assets and at the Closing the Asset Sellers will have
full power and authority to transfer the Purchased Assets to Buyer. At the
Closing, good and valid title to the Purchased Assets will pass to Buyer, free
and clear of all Liens except as provided in the last sentence of Section 2.2(a)
hereof. Neither Castle nor any of its Subsidiaries other than the Castle
Subsidiaries owns, leases, or licenses any material assets used in the conduct
of the business of the Refinery, except the insurance policies listed on
Schedule 4.11.
Section 4.7 Compliance With Laws. (a) Castle has obtained all Licenses
required to be obtained by Castle for the conduct of the business of the Castle
Subsidiaries as presently conducted, except where the failure to have obtained
any such Licenses would not be reasonably likely to have a material adverse
effect on the financial condition, operating results, assets, properties, or
business of the Castle Subsidiaries taken as a whole. To the Knowledge of the
Sellers, all such Licenses are in full force and effect, except to the extent
failure to be in effect would not be reasonably likely to have a material
adverse effect on the financial condition, operating results, assets,
properties, or business of the Castle Subsidiaries taken as a whole.
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(b) Castle has complied with and is in compliance with all,
and has not received any written notice of any claimed violation of any, Laws
applicable to the business of the Castle Subsidiaries, including but not limited
to Environmental Laws, except where the failure to comply with, or the violation
of, any such Laws including, but not limited to Environmental Laws, would not be
reasonably likely to have a material adverse effect on the financial condition,
operating results, assets, properties, or business of the Castle Subsidiaries
taken as a whole.
Section 4.8 Employee Relations and Employee Benefit Plans; ERISA. (a)
Not more than 30 days after execution of this Purchase Agreement, Castle will
furnish Buyer with a complete and accurate list of the employees of the Asset
Sellers as of the date hereof (the "Employees") and their present respective
salaries or wage rates. Not later than 30 days after receipt of the list, Buyer
shall designate to Castle in writing the names of the Employees to whom Buyer
will offer employment as of the Closing Date. To the extent that any of the
Employees are or become entitled to severance payments under any severance pay
plan or program maintained by Castle or any of the Asset Sellers, under any Law,
or otherwise, Buyer shall be responsible for paying either Castle or any of the
Asset Sellers, as applicable, for such amounts not more than five business days
after a request for reimbursement is made; provided, that Buyer shall not be
responsible for any severance payments (i) to any officer of Castle or (ii) to
any Employee under any Contract with Castle or its Subsidiaries (including,
without limitation, the Castle Subsidiaries).
(b) To the Knowledge of Sellers, (i) none of the Castle Subsidiaries
has entered into any collective bargaining agreement, (ii) there is no labor
strike, dispute, slowdown, or work stoppage or lockout pending or threatened
against or affecting any of the Castle Subsidiaries, (iii) no union
organizational campaign is in progress with respect to the employees of any of
the Castle Subsidiaries, and (iv) there is no unfair labor practice, charge, or
complaint pending or threatened before the National Labor Relations Board
against any of the Castle Subsidiaries and no charges with respect to or
relating to any of the Castle Subsidiaries are pending before the Equal
Employment Opportunity Commission. None of the Castle Subsidiaries has incurred
any liability, under the Worker Adjustment and Retraining Notification Act or
similar state Law, which remains unpaid or unsatisfied. No Castle Subsidiary has
laid off more than 33% of its employees at any single site of employment in any
90-day period during the last 12 months.
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(c) To the Knowledge of Sellers:
(i) Schedule 4.8 attached hereto contains a true and complete
list of each "employee benefit plan," as defined in Section 3(3) of ERISA, and
each other employee benefit plan, welfare plan, program, agreement, policy, or
arrangement, including, without limitation, severance pay, salary continuation
for disability and consulting or other compensation agreements, sponsored,
maintained, or contributed to or required to be contributed to by any of the
Asset Sellers within six years prior to the Closing Date (the "Indian Benefit
Plans").
(ii) With respect to each Indian Benefit Plan, Castle has
delivered to CORE a true, correct, and complete copy of: (A) each writing
constituting a part of such Indian Benefit Plan, including, without limitation,
all plan documents, benefit schedules, trust agreements, and insurance contracts
and other funding vehicles; (B) the three most recent Annual Reports (Form 5500
Series) and accompanying schedule, if any; (C) the current summary plan
description, if any; (D) the three most recent annual financial reports, if any;
and (E) the most recent determination letter from the IRS, if any. The Annual
Reports (Form 5500 Series) with respect to each Indian Benefit Plan have been
properly filed, including the payment in full of any late fees, interest, and
penalties, if and to the extent applicable. Except as specifically provided in
the foregoing documents delivered to CORE, there are no amendments to any Indian
Benefit Plan that have been adopted or approved nor have the Asset Sellers
undertaken to make any such amendments, provided that amendments to each Indian
Benefit Plan that is intended to be a "qualified plan" within the meaning of
Section 401(a) of the Code ("Qualified Plans") will be adopted prior to the end
of the applicable remedial amendment period under Section 401(b) of the Code.
(iii) Schedule 4.8 identifies each Qualified Plan. None of the
Qualified Plans has been issued a favorable determination letter as to the
qualified status of such Qualified Plan either initially or with respect to the
amendments required by the Tax Reform Act of 1986 and subsequent tax law
changes, except that each Qualified Plan remains within the applicable remedial
amendment period under Section 401(b) of the Code for the adoption of such
amendments and for obtaining favorable determination letters with respect to
such amendments, as extended in accordance with IRS Announcement 94-136.
(iv) All contributions required to be made to any Indian
Benefit Plan by applicable law or regulation or by any plan document or other
contractual undertaking, and all premiums due or payable with respect to
insurance policies funding any Indian Benefit Plan, for any period through the
date hereof have been timely made or paid in full or, to the extent not required
to be made or paid on or before the date hereof, have been fully reflected on
the financial statements of the appropriate Asset Seller.
(v) The Asset Sellers have complied, and are now in
compliance, in all material respects with all provisions of ERISA, the Code, and
all Laws applicable to the Indian Benefit Plans, except to the extent of
amendments to the Qualified Plans which can be adopted during the remedial
amendment period. There is not now, nor do any circumstances exist that could
give rise to, any requirement for the posting of security with respect to an
Indian Benefit Plan or the imposition of any Lien on the assets of any of the
Castle Subsidiaries or any of their ERISA Affiliates under ERISA or the Code.
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(vi) Schedule 4.8 sets forth each Indian Benefit Plan (other
than a multiemployer plan) that is subject to Title IV of ERISA (a "Title IV
Plan"). Except as set forth on Schedule 4.8, no accumulated funding deficiency
or unpaid required installments within the meaning of Section 412 of the Code
exists, nor has there been issued a waiver or variance of the minimum funding
standards imposed by the Code with respect to any Title IV Plan, nor has any
Lien been created under Section 302(f) of ERISA or security been required under
Section 307 of ERISA, nor are any excise taxes due or hereafter to become due
under Section 4971 or 4972 of the Code with respect to the funding of any such
plan for any plan year or other fiscal period ending on or before the Closing
Date. With respect to each Title IV Plan, (A) there has not occurred any
reportable event within the meaning of Section 4043(b) of ERISA or the
regulations thereunder, and (B) there exists no ground upon which the PBGC would
reasonably be expected to demand termination of any Title IV Plan or appointment
of itself or its nominee as trustee thereunder. The PBGC has not instituted or
threatened in writing a proceeding to terminate any Title IV Plan. All PBGC
premiums due on or before the Closing Date with respect to any Title IV Plan
have been paid in full, including late fees, interest, and penalties, if and to
the extent applicable. Copies of the actuarial report for the 1993 plan year and
an update thereto as of September 30, 1994 for each Title IV Plan and of a
report which accurately projects the funded status and contribution requirements
for each Title IV Plan as of the Closing Date have been delivered to CORE. There
has been no material adverse change in the assets, liabilities, or financial
position of each Title IV Plan since the date of the most recent actuarial
report. None of the Sellers' purposes of engaging in the transactions
contemplated hereby is for the evasion of Liability under Title IV of ERISA.
(vii) Each Multiemployer Plan to which the Castle Subsidiaries
or any ERISA Affiliate contributes or is obligated to contribute or has
contributed or been obligated to contribute at any time within six years prior
to the Closing Date, if any, is set forth on Schedule 4.8. With respect to any
Multiemployer Plans, neither the Castle Subsidiaries nor any ERISA Affiliate has
withdrawn from any such plan in a partial or complete withdrawal, nor has any of
them incurred any withdrawal Liability.
(viii) There does not now exist, nor do any circumstances
exist that could result in any Liability under, (A) the continuation coverage
requirements of Section 601 et seq. of ERISA and Section 4980B of the Code, (B)
Title IV of ERISA, Section 302 of ERISA, or Sections 412 and 4971 of the Code,
or (C) corresponding or similar provisions of foreign Laws that would be a
Liability of any of the Asset Sellers following the Closing Date. Without
limiting the generality of the foregoing, none of the Asset Sellers has engaged
in any transaction described in Section 4069, 4204, or 4212 of ERISA.
(ix) None of the Asset Sellers has any Liability for life,
health, medical, or other welfare benefits to former employees or beneficiaries
of dependents thereof, except for health continuation coverage as required by
Section 4980B of the Code or Part 6 of Title I of ERISA and such health
continuation coverage is at no expense to any Castle Subsidiary or ERISA
Affiliate.
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(x) There are no pending actions, claims, litigations, or
arbitrations which have been asserted in writing or instituted (other than in
respect of benefits due in the ordinary course) against the assets of any of the
Indian Benefit Plans or against the Asset Sellers or any fiduciary of the Indian
Benefit Plans to the Indian Benefit Plans.
(xi) The Liabilities for all benefits provided pursuant to all
Indian Benefit Plans have been fully and adequately provided for on the books of
account of the Asset Sellers in accordance with GAAP.
Section 4.9 Financial Condition. Castle has delivered to CORE (a) the
audited consolidated balance sheet as of September 30, 1994 (the "Balance Sheet
Date") of Castle and its Subsidiaries (the "Balance Sheet") and the audited
consolidated statement of income, consolidated statement of retained earnings,
and consolidated statement of cash flows of Castle and its Subsidiaries for the
year then ended, (b) the audited balance sheet as of the Balance Sheet Date of
IRLP and the audited statement of income, statement of retained earnings, and
statement of cash flows of IRLP for the year then ended, (c) the unaudited
consolidated balance sheet as of March 31, 1995 of Castle and its Subsidiaries
and the unaudited consolidated statement of income, consolidated statement of
retained earnings, and consolidated statement of cash flows of Castle and its
Subsidiaries for the period then ended, and (d) the unaudited balance sheet as
of March 31, 1995 of IRLP and the unaudited statement of income, statement of
retained earnings, and statement of cash flows of IRLP for the period then
ended. To the Knowledge of Sellers, each such balance sheet presents fairly the
financial condition, assets, liabilities, and stockholders' equity or
partnership capital of the respective entities as of its date; each such
statement of income and statement of retained earnings presents fairly the
results of operations of the respective entities for the period indicated; and
each such statement of cash flows presents fairly the information purported to
be shown therein. To the Knowledge of Sellers, the financial statements referred
to in this Section 4.9 have been prepared in accordance with GAAP (except, in
the case of the unaudited statements, for the omission of footnote disclosures
and other information, and except that the unaudited statements of IRLP
represent a "trial balance" only) and the books and records of Castle and its
Subsidiaries. To the knowledge of Sellers, the Castle Subsidiaries have no
material capital lease obligations (other than leases for copiers, vehicles, and
similar equipment which may have been capitalized) and no material long-term
liabilities for the deferred purchase price of any assets (other than a license
fee for the Penex process).
Section 4.10 Taxes. (a) Each of the Acquired Corporations is a member
of an affiliated group of corporations within the meaning of section 1504 of the
Code (the "Consolidated Group"), and Castle is the common parent of the
Consolidated Group.
(b) Each of the Acquired Corporations has joined in the filing
of consolidated Federal income Tax Returns by the Consolidated Group, and each
of the Acquired Corporations will continue to be included as members of the
Consolidated Group for Federal income tax purposes up to and including the
Closing Date, including for purposes of filing the consolidated Federal income
Tax Return of the Consolidated Group for the tax year which includes the Closing
Date.
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(c) The Consolidated Group has filed all material Tax Returns
that it was required to file, and each of the Castle Subsidiaries and any
combined, consolidated, or unitary group of which any of the Castle Subsidiaries
is or has at any time been a member (any such group being a "Relevant Group")
has filed all material Tax Returns that it was required to file prior to the
Closing Date. All such Tax Returns were correct and complete in all material
respects. All Taxes shown to be due on such Tax Returns have been paid. Neither
the Consolidated Group, any Relevant Group, nor any of the Castle Subsidiaries
is a party to any agreement extending the time within which to file any Tax
Return, except with respect to certain Tax Returns that were due on December 15,
1994 because Castle's request for a change in tax year has been granted. No
closing agreement pursuant to Section 7121 of the Code or compromise pursuant to
Section 7122 of the Code (or any predecessor provisions) or any similar
provision of any state or local law has been entered into by or with respect to
any Acquired Corporation. No claim has ever been made by any authority in a
jurisdiction in which any of the Castle Subsidiaries does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction.
(d) Each of the Castle Subsidiaries has withheld and paid all
material Taxes required to be withheld and paid prior to the Closing Date.
(e) There is no dispute or claim concerning any material
liability for Taxes of any of the Castle Subsidiaries or any Relevant Group
currently pending.
(f) No Tax Returns of any of the Castle Subsidiaries or of any
Relevant Group or Consolidated Group for any taxable year beginning on or after
January 1, 1991 have been audited except as set forth on Schedule 4.10.
(g) None of the Castle Subsidiaries, any Relevant Group or the
Consolidated Group has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to any Tax assessment or
deficiency.
(h) No Castle Subsidiary has any material liability for Taxes
of any person as transferee, by contract or otherwise.
(i) No Acquired Corporation is a "consenting corporation"
within the meaning of section 341(f)(1) of the Code and none of the assets of
any Castle Entity is subject to any election under section 341(f) of the Code.
(j) No Acquired Corporation is party to any tax sharing
agreement or arrangement that will survive or give rise to any liabilities or
obligations on the part of such Acquired Corporation or Buyer after the Closing
Date.
(k) None of the Castle Subsidiaries has made any material
payments, is obligated to make any material payments, or is a party to any
agreement that under certain circumstances could obligate it to make any
material payments that will not be deductible under Section 280G of the Code.
(l) Following the Closing, none of the Purchased Assets and
none of the assets of any Acquired Corporation will be an asset or property that
the Buyer or any Acquired Corporation will be required to treat as being owned
by any other Person pursuant to the provisions of Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended and in effect immediately before the
enactment of the Tax Reform Act of 1986. None of the Purchased Assets or the
assets of any Acquired Corporation is (i) "tax-exempt use property" within the
meaning of Section 168(h)(1) of the Code, (ii) used predominantly outside the
United States within the meaning of Proposed Treasury Regulation Section
1.168-2(g)(5), or (iii) "tax-exempt bond financed property" within the meaning
of Section 168(g)(5) of the Code.
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Section 4.11 Insurance. To the Knowledge of Sellers, listed on Schedule
4.11 are all insurance policies relating to the Assets of the Acquired
Corporations or the Asset Sellers. To the Knowledge of Sellers, each such
insurance policy is, as of the date of this Purchase Agreement, in full force
and effect and, unless terminated prior to Closing, will be in effect to the
Closing Date.
Section 4.12 No Broker. The Castle Entities have not engaged or
authorized any broker, investment banking firm, finder, agent, or other Person
to act on their behalf, directly or indirectly, as a broker or finder in
connection with the Transactions, except Lazard Freres & Co. Castle shall be
responsible for and agrees to indemnify Buyer from and against any fees or
commissions payable to Lazard Freres & Co. in connection with the Transactions.
Section 4.13 No Undisclosed Liabilities. To the Knowledge of Sellers,
as of the Balance Sheet Date, Castle and its Subsidiaries had no material
liabilities (whether accrued, absolute, contingent or otherwise, and whether due
or to become due) of a type normally reflected on a balance sheet prepared in
accordance with GAAP which is not shown on the Balance Sheet or the notes
thereto or disclosed in a Schedule hereto or elsewhere herein or in any document
referred to in a Schedule hereto.
Section 4.14 Proxy Statement. The information contained in the Proxy
Statement and any other proxy materials related thereto does not and will not,
at any time prior to or on the date the stockholders of Castle approve the
Transactions, (a) contain any statement which, at the time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact or (b) omit to state any material fact necessary in order to make
the statements therein not false or misleading; provided, that no representation
is made by the Sellers with respect to any information contained in the Proxy
Statement concerning Buyer or the Financing or supplied by Buyer or any of the
Persons listed on Schedule 5 in writing or expressly for use in the Proxy
Statement or such other materials.
V. REPRESENTATIONS AND WARRANTIES OF THE CORE OBLIGORS
The CORE Obligors jointly and severally represent and warrant to the
Sellers as follows:
Section 5.1 Organization and Good Standing. CORE is and each other CORE
Obligor will be a corporation, partnership, or other business entity duly
organized, validly existing, and, to the extent applicable, in good standing
under the laws of its state of organization, and is and will be, respectively,
duly qualified and in good standing in each jurisdiction in which the ownership
of its Assets or the conduct of its business makes such qualification necessary.
Section 5.2 Authorization; Enforceability. CORE has the requisite
corporate power and authority to enter into this Purchase Agreement and to
consummate the Transactions. The Buyer will have the requisite corporate,
partnership, or other similar power and authority to assume CORE's obligation
under this Purchase Agreement and to consummate the Transactions. The Issuer
will have the requisite corporate, partnership, or other similar power and
authority to issue the Notes. Each CORE Obligor will have the requisite
corporate, partnership, or other similar power and authority to enter into the
CORE Obligor Agreement. The execution and delivery of this Purchase Agreement
and the Notes and the consummation of the Transactions have been duly approved
and authorized by the Board of Directors and the stockholders entitled to vote
thereon of each CORE Obligor that is a corporation and a party hereto or
thereto, by the partners of each CORE Obligor that is a partnership and a party
hereto or thereto, and by the appropriate governing bodies of each CORE Obligor
that is any other type of business entity and a party hereto or thereto. No
other corporate, partnership, or other similar proceedings on the part of any
CORE Obligor are necessary to authorize this Purchase Agreement, the Notes, or
the Transactions. This Purchase Agreement and the Transactions have been duly
authorized by CORE. This Purchase Agreement has been duly executed and delivered
by CORE, and at the Closing the Notes will have been duly executed and delivered
by the Issuer. Assuming this Purchase Agreement is a legal, valid, and binding
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obligation of the Sellers, this Purchase Agreement constitutes legal, valid, and
binding obligation of CORE (and, upon any assignment in accordance with Section
15.4, will constitute a legal, valid, and binding obligation of Buyer),
enforceable against CORE (or Buyer) in accordance with its terms, the Notes will
constitute a legal, valid, and binding obligation of the Issuer, enforceable
against the Issuer in accordance with its terms, and each CORE Obligor Agreement
will constitute a legal, valid, and binding obligation of the CORE Obligor party
thereto, enforceable against such CORE Obligor in accordance with its terms,
except in each case as such enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, moratorium, or other similar Laws now or
hereafter in effect affecting the enforceability of creditor's rights or by
general principles of equity.
Section 5.3 Consents and Approvals. Listed on Schedule 5.3 are all of
the Required Filings and Approvals of Buyer in connection with the execution and
delivery of this Purchase Agreement and the Notes and the consummation of the
Transactions. At the Closing, all such Required Filings and Approvals of Buyer
will be obtained, except any listed on a schedule to be delivered by Buyer
pursuant to Section 12.3(e).
Section 5.4 No Violation. The execution, delivery, and performance of
this Purchase Agreement, the Notes, and the CORE Obligor Agreements by the CORE
Obligors and the consummation by them of the Transactions will not (a) violate
any provision of the charter or the by-laws of any CORE Obligor or (b) violate,
conflict with, result in a breach of any provision of, constitute a default or
an event which, with notice or lapse of time or both, would constitute a default
under, result in the termination of or accelerate the performance required by,
result in a right of termination or acceleration under, or result in the
creation of any Lien upon any of the Assets of any CORE Obligor under any of the
terms of any Contract to which any CORE Obligor is a party or to which it or any
of its Assets may be subject.
Section 5.5 No Broker. As of the date hereof, CORE has not engaged or
authorized any broker, investment banking firm, finder, agent, or other Person
to act on its or any CORE Obligor's behalf, directly or indirectly, as a broker
or finder in connection with the Transactions. Buyer shall be responsible for
and agrees to indemnify Sellers from and against any fees or commissions payable
to any person claiming to have acted on behalf of or under any agreement with
any CORE Obligor in connection with the Transactions.
Section 5.6 Subsequent Sale. The CORE Obligors have no present
intention to sell or cause to be sold any material part of the Shares, the
Assets of the Acquired Corporations, or the Purchased Assets and has received no
offers or proposals regarding any such sale. The Sellers recognize that after
the Closing circumstances may change and the CORE Obligors will deal with such
Assets in its economic self-interest as it sees fit under the circumstances,
which could include a sale of some or all such Assets.
Section 5.7 Proxy Statement Information. The information supplied by
the CORE Obligors to Castle pursuant to Section 8.5 does not and will not at any
time prior to or on the date the stockholders of Castle approve the Transactions
(a) contain any statement which, at the time and in the light of the
circumstances under which it is made, is false or misleading with respect to any
material fact or (b) omit to state any material fact necessary in order to make
the statements therein not false or misleading.
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VI. TAX MATTERS
Section 6.1 Access to Information. (a) Castle will make available to
Buyer any information relating to the Acquired Corporations which has been
included in the consolidated Federal income Tax Returns filed by the
Consolidated Group for the taxable years up to and including the Closing Date
that is relevant for purposes of determining the tax liabilities and attributes
of the Acquired Corporations. Sellers will make available to Buyer such other
information concerning Taxes as may reasonably be requested by Buyer.
(b) Following the Closing, Buyer agrees to make available to Castle
any information relating to the Acquired Corporations (including, but not
limited to, their books and records and work papers for all periods in which the
Acquired Corporations have been included as members in the Consolidated Group
for purposes of filing consolidated Federal income Tax Returns) that is relevant
for purposes of determining the tax liability of the Consolidated Group for all
periods up to and including the Closing Date, as is reasonably necessary for the
preparation of any Tax Return, and for purposes of dealing with any examination
by or controversy with the IRS or any other taxing authority.
Section 6.2 Tax Indemnification. The Sellers shall jointly and
severally indemnify and hold the Buyer Indemnities harmless from (a) all
Liability for Taxes of any Castle Subsidiary, the Consolidated Group, or any
Relevant Group, and (b) all Liability for Taxes for which any Castle Subsidiary,
the Consolidated Group, or any Relevant Group may be liable as withholding agent
or transferee, by contract, or otherwise, including in each case any related
Damages; provided, however, that, except in the case of Liability for Federal or
state income taxes of the Consolidated Group or any Relevant Group for the
taxable year of the Consolidated Group or such Relevant Group which includes the
Closing Date, such indemnity shall include only Taxes with respect to periods
ending on or prior to the Closing Date and the portion through and including the
Closing Date of any taxable period that includes, but does not end on, the
Closing Date (determined by means of a closing of the books and records of each
of the Acquired Corporations as of the close of business on the Closing Date);
provided, further, that such indemnity shall not include Liability for Taxes
included as current liabilities for purposes of the calculation of the Net
Working Capital Amount to the extent of the amount of such Taxes so included for
purposes of such calculation.
Section 6.3 Transfer Taxes. Buyer on the one hand and Sellers on the
other shall each pay one half of any sales, use, value added, excise and other
transfer or similar Taxes imposed on the transfer of the Purchased Assets and
the Acquired Shares hereunder, including without limitation the following Taxes
relating to the transfer of the real property included in the Purchased Assets:
(a) the Illinois state transfer tax of $.50 per $500 paid for real property
located in Illinois, (b) the Lawrence County transfer tax of $.25 per $500 paid
for real property located in Lawrence County, and (c) the Indiana State
Corporate Gross Income Tax of 1.2% of the consideration paid for real property
located in Indiana. The consideration paid for such real property shall be
determined in accordance with Section 3.2. The Buyer or the Sellers, as the case
may be, shall execute and deliver to the other at the Closing any certificates
or other documents as the other may reasonably request to comply with any
reporting, notification, or filing requirements relating to, or to perfect any
exemption from, any transfer, documentary, sales, excise or use tax, or other
similar taxes.
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Section 6.4 Post-Closing Audits and Other Proceedings. (a) Castle and
Buyer agree to give prompt notice to each other of any proposed adjustment to
Taxes for periods ending on or prior to the Closing Date or any period within
which the Closing Date occurs. Castle and Buyer shall cooperate with each other
in the conduct of any audit or other proceeding involving any of the Acquired
Corporations for such periods and each may participate at its own expense,
provided that Castle shall have the right to control the conduct of any such
audit or proceeding for which Castle (i) agrees that any resulting Tax is
covered by the indemnity provided in Section 6.2 and (ii) demonstrates to Buyer
its ability to make such indemnity payment. Notwithstanding the foregoing,
neither party may settle or otherwise resolve any such claim, suit, or
proceeding without the consent of the other party, such consent not to be
unreasonably withheld; provided, however, that Buyer shall not be required to
contest any proposed adjustment to, or claim for, any Tax if Buyer waives its
right to any indemnity in respect to such Tax hereunder. Buyer shall promptly
pay over to Castle any Tax refund received by any of the Acquired Corporations
(or by Buyer or any of its Affiliates with respect to any of the Acquired
Corporations) relating to any period ending on or prior to the Closing.
(b) Castle shall be responsible for the preparation and filing
of all state income Tax Returns for the Acquired Corporations for short taxable
periods ending on the Closing Date in states, including California, Illinois,
and Pennsylvania, the income tax of which require income Tax Returns for such
short taxable periods.
Section 6.5 Certain Consolidated Return Matters. (a) Any tax sharing
agreement or arrangement between Castle and any of the Acquired Corporations
shall be terminated as of the Closing Date, and shall have no further effect for
any taxable year.
(b) Castle shall include the income or loss of the Acquired
Corporations for periods through the Closing Date in the consolidated Federal
income Tax Return filed by the Consolidated Group for the period including the
Closing Date. Castle shall prepare books and working papers (including a closing
of the books) which will clearly demonstrate the income and activities of the
Acquired Corporations for the period ending on the Closing Date.
VII. COVENANTS OF SELLERS
The Sellers hereby jointly and severally covenant and agree with the
Buyer as follows:
Section 7.1 Access to Information. From and after the date of this
Purchase Agreement and until the Closing Date or termination of this Agreement,
Buyer and its authorized representatives shall upon reasonable notice have
access during normal business hours to (a) all properties, books, records,
Contracts, and documents of Castle relating to any of the Castle Subsidiaries,
including without limitation all such consolidating financial statements and
financial statements of the Castle Subsidiaries as are prepared in the normal
course of the preparation of the audited financial statements described in
Section 4.9, and Castle shall furnish or cause to be furnished to Buyer and its
authorized representatives information with respect to the affairs and business
of the Castle Subsidiaries as Buyer may reasonably request, and (b) counsel,
representatives, accountants and auditors of Castle and the Castle Subsidiaries.
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Section 7.2 Actions Prior to Closing Date. From and after the date of
this Purchase Agreement and until the Closing Date or termination of this
Agreement, except as provided in Section 7.5:
(a) Castle shall not undertake or institute any action other
than in the ordinary course of business of the Castle Subsidiaries which could
reasonably be expected to have a material adverse effect on the assets,
properties, financial condition, or operating results of the Castle Subsidiaries
taken as a whole.
(b) Castle shall use its commercially reasonable efforts to
use the available cash flow generated by the Castle Subsidiaries to fund such
Capital Expenditures which are reasonably necessary in the conduct of the
businesses of the Castle Subsidiaries, provided, however, that such Capital
Expenditures shall not exceed $2 million in the aggregate.
(c) The Sellers shall not, except from one Castle Subsidiary
to another, (i) sell, pledge, convey, transfer, lease or encumber any of the
Shares or partnership interests in the Partnerships or, except in the ordinary
course of business, the Purchased Assets or (ii) sell or permit any Castle
Subsidiary to issue or sell any shares of capital stock or other equity
interests of any Castle Subsidiary or any securities convertible or exchangeable
for, or options, warrants, commitments, or rights of any kind to acquire, any
such shares of capital stock or other equity interests, except upon exercise of
the option to purchase preferred stock of IOC issued in connection with the
Interim Financing.
(d) Castle shall promptly notify Buyer of any material
lawsuits, claims, proceedings, or investigations of which Sellers have Knowledge
that may be threatened, brought, asserted, or commenced against or involving any
of the Castle Subsidiaries, the Purchased Assets, or the Transactions.
(e) Castle shall not (except for cause) terminate the
employment of Sudhaus nor materially modify his duties and responsibilities as
President and Chief Operating Officer of Castle, Chairman and Chief Executive
Officer of Indian Refining & Marketing Inc., and Chairman, President, and Chief
Executive Officer of IOC.
(f) The Asset Sellers shall not, and the Sellers shall not
permit any of the Acquired Corporations to: (i) make any material loans or
advances to any other person or enter into any agreement or instrument relating
to the borrowing of money or extension of credit (including obligations with
respect to capital leases), except in the ordinary course of business consistent
with past practice; or (ii) assume, guarantee, endorse, or otherwise become
liable or responsible for the obligations of any other person (whether directly,
contingently, or otherwise), except in the ordinary course of business
consistent with past practice.
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(g) The Asset Sellers shall not, and the Sellers shall not
permit any of the Acquired Corporations to: (i) increase or agree to increase
the compensation payable to any of the directors, officers, or employees of the
Castle Subsidiaries, except in the ordinary course of business consistent with
past practices or pursuant to the terms of agreements or plans as currently in
effect; or (ii) enter into or adopt any pension, profit-sharing, incentive,
deferred compensation, stock purchase, stock option, stock appreciation rights,
or severance pay plan, or any employment or consulting agreement, with or for
the benefit of any director, officer, or employee of the Castle Subsidiaries,
whether past or present, or amend or terminate any of such plans or any of such
agreements in existence on the date hereof, except in the ordinary course of
business consistent with past practice.
(h) The Asset Sellers shall not, and the Sellers shall not
permit any of the Acquired Corporations to, enter into any agreements,
commitments, or contracts which, individually or in the aggregate, are material
to the Castle Subsidiaries (except (i) in the ordinary course of business
consistent with past practice or (ii) that are cancelable no later than 30 days
after notice by either party, without penalty or premium), or modify, amend,
terminate, or cancel any existing material contract, except in the ordinary
course of business consistent with past practice.
(i) The Asset Sellers shall not, and the Sellers shall not
permit any Acquired Corporation to, declare, set aside, or pay to any such
stockholder any dividend or other distribution in respect of its capital stock.
(j) The Asset Sellers shall not, and the Sellers shall not
permit any Acquired Corporation to, enter into or agree to enter into any
transaction with or for the benefit of any Affiliate, other than in the ordinary
course of business consistent with past practices.
(k) The Asset Sellers shall not, and shall not permit any
Acquired Corporation to, voluntarily make any change in any of its methods of
accounting or in any of its accounting principles or practices.
(l) The Sellers shall cause the Castle Subsidiaries to conduct
their operations and maintain their assets according to their ordinary and usual
course of business consistent with past practice.
(m) Notwithstanding the foregoing, (i) the Sellers may take or
refrain from any action described in this Section 7.2 if such action or omission
is (A) otherwise contemplated by this Purchase Agreement, (B) in connection with
the Interim Financing or any agreement entered into in connection with the
Interim Financing, (C) taken at a time whenCastle is permitted to terminate this
Agreement pursuant to Section 13.1, (D) deemed appropriate by Castle to prepare
to shut down the Refinery if the Closing does not occur (provided such action or
omission does not have a material adverse effect on the operations of the
Refinery or the consummation of the Financing), or (E) taken with the prior
written consent of Buyer, and (ii) any actions caused by any of the Persons
identified on Schedule 5 without the approval of the Chairman of the Board of
Castle shall not be deemed to breach this Section 7.2.
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Section 7.3 Stockholder Approval. Castle shall use its commercially
reasonable efforts to comply with all applicable legal requirements in respect
of such Stockholder Meeting and on or before June 5, 1995, hold the Stockholder
Meeting.
Section 7.4 Consents and Approvals. (a) The Sellers shall use their
commercially reasonable efforts to obtain the Required Filings and Approvals of
the Castle Entities.
(b) The Castle Entities shall, without directly incurring any
costs or expenses (other than fees and expenses of their counsel), cooperate in
good faith with Buyer in the obtaining by Buyer of the Required Filings and
Approvals of the Buyer.
Section 7.5 Ability to Shop. Buyer agrees that the Castle Entities and
their Affiliates shall have the complete right and authority to, and to
authorize and permit their officers, directors, employees, counsel, agents,
investment bankers, accountants, or other representatives to, directly or
indirectly: (a) cooperate with, or, subject to entering into a confidentiality
agreement reasonably acceptable to Buyer with such Person, furnish or cause to
be furnished any non-public information concerning the business, properties, or
assets of the Castle Subsidiaries to, any Person in connection with any Takeover
Proposal; (b) negotiate with any Person with respect to any Takeover Proposal;
or (c) enter into any agreement or understanding with any Person with the intent
to effect a Takeover Proposal; provided that the Castle Entities and their
Affiliates shall not take, authorize, or permit any such action with respect to
any Takeover Proposal from any Person listed on Schedule 7.5. The Castle
Entities and their Affiliates shall not take, authorize, or permit any of their
officers, directors, employees, counsel, agents, investment bankers,
accountants, or other representatives to, directly or indirectly, at any time
after the date hereof, initiate contact with any Person in an effort to solicit
any Takeover Proposal; provided, that the Castle Entities may take or permit any
such action at any time when Castle is permitted to terminate this Agreement
pursuant to Section 13.1.
Section 7.6 Confidentiality. The Sellers shall use their commercially
reasonable efforts to insure that all confidential information which the
Sellers, the Acquired Corporations, or any of their respective officers,
directors, employees, counsel, agents, investment bankers, or accountants may
now possess or may hereafter create or obtain relating to the financial
condition, results of operations, business, properties, assets, liabilities, or
future prospects of any Castle Subsidiary or Buyer or any customer or supplier
of any of them shall not be published, disclosed, or made accessible by any of
them to any other Person at any time or used by any of them except pending the
Closing in the business and for the benefit of the Castle Entities, in each case
without the prior written consent of Buyer; provided, however, that the
restrictions of this sentence shall not apply (a) after this Purchase Agreement
is terminated, but only to the extent such confidential information relates to
the financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of any Castle Subsidiary, of any affiliate of
any of them, or any customer or supplier of any of them, (b) to disclosure to
Persons with whom Castle may discuss a Takeover Proposal, subject to entering
into a confidentiality agreement with such Persons reasonably acceptable to
Buyer, (c) to disclosure to existing or prospective lenders or other investors
or to others whose consent may be required or desirable in connection with
obtaining the consents which are required or desirable to consummate the
transactions contemplated by this Purchase Agreement, (d) as may otherwise be
required by law, (e) as may be necessary or appropriate in connection with the
enforcement of this Purchase Agreement, or (f) to the extent such information
shall have otherwise become publicly available not in violation of the
provisions of this Purchase Agreement.
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Section 7.7 Insurance. The Sellers shall use their commercially
reasonable efforts to maintain in effect insurance covering the Castle
Subsidiaries, of the types and in the approximate amounts in effect at the date
of this Agreement, and shall notify Buyer if Sellers receive written notice that
any such policy has been cancelled or has lapsed.
Section 7.8 Names. Promptly following the Closing, if requested by
Buyer, the Sellers shall change the names of the Asset Sellers to names which do
not include the word "Indian" or derivatives thereof and will cease the use of
such name in connection with the business of the Sellers.
Section 7.9 Transfer of Retirement Plans. (a) As of the Closing Date,
the Asset Sellers shall take all steps necessary to cause the transfer to the
Buyer of (i) all of the Asset Sellers' right, title, and interest in and to the
Indian Refining Limited Partnership 401(k) Plan (the "401(k) Plan") together
with the assets thereof and its related trust agreement (collectively, the
"401(k) Plan and Trust") including all liabilities and account balances
thereunder and (ii) all of the Asset Sellers' right, title, and interest in and
to the Indian Refining Limited Partnership Defined Benefit Pension Plan (the "DB
Plan") and its related trust agreement (collectively, the "DB Plan and Trust")
and to substitute Buyer as the successor plan sponsor under both the 401(k) Plan
and the DB Plan and their related Trusts. Moreover, if Buyer so elects following
the Closing Date, Persons designated by Buyer shall be appointed to serve as
successor trustees of the 401(k) Plan, the DB Plan, and their related Trusts.
Absent the appointment by Buyer of successor trustees, the Asset Sellers shall
have secured the consent of the present trustees of the 401(k) Plan and Trust
and of the DB Plan and Trust to continue to serve in that capacity. The Asset
Sellers and Buyer agree to execute after the Closing Date any additional
documents necessary, in the reasonable judgment of the other, to effectuate the
transfer of the 401(k) Plan, the DB Plan, and their related Trusts to the Buyer.
(b) As soon as practicable after the Closing Date, the Asset
Sellers shall deliver to Buyer such copies of the Asset Sellers' applicable
records concerning the participants in the 401(k) Plan and the DB Plan and such
copies of other applicable records of Asset Sellers
regarding the 401(k) Plan and DB Plan as Buyer may reasonably require and
request, provided that such information is not already in the possession of
Buyer.
(c) Asset Sellers represent that an application for a
favorable determination on the qualification of the 401(k) Plan and the DB Plan
under Section 401(a) of the Code shall have been submitted to the IRS by the
expiration of the extension of the remedial amendment period provided in IRS
Advance Announcement 94-136.
(d) Effective as of the Closing Date, Castle shall adopt a new
Section 401(k) plan (the "Castle Plan") for the benefit of its eligible
employees who will not be transferred to Buyer (the "Castle Employees"). The
Castle Plan shall contain a provision authorizing the receipt of assets
transferred from another qualified plan. As soon as practicable following the
Closing Date, Castle shall submit an application to the IRS for a determination
that the Castle Plan is a qualified pension or profit sharing plan within the
meaning of Sections 401(a) and 401(k) of the Code and shall make any and all
changes which may be necessary to obtain a favorable determination from the IRS
as to the qualified status of the Castle Plan. Upon the receipt of a favorable
determination letter as to the qualified status of the Castle Plan, Castle shall
furnish Buyer with a copy of such favorable determination letter.
Section 7.10 Transfer of Welfare Benefit Contracts and Welfare Benefit
Claims. As of the Closing Date, the Asset Sellers shall take all steps necessary
to cause Buyer to be able to assume the Contracts under which all of the insured
welfare benefits are provided to the Employees. The Asset Sellers shall be
responsible for any valid claims for benefits arising under any insured group
life, accident, medical, dental, or disability plan, or similar plan or
arrangement, which are incurred, but not paid, prior to the Closing Date. For
this purpose a claim for medical benefits is incurred when the covered employee
first visits a health care provider with respect to the medical claim. All other
welfare benefit claims are incurred when the event which gives rise to the claim
occurs. Buyer shall indemnify and hold Asset Sellers harmless from and against
all claims for benefits (and including all costs and expenses relating thereto,
including attorney's fees) under, arising out of, or in connection with employee
benefits provided by Buyer after the Closing Date.
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Section 7.11 DB Plan Funding. On or before September 15, 1995, the
Asset Sellers shall cause to be paid to the DB Plan an amount which the current
actuary for the DB Plan has determined to equal or exceed the amount required in
order to satisfy the minimum funding requirement of Code Section 412 for the
plan year of the DB Plan ending on December 31, 1994.
Section 7.12 Intercompany Indebtedness. On or prior to the Closing
Date, Castle shall contribute to capital or execute and deliver to each Acquired
Corporation a release and discharge of all Liabilities of such Acquired
Corporation to Castle or any Affiliate of Castle existing prior to the Closing,
except as otherwise provided in Section 9.7 hereof, and each Acquired
Corporation shall execute and deliver to the Sellers a release and discharge of
all Liabilities of the Sellers and their Affiliates to such Acquired
Corporations existing prior to the Closing, except any Liabilities arising under
this Purchase Agreement.
Section 7.13 Commercially Reasonable Efforts; Cooperation. The Sellers
agree to use all commercially reasonable efforts to cause the conditions set
forth in Articles IX and X to be satisfied, including, without limitation, to
obtain a Fairness Opinion, and to take, or cause to be taken, all action and to
do, or cause to be done, and to assist and cooperate fully with the other
parties in doing, all things necessary, proper, or advisable to consummate the
Transactions; provided, however, that nothing in this Section 7.13 or otherwise
shall (a) prevent the Board of Directors of Castle from taking or refraining to
take any action which, with the advice of counsel, such Board of Directors
believes necessary or appropriate in the discharge of its fiduciary obligations
to the stockholders of Castle or (b) obligate Castle or any of its Affiliates
(other than the Castle Subsidiaries) to contribute any capital to any of the
Castle Subsidiaries (other than as contemplated by Section 7.12).
VIII. COVENANTS OF THE CORE OBLIGORS
The CORE Obligors covenant and agree with the Sellers as follows:
Section 8.1 Financing. The CORE Obligors shall use their commercially
reasonable efforts to cause all conditions to the Debt Financing and release of
the Escrow to be satisfied and fulfilled or effectively waived at or prior to
the Closing.
Section 8.2 Consents and Approvals. (a) The CORE Obligors shall use
their commercially reasonable efforts to obtain the Required Filings and
Approvals of Buyer.
(b) The CORE Obligors shall, without incurring any costs or
expenses (other than fees and expenses of Buyer's counsel), cooperate in good
faith with the Castle Entities in the obtaining by the Castle Entities of the
Required Filings and Approvals of the Castle Entities.
Section 8.3 Confidentiality. The CORE Obligors shall use their
commercially reasonable efforts to insure that all confidential information
which the CORE Obligors, their Affiliates, or any of their respective officers,
directors, employees, counsel, agents, investment bankers, or accountants may
now possess or may hereafter create or obtain relating to the financial
condition, results of operations, business, properties, assets, liabilities, or
future prospects of any Castle Subsidiary or any customer or supplier of any of
them shall not be published, disclosed, or made accessible by any of them to any
other Person at any time or used by any of them except pending the Closing in
the business and for the benefit of the Castle Entities, in each case without
the prior written consent of Castle; provided, however, that the restrictions of
this sentence shall not apply (a) after the Closing, (b) to disclosure to
existing or prospective lenders or other investors or to others whose consent
may be required or desirable in connection with obtaining the financing or
consents which are required or desirable to consummate the transactions
contemplated by this Purchase Agreement, (c) as may otherwise be required by
law, (d) as may be necessary or appropriate in connection with the enforcement
of this Purchase Agreement, or (e) to the extent such information shall have
otherwise become publicly available not in violation of the provisions of this
Purchase Agreement.
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Section 8.4 Transfer of Retirement Plans. (a) Buyer agrees to adopt the
401(k) Plan and Trust, including all amendments thereto, on the Closing Date, as
the 401(k) Plan and Trust exist immediately prior to such date and agrees to
assume all rights, duties, and obligations thereunder. Notwithstanding anything
herein contained to the contrary, Buyer shall retain the right to amend or to
terminate the 401(k) Plan and Trust (as adopted and assumed by Buyer) at any
time after the Closing Date, in accordance with applicable law.
(b) Buyer agrees to adopt the DB Plan and Trust, including all
amendments thereto, on the Closing Date, as the DB Plan and Trust exist
immediately prior to such date and agrees to assume all rights, duties, and
obligations thereunder, including, without limitation, the Liability for all
"unfunded current liability" (as defined under Section 412 of the Code) as well
as all minimum funding requirements for plan years commencing on and after
January 1, 1995. Notwithstanding anything herein contained to the contrary,
Buyer shall retain the right to amend and to terminate the DB Plan and Trust (as
adopted and assumed by Buyer) at any time after the Closing Date, in accordance
with applicable law.
(c) Buyer shall be responsible for satisfying any and all
governmental reporting and disclosure requirements applicable to the 401(k) Plan
and the DB Plan with respect to plan years ending on and after December 31,
1994. The Asset Sellers shall furnish promptly to Buyer any information or data
related to periods prior to the Closing Date which may be necessary to Buyer in
order to satisfy such governmental reporting and disclosure requirements in a
timely manner.
(d) Within the remedial amendment period for submitting such
plans to the IRS for favorable determination letters, Buyer shall also submit an
application to the IRS for a determination that its 401(k) Plan is a qualified
pension or profit sharing plan within the meaning of Sections 401(a) and 401(k)
of the Code and shall make any and all changes which may be necessary to obtain
a favorable determination from the IRS as to the qualified status of its 401(k)
Plan. Upon the receipt of a favorable determination letter as to the qualified
status of the 401(k) plan, Buyer shall furnish Castle a copy of such favorable
determination letter.
(e) When both Buyer and Castle have received favorable IRS
determination letters with respect to their respective Section 401(k) plans,
Buyer shall cause the entire account balance of each of the Castle Employees in
the Buyer's 401(k) Plan to be transferred to the trustee of the Castle Plan and
to be credited to that Castle Employee's account under the Castle Plan. In
connection with such transfer, Castle and Buyer shall execute all documents and
make all filings necessary or appropriate in order to satisfy the requirements
of applicable Law.
Section 8.5 Proxy Statement Information. The CORE Obligors shall
furnish or cause to be furnished for inclusion in any supplement or amendment to
the Proxy Statement such information about the CORE Obligors as may be required
or as may be reasonably requested by Castle after consultation with counsel, and
shall continue to furnish or cause to be furnished such information until the
Stockholder Meeting.
Section 8.6 Commercially Reasonable Efforts; Cooperation. The CORE
Obligors agree to use all commercially reasonable efforts to cause the
conditions set forth in Articles IX and X to be satisfied, and to take, or cause
to be taken, all action and to do, or cause to be done, and to assist and
cooperate fully with the other parties in doing, all things necessary, proper or
advisable to consummate the Transactions.
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Section 8.7 Shell Contract. Until Buyer has paid to Castle the maximum
Royalty Payments to which Castle may be entitled under Section 3.3, the CORE
Obligors shall not waive any rights under or amend or terminate the Shell
Contract in any manner which could adversely affect the Royalty Payments without
the consent of Castle, except as permitted pursuant to Section 15.13 and except
that the CORE Obligors may take any such action if (a) Buyer agrees with Castle
in writing to pay to Castle the Non-Adjusted Royalty Payments at the time and in
the amounts it would have paid if such waiver, amendment, or termination had not
been made and (b) the CORE Obligors pay to Castle, as a prepayment of the
Non-Adjusted Royalty Payments, any cash or cash equivalents received from Shell
in connection with such waiver, amendment, or termination. For purposes of the
foregoing, Non-Adjusted Royalty Payments shall be pre-paid at their present
value as of the date of payment based on a discount
rate of 8%, and prepayments shall be applied to the latest payments which would
otherwise have been made.
Section 8.8 CORE Subsidiaries. CORE shall not create, acquire, or
maintain any Subsidiary unless such Subsidiary executes and delivers to the
Sellers an agreement substantially in the form attached hereto as Exhibit 8.8
(the "CORE Obligor Agreement") to be jointly and severally liable with the other
CORE Obligors for Buyer's and the CORE Obligors' obligations under this Purchase
Agreement and, if such Subsidiary guarantees the first mortgage notes included
in the Debt Financing, to guarantee the Issuer's obligations under the Notes.
Section 8.9 Waivers, Releases, and Resignations. Following the Closing,
the CORE Obligors shall not employ any individual who at the Closing Date is an
employee, officer, or director of Castle or its Affiliates unless such person
agrees to (a) waive and release or repay any payments which may be or become due
to such individual as a result of this Purchase Agreement or the consummation of
the Transactions, other than payments or rights under stock options and stock
appreciation rights agreements and (b) resign as an officer and director of
Castle and its Affiliates.
IX. CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to purchase the Acquired Shares and Purchased
Assets at the Closing are subject to the fulfillment at or prior to the Closing
of each of the following conditions, unless waived in writing by Buyer.
Section 9.1 Truth of Representations and Warranties. The
representations and warranties made by the Sellers in this Purchase Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
or given on and as of such date.
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Section 9.2 Compliance with Covenants. The Sellers shall have performed
and complied in all material respects with all of their covenants and
obligations under this Purchase Agreement which are to be performed or complied
with by them prior to or at the Closing.
Section 9.3 Absence of Suit. No action, suit, proceeding, or
investigation shall have been commenced or threatened by any Person against the
CORE Obligors, the Sellers, or any of their officers, directors, or Affiliates
seeking to modify in any material respect, or to restrain or prevent, and no Law
shall have been enacted, issued, or promulgated which has the effect of
modifying in any material respect or restraining or preventing, the Transactions
or questioning the validity or legality of the Transactions.
Section 9.4 Receipt of Consents and Approvals. All Required Filings and
Approvals indicated on Schedule 4.3, 4.4, 5.3, or 9.4 as material Required
Filings and Approvals shall have been obtained.
Section 9.5 Proceedings and Instruments Satisfactory; Certificates. All
proceedings, corporate or otherwise, to be taken by the Sellers in connection
with the Transactions shall have occurred and all certificates and other
documents reasonably incident thereto as Buyer may reasonably request shall have
been delivered to Buyer.
Section 9.6 Financing. All conditions to the Debt Financing and the
release of the Escrow shall have been satisfied and fulfilled or waived.
Section 9.7 Intercompany Indebtedness. Castle shall have contributed to
capital or executed and delivered to each Acquired Corporation a release and
discharge of all Liabilities of such Acquired Corporation to Castle or any
Affiliate of Castle existing prior to the Closing, except any Liabilities
arising under this Purchase Agreement or under the Compliance Cost Agreement
dated April 10, 1990 between IRLP and Indian Refining Company.
Section 9.8 Minimum Preliminary Closing Adjustment. The Preliminary
Closing Adjustment shall be not less than $5.5 million.
Section 9.9 Deliveries at Closing. All documents and instruments
required to be delivered by the Sellers at the Closing shall have been delivered
to Buyer as provided in Section 12.2.
Section 9.10 No Material Adverse Change. At the Closing Date, there
shall not have occurred any material adverse change in the financial condition,
operating results, assets, properties, or business of the Castle Subsidiaries
taken as a whole from that shown in the financial statements delivered pursuant
to Section 4.9 or in the Shell Contract, other than any such material adverse
change resulting from any acts of Buyer or its Affiliates or the individuals
listed on Schedule 5.
Section 9.11 Stockholder Approval. If required pursuant to the Delaware
General Corporation Law, the stockholders of Castle shall have approved the
Transactions.
Section 9.12 Release of Liens. All Liens listed on Schedule 10.10 shall
have been released.
Section 9.13 Insurance. The Buyer shall have obtained insurance
reasonably satisfactory to it covering risks and in amounts similar to the
insurance policies listed in Schedule 4.11.
X. CONDITIONS TO OBLIGATIONS OF THE SELLERS
The obligations of the Sellers to be performed hereunder shall be
subject to the satisfaction prior to or at the Closing of the following
conditions unless waived in writing by Castle.
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Section 10.1 Truth of Representations and Warranties. The
representations and warranties of the CORE Obligors in this Purchase Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
or given on and as of such date.
Section 10.2 Compliance with Covenants. The CORE Obligors shall have
performed and complied in all material respects with all of their covenants and
obligations under this Purchase Agreement which are to be performed or complied
with by them prior to or at the Closing.
Section 10.3 Absence of Suit. No action, suit, proceeding, or
investigation shall have been commenced or threatened by any Person against the
CORE Obligors, the Sellers, or any of their officers, directors, or Affiliate
seeking to modify in any material respect, or to restrain or prevent, and no Law
shall have been enacted, issued, or promulgated which has the effect of
modifying in any material respect or of restraining or preventing, the
Transactions or questioning the validity or legality of the Transactions.
Section 10.4 Receipt of Consents and Approvals. All Required Filings
and Approvals indicated on Schedule 4.3, 4.4, 5.3, or 9.4 as material Required
Filings and Approvals shall have been obtained.
Section 10.5 Proceedings and Instruments Satisfactory; Certificates.
All proceedings, corporate or otherwise, to be taken by the CORE Obligors in
connection with the Transactions shall have occurred and all certificates and
other documents reasonably incident thereto as the Sellers may reasonably
request shall have been delivered to the Sellers.
Section 10.6 Financing. The Escrow shall have been released and the
CORE Obligors shall have obtained the Debt Financing, and the Issuer shall have
received the proceeds of the Equity Financing.
Section 10.7 Stockholder Approval. The stockholders of Castle shall
have approved the Transactions.
Section 10.8 Intercompany Indebtedness. Each Acquired Corporation shall
have executed and delivered to the Sellers a release and discharge of all
Liabilities of the Sellers and their Affiliates to such Acquired Corporations
existing prior to the Closing, except any Liabilities arising under this
Purchase Agreement.
Section 10.9 Fairness Opinion. Castle shall have received an opinion (a
"Fairness Opinion") from Lazard Freres & Co., or such other investment banking
firm as shall be acceptable to Castle in its sole discretion, in form and
substance satisfactory to Castle, that as of the date of this Agreement the
Purchase Price is fair to Castle and its stockholders from a financial point of
view, and such opinion shall not have been rescinded.
Section 10.10 Release of Liens and Interim Financing. All Liens listed
on Schedule 10.10 shall have been released; all Liens securing the Interim
Financing, other than Liens on the Purchased Assets or the Assets of the
Acquired Corporations, shall have been released; and Castle and its Affiliates
shall have received a full release of any obligations they may have with respect
to the Interim Financing, as obligor, guarantor, or otherwise.
Section 10.11 Minimum Preliminary Closing Adjustment. The Preliminary
Closing Adjustment shall be not less than $5.5 million.
Section 10.12 Deliveries at Closing. All documents and instruments
required to be delivered by Buyer at the Closing shall have been delivered to
the Sellers as provided in Section 12.3.
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XI. INDEMNIFICATION
Section 11.1 Requirement of Indemnification. (a) The Sellers shall
jointly and severally indemnify and hold the Buyer Indemnities harmless from and
against any Damages suffered by them resulting from, arising out of, or incurred
with respect to, or (in the case of claims asserted against any Buyer Indemnitee
by a third party) alleged to result from, arise out, of or have been incurred
with respect to (i) the falsity, breach, or inaccuracy of any representation,
warranty, covenant, or agreement of the Sellers contained in this Purchase
Agreement or in any schedule, exhibit, document, or instrument delivered in
connection herewith, (ii) any current or future Liability whatsoever of any
Castle Subsidiary to any member of the MG Entities, except Liabilities relating
to (A) commercial contractual relationships (other than financial contractual
relationships) between a Castle Subsidiary and any member of the MG Entities
(including, by way of example and not limitation, the Amended and Restated
Offtake Agreement between IRLP and MG Refining and Marketing, Inc. (and related
support agreement and offtake note)) or (B) contractual relationships and other
matters first occurring after the Closing, (iii) any Liability whatsoever of the
Sellers other than the Assumed Liabilities, whether arising prior to, on, or
after the Closing Date, or (iv) any Liability of any Asset Sellers or any ERISA
Affiliate related to any Indian Benefit Plan that existed prior to or at
Closing, maintained by, contributed to, or obligated to be contributed to, at
any time, by any Asset Sellers or any ERISA Affiliate (other than an Indian
Benefit Plan which is disclosed on Schedule 4.8) and any Liability of any Asset
Sellers or any ERISA Affiliate related to any Title IV Plan other than the DB
Plan and Trust.
(b) The CORE Obligors shall jointly and severally indemnify
and hold the Seller Indemnities harmless from and against any Damages suffered
by them resulting from, arising out of, or incurred with respect to, or (in the
case of claims asserted against any Seller Indemnitee by a third party) alleged
to result from, arise out, of or have been incurred with respect to (i) the
falsity, breach, or inaccuracy of any representation, warranty, covenant, or
agreement of any CORE Obligor contained in this Purchase Agreement or in any
schedule, exhibit, document, or instrument delivered in connection herewith,
(ii) the Assumed Liabilities, (iii) any Environmental Claims, including without
limitation any Environmental Claims alleging Liability of any Castle Entity, or
(iv) subject to Article VI and Section 9.7, any Liability whatsoever of any CORE
Obligor or (except for Liabilities with respect to which the Buyer Indemnities
are indemnified pursuant to Section 11.1(a)(ii)) the Acquired Corporations,
whether arising prior to, on, or after the Closing Date, including without
limitation, any Liability arising out of the CORE Obligors' conduct of the
business of the Castle Subsidiaries on or after the Closing.
Section 11.2 Procedures Relating to Indemnification. (a) A party (the
"indemnified party") seeking indemnification under this Purchase Agreement in
respect of, arising out of, or involving a claim or demand made by any Person
against the indemnified party (a "Third Party Claim") shall notify the
indemnifying party in writing of the Third Party Claim within 20 days after
receipt by the indemnified party of written notice of the Third Party Claim;
provided, however, that failure to give such notification shall not affect the
indemnification provided under this Purchase Agreement, except to the extent the
indemnifying party shall actually have been prejudiced by the failure.
Thereafter, the indemnified party shall deliver to the indemnifying party,
promptly after the indemnified party's receipt thereof, copies of all notices
and documents (including court papers) received by the indemnified party
relating to the Third Party Claim.
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(b) The indemnifying party shall have the right, within 30
days after being so notified, to assume the defense of such Third Party Claim
with counsel reasonably satisfactory to the indemnified party. In any such
proceeding the defense of which the indemnifying party shall have so assumed,
the indemnified party shall have the right to participate therein and retain its
own counsel at its own expense unless (i) the indemnified party and the
indemnifying party shall have mutually agreed to the retention of such counsel,
(ii) the indemnified party shall have received a written opinion of counsel to
the effect that there may be one or more legal defenses available to it which
are different from or additional to those available to the indemnifying party,
or (iii) the named parties to any such proceeding (including the impleaded
parties) include both the indemnifying party and the indemnified party, and
representation of both parties by the same counsel would be inappropriate in the
opinion of the indemnified party's counsel due to actual or potential differing
interests between them; in any such case, such separate counsel may be retained
by the indemnified party at the indemnifying party's expense (provided that the
indemnifying party shall not be required to bear the fees and expenses of more
than one counsel (plus any local counsel as may be reasonably required) for each
group of similarly situated persons). To the extent that the settlement of such
a Third Party Claim, the defense of which has been assumed by the indemnifying
party, involves the payment of money only, the indemnifying party shall have the
right, in consultation with the indemnified party, to settle those aspects
dealing only with the payment of money, provided that the indemnifying party
pays such money and such settlement includes a general release from the other
parties to such Third Party Claim in favor of the indemnified party. In
connection with any such defense or settlement, the indemnifying party shall not
enter into a consent decree involving injunctive or non-monetary relief or
consent to an injunction without the indemnified party's prior written consent.
(c) With respect to all Third Party Claims, the indemnified
party shall cooperate in all reasonable respects with the indemnifying party in
connection with such claims and the defense or compromise of the claims. Such
cooperation shall include the retention and (upon the indemnifying party's
request) the provision to the indemnifying party of records and information
reasonably relevant to the Third Party Claim, making employees available on a
mutually convenient basis to provide additional information, and explanation of
any material provided under this Purchase Agreement. If the indemnifying party
shall have assumed the defense of a Third Party Claim, the indemnified party
shall not, without first waiving the indemnity as to such claim, admit any
liability with respect to, or settle, compromise, or discharge, the Third Party
Claim, without the indemnifying party's prior written consent.
Section 11.3 Defense of Third-Party Claim. The failure by the
indemnifying party to notify the indemnified party of its election to defend any
Third Party Claim within 30 days after written notice thereof shall have been
given to the indemnifying party shall be deemed a waiver by the indemnifying
party of its right to defend such Third Party Claim. If the indemnifying party
shall not assume the defense of any such Third Party Claim, the indemnified
party may defend against and, subject to obtaining the consent of the
indemnifying party, which shall not be unreasonably delayed or denied, settle
such Third Party Claim in such manner as it may deem appropriate.
Section 11.4 Payment. The indemnifying party shall pay directly all
Damages or shall, if the indemnified party elects to pay any Damages directly,
promptly reimburse the indemnified party for any Damages paid by the indemnified
party that is the subject of an indemnification given under this Article XI. The
indemnifying party shall reimburse the indemnified party promptly upon demand
for the amount of any judgment rendered or settlement entered into with respect
to any Third Party Claim, the defense of which was not assumed by the
indemnifying party, and, promptly upon demand, for all Damages paid by the
indemnified party in connection with the defense against such Third Party Claim.
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Section 11.5 Limitation on Indemnification. (a) An indemnified party
shall not be entitled to assert later than September 30, 1996 any right of
indemnification for any Damages suffered by it as a result of the falsity,
inaccuracy, or breach of any representation or warranty (but not the breach of
any covenant or agreement) by the indemnifying party set forth herein; provided
however, that (i) any claim with respect to the falsity, inaccuracy, or breach
of a representation or warranty with respect to (A) title to Assets may be
brought at any time or (B) Taxes may be brought at any time prior to 30 days
after the expiration of the applicable statute of limitations and (ii) if there
shall then be pending any claim for such indemnification hereunder which has
been asserted prior to the applicable date by the indemnified party with
reasonable specificity, the indemnified party shall continue to have the right
to be indemnified with respect thereto.
(b) A Buyer Indemnitee shall not be entitled to
indemnification hereunder for any Damages suffered by it as a result of the
falsity, inaccuracy, or breach of any representation or warranty by the Sellers
unless the aggregate amount of Damages suffered by all Buyer Indemnities for all
such falsities, inaccuracies, and breaches exceeds $250,000, and then the
Sellers shall be responsible only for the amount of such Damages that exceeds
$250,000.
(c) A Seller Indemnitee shall not be entitled to
indemnification hereunder for any Damages suffered by it as a result of the
falsity, inaccuracy, or breach of any representation or warranty by Buyer unless
the aggregate amount of Damages suffered by all Seller Indemnities for all such
falsities and breaches exceeds $250,000, and then Buyer shall be responsible
only for the amount of such Damages that exceeds $250,000.
(d) The aggregate amount to which an indemnified party shall
be entitled to receive as indemnification under this Article XI shall be reduced
by the amount of all tax benefits or savings actually available to and utilized
by such party as a result of any loss, liability, cost, expense, or damage
giving rise to such indemnification.
(e) A Buyer Indemnitee shall not be entitled to be indemnified
hereunder for (a) any Damages suffered by it as a result of the falsity, breach,
or inaccuracy of any representation, warranty, covenant, or agreement of the
Sellers contained in this Purchase Agreement or in any schedule, exhibit,
document, or instrument delivered in connection herewith which any CORE Obligor
had Knowledge of prior to the Closing or any Person listed on Schedule 5 hereto
caused or (b) any Liability to the extent included as a current liability for
purposes of the calculation of the Net Working Capital Amount.
(f) A Seller Indemnitee shall not be entitled to be
indemnified hereunder for any Damages suffered by it as a result of the falsity,
breach, or inaccuracy of any representation, warranty, covenant, or agreement of
the Buyer contained in this Purchase Agreement or in any schedule, exhibit,
document, or instrument delivered in connection herewith which Seller had
Knowledge of prior to the Closing or any Person listed on Schedule 4 hereto
caused.
(g) Except as provided in Articles III, VI, and XIII and
Section 15.2, each of the parties acknowledges and agrees that, from and after
the date of this Purchase Agreement, its sole and exclusive remedy with respect
to any and all claims relating to the subject matter of this Purchase Agreement
shall be pursuant to the indemnification provisions in this Article XI.
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Section 11.6 Bulk Transfer Laws. The CORE Obligors hereby waive
compliance by the Sellers with the provisions of any applicable bulk transfer
Laws of any jurisdiction in connection with the sale of the Shares and the
Purchased Assets to Buyer; provided, however, that Sellers hereby agree to
indemnify the CORE Obligors against and hold the CORE Obligors harmless from, at
all times after the Closing Date, any and all liabilities (including reasonable
legal fees) related to or arising out of the failure to comply with such bulk
sales laws, in each case other than with respect to any Assumed Liabilities.
XII. CLOSING
Section 12.1 Time and Place. The Closing of the Transactions shall take
place at the offices of Duane, Morris & Heckscher, 122 East 42nd Street, New
York, New York 10168 at 10:00 A.M. as promptly as practicable after the
satisfaction or waiver of the conditions set forth herein, or at such other date
and place as may be agreed upon by the parties (the "Closing Date").
Section 12.2 Items to be Delivered by the Sellers. At the Closing, the
Sellers shall deliver in accordance with this Purchase Agreement, among other
things, the following:
(a) Certificates representing the Acquired Shares, duly
endorsed in blank or accompanied by appropriate stock powers for transfer of all
right, title, and interest in the Acquired Shares to Buyer.
(b) Such bills of sale and other instruments of transfer as
are necessary or reasonably requested for the transfer and conveyance to Buyer
of the Purchased Assets.
(c) A certificate, signed by an officer of each of Castle and
of each other Seller which is a corporation (on behalf of such corporation and
of any Partnership of which such corporation is a general partner), stating that
the representations and warranties made by the Sellers in this Purchase
Agreement are true and correct in all material respects on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on or given on and as of the Closing Date, that the Sellers have in all
material respects performed and complied with all of their obligations under
this Purchase Agreement which are to be performed or complied with by them prior
to or on the Closing Date, and that to the Knowledge of Sellers all conditions
to the obligations of Buyer to be performed hereunder have been satisfied or
waived. The delivery of such certificate shall be and constitute a
representation and warranty of each Seller as of the Closing Date to each of the
facts stated therein.
(d) A written opinion of counsel for the Sellers, dated as of
the Closing Date, addressed and reasonably satisfactory to Buyer, covering the
following matters:
(i) the corporate existence and good standing of
Castle and the corporate or partnership existence, good standing, and
qualification of the Castle Subsidiaries;
(ii) the due authorization, execution, and delivery
by the Sellers of this Purchase Agreement and the legal, valid, and binding
effect of the Sellers' obligations hereunder enforceable in accordance with the
terms hereof, except as may be limited by Laws affecting bankruptcy, insolvency,
fraudulent conveyance, and creditors' rights generally and subject to equitable
principles and the discretion of a court to grant equitable remedies; and
(iii) the requisite corporate or partnership power
and authority of the Castle Subsidiaries to own and operate their respective
businesses.
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<PAGE>
(e) A written opinion of special counsel, dated as of the
Closing Date, addressed and reasonably satisfactory to Buyer, covering the
following matters:
(i) the capitalization of the Acquired Corporations
and the other matters referred to in Section 4.5;
(ii) that, subject to the receipt of the Required
Filings and Approvals, the execution and delivery of this Purchase Agreement do
not, and the consummation of the Transactions contemplated hereby will not,
violate any provision of the organizational documents of Castle or the Castle
Subsidiaries, or any Law to which the Castle Entities are subject or bound or,
to the knowledge of such counsel, result in the default or acceleration of any
obligation or default under any provisions of any Contract or Order known to
such counsel to which Castle or any of the Castle Subsidiaries is a party, or by
which the business of the Castle Subsidiaries is bound or encumbered; and
(iii) to the knowledge of such counsel, without
independent investigation, the existence of all Required Filings and Approvals
of the Castle Entities indicated as material Required Filings and Approvals on
the Schedules hereto.
(f) A certified copy of the duly adopted resolutions of the
Board of Directors of each Seller which is a corporation authorizing and
recommending the Transactions (on behalf of such corporation and of any
Partnership of which such corporation is a general partner).
(g) A copy of each approval, consent, assignment, contract,
novation, release, or waiver, including the Required Filings and Approvals of
Castle, obtained by the Sellers in connection with the Transactions, and a
schedule of any Required Filings and Approvals of Castle that have not been
obtained.
(h) The written resignations, dated the Closing Date, of each
of the officers and directors of the Acquired Corporations, other than any
individuals who are or are expected to become officers, directors, or
stockholders of any CORE Obligor.
(i) A duly executed and valid certificate of non-foreign
status in accordance with Section 1445 of the Code and the Treasury Regulations
thereunder.
(j) Such other documents, instruments, or certificates as
Buyer may reasonably request.
Section 12.3 Items to be Delivered by Buyer. At the Closing, Buyer
shall deliver, among other things:
(a) The Notes in the manner set forth in Section 3.1.
(b) A certificate, signed by an officer of Buyer, stating that
the representations and warranties made by the CORE Obligors in this Purchase
Agreement are true and correct in all material respects on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on or given on and as of the Closing Date, that the CORE Obligors have in
all material respects performed and complied with all of its obligations under
this Purchase Agreement which are to be performed or complied with by it prior
to or on the Closing Date, and that to the Knowledge of the CORE Obligors all
conditions to the obligations of Sellers to be performed hereunder have been
satisfied or waived. The delivery of such certificate shall be and constitute a
representation and warranty of the CORE Obligors as of the Closing Date to each
of the facts stated therein.
41
<PAGE>
(c) A written opinion of counsel for the CORE Obligors, dated
as of the Closing Date, addressed and reasonably satisfactory to the Sellers,
covering the followings matters:
(i) the corporate or partnership existence, good
standing, and qualification of the CORE Obligors; and
(ii) the due authorization, execution, and delivery
by the CORE Obligors of this Purchase Agreement, the Notes, and the CORE Obligor
Agreements and the legal, valid, and binding effect of the CORE Obligors'
obligations hereunder and thereunder in accordance with the terms hereof and
thereof, except as may be limited by Laws affecting bankruptcy, insolvency,
fraudulent conveyance, and creditors' rights generally and subject to the
discretion of a court to grant equitable remedies;
(d) A written opinion of special counsel, dated as of the
Closing Date, addressed and reasonably satisfactory to the Sellers, covering the
followings matters:
(i) that, subject to the receipt of the Required
Filings and Approvals, the execution and delivery of this Purchase Agreement,
the Notes, and the CORE Obligor Agreements do not, and the consummation of the
Transactions will not, violate any provision of the certificate of incorporation
or bylaws of any CORE Obligor or any Law to which any CORE Obligor is known to
such counsel to be subject or bound or, to the knowledge of such counsel, result
in the default or acceleration of any obligation or default under any provision
of any Contract known to such counsel to which any CORE Obligor is a party or by
which it is bound or encumbered, including without limitation the Contracts
relating to the Financing; and
(ii) to the knowledge of such counsel, without
independent investigation, the existence of all Required Filings and Approvals
of Buyer indicated as material Required Filings and Approvals on Schedule 5.3
hereto.
(e) A certified copy of the duly adopted resolutions of each
CORE Obligor's Board of Directors or other governing body authorizing the
Transactions.
(f) A copy of each approval, consent, assignment, contract,
novation, release, or waiver, including the Required Filings and Approvals of
Buyer, obtained by the CORE Obligors in connection with the Transactions and a
schedule of any Required Filings and Approvals of Buyer that have not been
obtained.
(g) An agreement pursuant to which Buyer assumes the Assumed
Liabilities.
(h) Such other documents, instruments, and certificates as the
Sellers may reasonably request.
XIII. TERMINATION
Section 13.1 Termination. This Purchase Agreement may be terminated and
the purchase and sale of the Acquired Shares and Purchased Assets abandoned at
any time prior to the Closing Date:
(a) by mutual consent of Castle and Buyer;
(b) by Buyer, if by the Termination Date any of the conditions
provided in Article IX of this Purchase Agreement have not been met and have not
been waived in writing by Buyer, except as a result of the willful acts or
omissions of Buyer;
42
<PAGE>
(c) by Castle, if by the Termination Date any of the
conditions provided in Article X of this Purchase Agreement have not been met
and have not been waived in writing by Castle, except as a result of the willful
acts or omissions of Castle;
(d) by either Buyer or Castle, if an agreement with any Person
with the intent to effect a Takeover Proposal is entered into prior to the
Closing in accordance with Section 7.5;
(e) by Castle, if the Fairness Opinion shall have been
rescinded.
Section 13.2 Effect of Termination. (a) If Castle shall terminate this
Agreement pursuant to Section 13.1(d), Castle will reimburse CORE's equity
investors for their reasonable and documented out-of-pocket expenses (including
reasonable legal fees and expenses) incurred in connection with the
Transactions, provided that Castle shall not in any event be obligated to pay
more than $250,000 in the aggregate pursuant to this Section 13.2(a).
(b) The obligations contained in Sections 7.6, 8.3, 13.2(a),
15.2, and 15.9 hereof shall survive any termination of this Purchase Agreement.
XIV. AMENDMENT AND WAIVER
Section 14.1 Amendment. This Purchase Agreement may be amended or
modified in whole or in part at any time by an agreement in writing executed in
the same manner as this Purchase Agreement.
Section 14.2 Extension; Waiver. At any time prior to the Closing Date,
either party hereto may:
(a) extend the time for the performance of any of the
obligations or other acts of the other party hereto,
(b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, or
(c) waive compliance with any of the agreements or conditions
contained herein.
Any agreement on the part of a party to any such extension or waiver shall be
valid only if set forth in an instrument in writing duly executed and delivered
on behalf of such party. The failure of any party hereto to enforce at any time
any provision of this Purchase Agreement shall not be construed to be a waiver
of such provision, nor in any way to affect the validity of this Purchase
Agreement or any part hereof or the right of such party hereafter to enforce
each and every such provision. No waiver of any breach of this Purchase
Agreement shall be held to constitute a waiver of any other or subsequent
breach.
43
<PAGE>
XV. MISCELLANEOUS
Section 15.1 Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, sent by Federal Express, Express Mail, or similar
overnight delivery or courier service, or delivered (in person or by telecopy,
telex, or similar communications equipment) against receipt to the party to whom
it is given, addressed as follows:
if to the Sellers, to:
Castle Energy Corporation
One Radnor Corporate Center
Suite 250
100 Matsonford Road
Radnor, Pennsylvania 19087
Attention: Joseph L. Castle, II, Chairman
Telecopy No: (610) 995-0409
with a copy to:
Duane, Morris & Heckscher
4200 One Liberty Place
Philadelphia, Pennsylvania 19103-7396
Attention: Sheldon M. Bonovitz, Esq.
Telecopy No.: (215) 979-1020
if to any CORE Obligor:
CORE Refining Corporation
606 Pugh Road
Strafford, Pennsylvania 19087
Attention: William S. Sudhaus
Telecopy No.: (610) 964-1540
with a copy to:
Shapiro & Allen
565 5th Avenue
New York, NY 10017
Attention: Stuart Shapiro, Esq.
Telecopy No.: (212) 661-0415
or to such other address as the Person to whom notice is given may have
previously furnished to the other party in writing in accordance herewith.
44
<PAGE>
Section 15.2 Expenses. (a) Castle shall, within 30 days after
presentation of a statement of expenses, reimburse Buyer and Sudhaus and their
Affiliates for all reasonable out-of-pocket expenses, including reasonable
counsel fees, whether incurred prior or subsequent to the date hereof, for their
evaluation of the financial, legal, and other aspects of the Transactions
(except environmental evaluations), the Shares and Purchased Assets, Castle and
the Castle Subsidiaries, and negotiations with respect to the Transactions and
the Financing. If the Transactions (i) are consummated or (ii) are not
consummated as a result of (A) Buyer's refusal to close when all conditions in
Article IX have been satisfied or waived or (B) the failure to satisfy a
condition to Closing in Article IX or X as a result of a willful breach by
Buyer, Castle shall not reimburse Buyer and Sudhaus and their Affiliates for any
further expenses, and Buyer shall reimburse Castle for any expenses previously
reimbursed by Castle to, or paid by Castle on behalf of, Buyer and Sudhaus and
their Affiliates, including without limitation fees and expenses paid or payable
in connection with the environmental evaluation contemplated by Section 15.2(b)
or incurred in connection with the Financing, but not including any expenses
incurred by Castle on its own behalf. For purposes of the foregoing, (iii)
$1,000,000 of expenses shall be deemed to have been paid by Castle on behalf of
Buyer, Sudhaus and their Affiliates prior to the earlier of the date of this
Agreement and June 1, 1995 and (iv) one-half of all fees and expenses incurred
in connection with the Interim Financing shall be deemed to have been incurred
on behalf of the Buyer. Castle's obligations under this Section 15.2 supersede
its obligations under the Stock and Asset Purchase Agreement, dated as of
December 5, 1994, among CORE, Castle, and certain of Castle's Affiliates.
(b) Buyer and Castle shall jointly arrange for an
environmental evaluation of the business of the Castle Subsidiaries, the scope
and costs of which evaluations shall be mutually agreed upon by the parties
hereto. In addition, if the consultant who shall perform such evaluation shall
not consent to the use of its report in connection with the Financing, Buyer and
Castle shall arrange for a second such evaluation. All fees and expenses
incurred in connection with such evaluations (including, without limitation, the
fees of any environmental consultants and refinery experts) shall be paid by
Castle; provided, that if the Transactions contemplated by this Purchase
Agreement (i) are consummated or (ii) are not consummated as a result of (A)
Buyer's refusal to close when all conditions in Article IX have been satisfied
or waived or (B) the failure to satisfy a condition to Closing in Article IX or
X as a result of a willful breach by Buyer, Buyer shall reimburse Castle for and
thereafter be responsible for all such fees and expenses. The parties agree that
the reports of such consultants and experts shall be shared by the parties and
that Castle may present such reports to third parties (subject to
confidentiality agreements which require such third parties to destroy or return
all copies of such reports to Castle), including other potential purchasers of
all or a portion of the business of the Castle Subsidiaries. Upon consummation
of the Transactions, the reports shall become the property of Buyer, provided
that copies of the reports may be maintained by Castle. If the Transactions are
not consummated, the reports shall continue as the sole property of Castle.
(c) The obligations under this Section 15.2 shall survive any
termination of this Purchase Agreement.
Section 15.3 Governing Law. This Purchase Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
regard to its rules on conflicts of law.
Section 15.4 Successors and Assigns. This Purchase Agreement shall not
be assigned by any party without the written consent of all other parties and
any attempted assignment without such written consent shall be null and void and
without legal effect; provided that (a) CORE may assign its rights to purchase
all (but not less than all) of the Purchased Assets to any single Subsidiary
45
<PAGE>
which executes and delivers to the Sellers a CORE Obligor Agreement and (b)
Buyer may collaterally assign its rights hereunder to any lenders providing the
Financing. This Purchase Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns and shall inure to the benefit of the Persons entitled to indemnity
under Article XI.
Section 15.5 Partial Invalidity. In case any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Purchase
Agreement, but this Purchase Agreement shall be construed as if such invalid,
illegal, or unenforceable provision or provisions had never been contained
herein unless the deletion of such provision or provisions would result in such
a material change as to cause completion of the Transactions to be unreasonable
or would materially and adversely frustrate the objectives of the parties as
expressed in this Purchase Agreement.
Section 15.6 Execution in Counterparts. This Purchase Agreement may be
executed in two or more counterparts, all of which shall be considered one and
the same agreement, and shall become a binding agreement when one or more
counterparts have been signed by each of the parties and delivered to each of
the other parties.
Section 15.7 Titles and Headings. Titles and headings to Articles and
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Purchase Agreement.
Section 15.8 Entire Agreement. This Purchase Agreement, together with
all schedules and exhibits hereto and any documents delivered pursuant to this
Purchase Agreement, contains the entire understanding of the parties hereto with
regard to the subject matter contained herein.
Section 15.9 Announcements. Announcements to the public, employees,
customers, or suppliers concerning the Transactions by the Sellers or Buyer
shall be subject to the approval of the other parties in all essential respects,
except that the approval by the other parties shall not be required as to any
statements and other information which a party may submit to any Governmental
Entity or announce pursuant to any Law.
Section 15.10 Construction. The parties acknowledge that both parties
and their counsel have participated fully in the negotiation and preparation of
this Purchase Agreement and agree that, in any construction or interpretation of
this Purchase Agreement, no provision shall be construed against the interest of
either party on the basis that such party drafted such provision.
Section 15.11 Jurisdiction. Any action, suit, or proceeding arising out
of, based on, or in connection with this Purchase Agreement, the Notes, or the
Transactions may be brought only in any United States District Court or
appropriate state court in the State of Delaware and each party covenants and
agrees not to assert, by way of motion, as a defense, or otherwise, in any such
action, suit, or proceeding, any claim that it is not subject personally to the
jurisdiction of such court, that its property is exempt or immune from
attachment or execution, that the action, suit, or proceeding is brought in an
inconvenient forum, that the venue of the action, suit, or proceeding is
improper, or that this Purchase Agreement or the subject matter hereof may not
be enforced in or by such court.
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<PAGE>
Section 15.12 Further Actions. At any time and from time to time, each
party hereto agrees, without further consideration, to take such actions and to
execute and deliver such documents as may be reasonably necessary to effectuate
the purposes of this Purchase Agreement and to more effectively carry out the
transfer of stock and assets, realization of assets, and assumption of
liabilities contemplated by this Purchase Agreement.
Section 15.13 Shell Litigation. (a) Until the Closing, Castle and IRLP
shall control the prosecution, defense, and negotiation of any settlement of the
Shell Litigation, in each case with counsel of its choice, and Castle and IRLP
shall bear all Litigation Expenses incurred prior to the Closing.
(b) Upon and following the Closing, Buyer shall assume and control the
prosecution, defense, and negotiation of any settlement of the Shell Litigation,
in each case with counsel of its choice, reasonably acceptable to Castle, except
that (i) Castle shall retain control of all matters relating to any Shell
Pre-Closing Claims and (ii) without the consent of Castle, Buyer may not bring
any claim against Shell or any of its Affiliates for tortious interference,
antitrust claims, or similar claims arising out of Shell's actions with respect
to the Shell Contract. Buyer shall bear all Litigation Expenses incurred on and
after the Closing Date; provided that (i) Castle shall have the right to
participate in the Shell Litigation and retain its own counsel at its own
expense and (ii) Castle shall bear any Litigation Expenses relating solely to
Shell Pre-Closing Claims.
(c) Any judgment rendered in the Shell Litigation shall be solely for
the account of the Buyer, except that (i) any judgment or portion thereof
relating to any Shell Pre-Closing Claims shall be for the account of Castle and
(ii) any judgment or portion thereof relating to any claim against Shell or any
of its Affiliates for tortious interference, antitrust claims, or similar claims
arising out of Shell's actions with respect to the Shell Contract shall be paid
(A) first, to CORE, in an amount equal to the Litigation Expenses incurred by it
relating to such claim and (B) the balance 75% to CORE and 25% to Castle.
(d) Buyer and Castle shall reasonably cooperate with each other in the
prosecution, defense, and negotiation of settlement of any litigation or other
proceeding, claim, or demand arising from the Shell Litigation or the Shell
Contract.
(e) Buyer shall not settle the Shell Litigation without consultation
with Castle. Buyer may settle the Shell Litigation on such terms as are
acceptable to it, except as follows.
(i) Buyer may not settle the Shell Litigation without the
consent of Castle if as a result of such settlement either of the following
events (the "Consent Events") would occur: (A) the Shell Reduction would be more
than 25% of the present value of the Non-Adjusted Royalty Payments or (B) the
Shell Reduction would exceed 25% of the sum of the Shell Reduction and the
present value of the costs to the Buyer of such settlement. For purposes of the
foregoing, (C) present values shall be determined as of the Closing Date based
upon a discount rate of 8% per annum and (D) the costs to the Buyer of a
settlement shall be the value given up by the Buyer, net of any value
47
<PAGE>
received by the Buyer, pursuant to such settlement, whether by payment of money,
by any modifications to the Shell Contract, by entry into of other contractual
obligations, or otherwise.
(ii) Buyer shall give notice to Castle of the terms of any
settlement of the Shell Litigation which Buyer intends to accept and which Buyer
believes in good faith would not result in either of the Consent Events,
together with sufficient information for Castle to determine whether such
settlement would result in either of the Consent Events. Promptly after the
giving of such notice, Buyer and Castle shall seek in good faith to agree upon
whether such settlement would result in either of the Consent Events or the
amounts, if any, which the Buyer will be required to pay Castle so that such
settlement would not result in either of the Consent Events (the "Required
Amount"). If the parties cannot so agree within five business days of such
notice, (A) Buyer may enter into such settlement and (B) either party may submit
the question of whether such settlement would result in either of the Consent
Events and the determination of the Required Amount for arbitration by Deloitte
& Touche (or, if Deloitte & Touche shall be unwilling or unable to serve, such
other big six accounting firm or nationally recognized investment banking firm
on which the parties shall agree). Any such determination made by the Settlement
Arbitrator shall be conclusive and binding on all parties to this Purchase
Agreement. Within five business days after the submission of such dispute to the
Settlement Arbitrator (or, if later, the selection of the Settlement
Arbitrator), Castle and Buyer shall each submit in writing to the Settlement
Arbitrator, with a copy to the other party, its basis for concluding whether or
not such settlement would result in either of the Consent Events and its
proposal with respect to the Required Amount. Within five business days of
receipt of the other party's proposal, Castle and Buyer may each submit in
writing to the Settlement Arbitrator, with a copy to the other party, arguments
rebutting the other party's initial submission. The Settlement Arbitrator shall
render its decision within five business days after the final submissions by
Buyer and Castle. If Buyer has elected to enter into the Settlement, Buyer shall
pay the Required Amount, as determined by the Arbitrator, within five business
days after determination thereof by the Settlement Arbitrator, and shall pay
interest at the rate of interest from time to time announced publicly by
Citibank, N.A. as its prime rate for the period from the date of such settlement
to and until the date of payment.
(iii) The fee of the Settlement Arbitrator for any
determination under this Section 15.13(e) shall be paid by (A) Castle, if the
Settlement Arbitrator determines that the proposed settlement would not result
in either of the Consent Events, or (B) the Buyer, if the Settlement Arbitrator
determines that the proposed would result in either of the Consent Events.
(iv) Nothing herein shall be construed (A) to authorize or
permit the Settlement Arbitrator to arbitrate or determine any question or
matter whatever under or in connection with this Agreement except whether the
proposed settlement would result in either of the Consent Events and the
Required Amount or (B) to require the Settlement Arbitrator to follow the rules
of the American Arbitration Association or any other body in making such
determination.
(v) The Buyer shall have no right to enter into any settlement
(A) of any Shell Pre-Closing Claims or (B) which would subject Castle or any of
its Affiliates to any injunction or similar relief. Castle may settle any Shell
Pre-Closing Claims on such terms as it shall deem acceptable.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be duly executed as of the date and year first above written.
CORE REFINING CORPORATION
By: /s/ William S. Sudhaus
---------------------------------
Title: President
------------------------------
CASTLE ENERGY CORPORATION
By: /s/ Joseph L. Castle II
---------------------------------
Title: Chief Executive Officer
------------------------------
INDIAN REFINING & MARKETING INC.
By: /s/ David M. Hermes
---------------------------------
Title: Sr. V.P. - Raw Material Supply
------------------------------
INDIAN REFINING LIMITED PARTNERSHIP
By: INDIAN REFINING & MARKETING INC.,
General Partner
By: /s/ David M. Hermes
---------------------------------
Title: Sr. V.P. - Raw Material Supply
------------------------------
IP OIL CO.
By: /s/ David M. Hermes
---------------------------------
Title: Sr. V.P. - Raw Material Supply
------------------------------
INDIAN POWERINE L.P.
By: IP OIL CO., General Partner
By: /s/ David M. Hermes
---------------------------------
Title: Sr. V.P. - Raw Material Supply
------------------------------
INDIAN OIL COMPANY
By: /s/ David M. Hermes
---------------------------------
Title: Sr. V.P. - Raw Material Supply
------------------------------
49
<PAGE>
June 1, 1995
Powerine Oil Company
12354 Lakeland Road
Santa Fe Springs, California 90670
Attention: A.L. Gualtieri
Castle Energy Corporation
100 Matsonford Road
One Radnor Corporate Center
Suite 250
Radnor, Pennsylvania 19087
Attention: Joseph L. Castle II
Indian Powerine L.P.
c/o Castle Energy Corporation
100 Matsonford Road
One Radnor Corporate Center
Suite 250
Radnor, Pennsylvania 19087
CEC, Inc.
c/o Castle Energy Corporation
100 Matsonford Road
One Radnor Corporate Center
Suite 250
Radnor, Pennsylvania 19087
Gentlemen:
We refer to that certain Powerine Petroleum Sale and Storage Agreement
dated April 8, 1995 between Wickland Oil Company and Powerine Oil Company, as
amended to date (the "Agreement"). Capitalized terms used herein but not
otherwise defined herein shall have the meanings ascribed to them in the
Agreement.
The parties hereto supplementally agree as follows:
1. Hedging. Section 16 of Schedule C is hereby amended to read in
full as follows:
"Hedging. During the term of this Agreement, Wickland shall engage in a
hedging program mutually agreeable to both parties to hedge all barrels of
<PAGE>
Wickland-Owned crude oil, Feed Stocks and Intermediate Products. Powerine shall
pay to Wickland all costs associated with such hedging program on a daily basis
as follows: Wickland shall submit an invoice to Powerine on a daily basis
showing hedging costs (including margin calls) or credits, as the case may be,
and on the next business day Powerine shall pay Wickland by wire transfer its
costs set forth on such daily invoice, or Wickland shall pay Powerine by wire
transfer on the next business day for any credit shown on such invoice as
applicable. Powerine shall otherwise pay to Wickland all costs associated with
such hedging program including, without limitation, interest, brokers' fees and
losses attributable to imperfect hedging.
2. Pricing Amendments. The following pricing amendments shall be
effective as of the inception of this Agreement:
(a) The price of Propane as set forth on Exhibit A, Schedule 1,
page 2; Exhibit D, Schedule 1, page 1; and Exhibit D, Schedule 3, page 1 shall
be as follows: The lower of (i) low of spot range LA each business day per OPIS,
and (ii) 95% of Warren El Segundo posted price.
(b) The market price of Heavy Coker Gas Oil on Exhibit A, Schedule
1, page 1 shall be as follows: Low of "380-C Bunker (per ton) price as per
Platts Tuesday Bunkerwire divided by 6.325". All references to OPIS in the
pricing of Decant Oil, Bunker C Fuel Oil (Ex Cutter), Heavy Coker Gas Oil and
Cutter Stock on Exhibit A, Schedule 1, page 2; Exhibit C, Schedule 2, page 2;
and Exhibi D, Schedule 1, page 1 shall be deemed to refer to Platts Tuesday
Bunkerwire.
(c) On Exhibit D, Schedule 2, page 1, the component "Unifinite"
shall be deemed added under Gasoline Components and Finished Products, with the
following prices under the applicable headings: 3.78 6.30 2.94 0.25 .10.
(d) On Exhibit D, Schedule 3, pages 1 and 2, the same changes to
the description of market price for propane, Decant Oil, Bunker C Fuel Oil (Ex
Cutter) and Cutter Stock shall be made as set forth in clause (b) above.
<PAGE>
3. Personnel. Powerine agrees that marketing information from
Robert Mills will be available to Wickland at no additional charge. During the
term of this Agreement, Powerine shall cause Mr. Mills not to engage in
marketing activities respecting commodities. The provisions of Wickland's letter
to Powerine dated May 2, 1995 regarding personnel matters shall remain in full
force and effect. Wickland's letter dated May 17, 1995 respecting personnel
matters shall be deemed rescinded.
4. Invoicing. The provisions of Sections 13(b)(i)(A) and
13(c)(i)(A) are hereby amended to add the following sentence: "Invoices for
weekend deliveries shall be submitted as of 05:00 Saturday and 05:00 Sunday and
payment will be due Wickland and Powerine respectively in accordance with
Section 13(b)(ii) following such dates.
5. Notice of Refinancing. Powerine's notice of refinancing to
Wickland dated May 12, 1995 is hereby rescinded.
Kindly acknowledge your agreement to the foregoing by signing this
letter where indicated below. This Agreement will be effective when signed by
all parties.
Very truly yours,
Wickland Oil Company,
a California corporation
By: /s/ Robert L. Sanz
-------------------------------------
Robert L. Sanz, Vice President
Supply and Marketing
Agreed:
Powerine Oil Company,
a California corporation
/s/ A. L. Gualtieri
---------------------------
A.L. Gualtieri
President and CEO
<PAGE>
Castle Energy Corporation,
a Delaware corporation
/s/ Joseph L. Castle II
----------------------------
Joseph L. Castle II
Chairman of the Board and
Chief Executive Officer
Indian Powerine L.P.,
an Illinois limited partnership
By: IP Oil Co., Inc.,
an Illinois corporation,
its general partner
By: /s/ Joseph L. Castle II
----------------------------
Its:
CEC, Inc.,
a Delaware corporation
By: /s/ Joseph L. Castle II
---------------------------
Its:
<PAGE>
June 30, 1995
Powerine Oil Company
12354 Lakeland Road
Santa Fe Springs, California 90670
Attention: A.L. Gualtieri
Castle Energy Corporation
100 Matsonford Road
One Radnor Corporate Center
Suite 250
Radnor, Pennsylvania 19087
Attention: Joseph L. Castle II
Indian Powerine L.P.
c/o Castle Energy Corporation
100 Matsonford Road
One Radnor Corporate Center
Suite 250
Radnor, Pennsylvania 19087
CEC, Inc.
c/o Castle Energy Corporation
100 Matsonford Road
One Radnor Corporate Center
Suite 250
Radnor, Pennsylvania 19087
Gentlemen:
We refer to that certain Powerine Petroleum Sale and Storage Agreement
dated April 8, 1995 between Wickland Oil Company and Powerine Oil Company, as
amended to date (the "Agreement"). Capitalized terms used herein but not
otherwise defined herein shall have the meanings ascribed to them in the
Agreement.
Powerine has advised Wickland that it may be necessary to continue the
Powerine Refinery in operation past July 1, 1995 for purposes of using up
existing inventories of crude oil, Intermediate Products and Feed Stocks.
<PAGE>
This letter will confirm that the Agreement shall continue on a
day-to-day "at-will" basis on and after July 1, 1995, and may be terminated
thereafter by either party at any time, except that payment for Intermediate
Products and Feed Stocks fed to process shall be settled daily.
Kindly acknowledge your agreement to the foregoing by signing this
letter where indicated below. This Agreement will be effective when signed by
all parties.
Very truly yours,
Wickland Oil Company,
a California corporation
By: /s/ Robert L. Sanz
-----------------------
Robert L. Sanz, Vice President
Supply and Marketing
Agreed:
Powerine Oil Company,
a California corporation
/s/ A. L. Gualtieri
--------------------------
A.L. Gualtieri
President and CEO
Castle Energy Corporation,
a Delaware corporation
/s/ Joseph L. Castle II
--------------------------
Joseph L. Castle II
Chairman of the Board and
Chief Executive Officer
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Indian Powerine L.P.,
an Illinois limited partnership
By: IP Oil Co., Inc.,
an Illinois corporation,
its general partner
By: /s/ Chris A. Woods
------------------------
Its:
CEC, Inc.,
a Delaware corporation
By: /s/ Joseph L. Castle II
--------------------------
Its:
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Exhibit 10.15
BT COMMERCIAL CORPORATION MEESPIERSON N.V., New York Agency
14 Wall Street, 3rd Floor 445 Park Avenue
New York, New York 10005 New York, New York 10022
BANKERS TRUST COMPANY
One Bankers Trust Plaza
130 Liberty Stree
New York, New York 10006
May 25, 1995
Indian Oil Company
South Seventh Street
Lawrenceville, Illinois 62439
Attention: Mr. William S. Sudhaus
BT Commercial Corporation ("BTCC") and MeesPierson N.V., New York Agency
("MP") are pleased to offer to make available to Indian Oil Company, an Illinois
corporation, a discretionary line of credit (the "Facility") on the following
terms and subject to the following conditions.
<TABLE>
<CAPTION>
<S> <C>
Borrower: Indian Oil Company ("Borrower"), an Illinois corporation.
Lenders: BTCC and MP (the "Line of Credit Lenders" or the
"Lenders"). The Line of Credit Lenders pro rata shares
of all loans and letters of credit shall be 50% each.
Issuing Lender: Bankers Trust Company ("BTCo" or the "Issuing Lender").
Administrative Agent
and Collateral Agent: BTCC (the "Administrative Agent" and the "Collateral
Agent," collectively the "Agent" and, together with the Line
of Credit Lenders and the Issuing Lender, the "Lender
Parties").
Amount: Up to $30 million (the "Total Facility") in revolving loans
("Loans") and standby letters of credit ("Letters of Credit"
<PAGE>
and, together with the Loans, "Extensions of Credit"); to be
borrowed/issued, at the request of Borrower, BUT ONLY
IF EACH LINE OF CREDIT LENDER, IN ITS SOLE DISCRETION, SO
AGREES, from time to time prior to the Scheduled Termination
Date or such earlier date as of which either Line of Credit
Lender notifies Borrower that the Facility has been terminated
by such Lender, for the purposes set forth below.
For purposes hereof, Scheduled Termination Date shall
mean the earlier of (x) the occurrence of the termination of
the agreement referred to in item 5 of Annex 2 (giving effect
to any extension thereof) in accordance with its terms and
(y) August 31, 1995.
Extensions
of Credit: Extensions of Credit shall be made in accordance with
Annex 1 hereto.
Borrowing
Restrictions: In furtherance, but not in limitation of the other provisions
contained herein, no Loan may be borrowed hereunder if (a)
the aggregate principal amount of the Loan so requested to
be borrowed together with all other outstanding requests for
Loans and all other Loans then outstanding hereunder
would exceed (b) $25 million minus the Cumulative Step-
down Amount (the "Loan Sublimit"). In furtherance, but
not in limitation of the other provisions contained herein, no
Extension of Credit shall be made hereunder if (a) the
aggregate principal amount of the Loan so requested to be
borrowed or the stated amount of the Letter of Credit so
requested to be issued, together with all other outstanding
requests for Loans and Letters of Credit and all other
outstanding Loans, the undrawn stated amount of any
outstanding Letters of Credit and any unreimbursed
drawings under any Letter of Credit hereunder, would
exceed (b) the lesser of the Total Facility and the Borrowing
Base then in effect; provided that to the extent the proceeds
of a Loan are to be used to pay the purchase price of
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<PAGE>
Eligible Contingent Inventory to the seller thereof at the
time title thereto transfers to Borrower, so long as (i) the
Notice of Borrowing applicable to such Loan identifies the
specific Letter of Credit supporting such Eligible Contingent
Inventory and (ii) the proceeds of such Loan are paid
directly by the Administrative Agent to such seller (as
specifically authorized by such Notice of Borrowing) and
(iii) after such payment, the beneficiary of such letter of
credit will no longer be able to draw thereunder, the Letter
of Credit Usage shall be concurrently reduced on a dollar-
for-dollar basis with the making of such Loan, with the
result being that such reduced Letter of Credit Usage and
such Loan will not be treated as outstanding at the same
time for purposes of this Letter Agreement and Annex 1
hereto.
For purposes hereof, "stated amount," in respect of any
Letter of Credit, means, at any date of determination, the
face amount of such Letter of Credit; provided that the
amount by which the original face amount of such Letter of
Credit exceeded the original amount of the underlying
obligation shall no longer be deemed outstanding if the
Lenders are satisfied that the underlying obligation
supported by such Letter of Credit has been paid (and
permanently reduced) in full and that no further drawings
will be made on such Letter of Credit.
For purposes hereof, "Borrowing Base" means, at any date
of determination, an amount equal to the Advance Rate for
the applicable item of Eligible Cash Equivalents, Eligible
Accounts Receivable and Eligible Inventory described
below, multiplied, in the case of Eligible Cash Equivalents,
by the face amount thereof, in the case of Eligible Accounts
Receivable, by the amount thereof and, in the case of
Eligible Inventory, by the Market Value thereof for all such
items. Market Values and Advance Rates will be as
determined in the sole discretion of the Line of Credit
Lenders with Market Value being tied to publicly published
3
<PAGE>
benchmarks described in Annex A to Schedule II to the
form of Borrowing Base Certificate attached hereto as
Exhibit B and Advance Rates expected to be not in excess
of the following (capitalized terms used in the following list
but not defined in this Letter Agreement shall have the
meanings assigned to them in Schedule II to Exhibit B
hereto):
(a) 100% of Eligible Cash; plus
(b) 100% of Eligible Cash Equivalents; plus
(c) 80% of Eligible Accounts Receivable supported by
irrevocable letters of credit; plus
(d) 80% of all other Eligible Accounts Receivable not
included in clause (e) below, to the extent covered by
credit insurance with an aggregate deductible and co-
insurance of not more than the sum of (i) 10% of each
Account plus (ii) $20,000 and not supported by
irrevocable letters of credit (subject to a maximum of
$5 million, after application of such 80% figure); plus
(e) 80% of Eligible Accounts Receivable pursuant to the
Louis Dreyfus Agreement to the extent covered by
credit insurance with an aggregate deductible co-
insurance of not more than the sum of (i) 10% of each
Account plus (ii) $20,000 and not supported by
irrevocable letters of credit (subject to a maximum of
$10 million, before giving effect to such 80% figure);
plus
(f) 50% of Eligible Hedged Intermediate Feedstocks
Inventory (subject to a limit to be determined by each
Line of Credit Lender in its sole discretion); plus
(g) 50% of Other Eligible Hedged Crude Inventory not
included in clause (h) below (subject to a limit to be
determined by each Line of Credit Lender in its sole
discretion) minus 3,000 barrels; plus
(h) 75% of Eligible Hedged Caroline Condensate
Inventory and Other Eligible Hedged Crude Inventory
mutually agreed upon by Borrower and the Line of
Credit Lenders; plus
(i) 80% of Eligible Hedged Refined Products Inventory;
plus
4
<PAGE>
(j) 100% of (i) the stated amount of each Letter of Credit
supporting such Eligible Contingent Inventory, which
letters of credit are described in clause (c) of the
definition of Eligible Contingent Inventory or (ii) the
amount of cash prepaid (up to $1 million in the
aggregate) in respect of such Eligible Contingent
Inventory; plus
(k) 80% of Eligible Hedged Inventory In-Transit that is
not Eligible Hedged Caroline Condensate Inventory;
minus
(l) 100% of Unrealized Losses on Hedging Contracts or
Positions; plus
(l) 100% of Unrealized Gains on Hedging Contracts or
Positions; plus
(m) 75% of Eligible Hedged Caroline Condensate
Inventory-in-Transit; plus
(n) 80% of Eligible Refined Products Exchange
Agreements; [minus] or [plus]
(o) 100% of the net Unrealized [Loss] or [Gain] on
Future Commitments;
all as set forth in the most recent Borrowing Base
Certificate that was both duly delivered by Borrower and
satisfactory to the Line of Credit Lenders in their sole
discretion, and all without duplication. If, at any time,
Borrower fails to deliver a Borrowing Base Certificate
satisfactory to the Line of Credit Lenders and the
Administrative Agent as required herein, then the
Borrowing Base for the relevant determination shall be
deemed to be zero.
For purposes hereof, Cumulative Step-down Amount
means (a) on and after June 30, 1995, $10 million and
(b) on and after July 31, 1995, $15 million.
Purpose: To finance short-term working capital needs of Borrower
and fees and expenses incurred in connection with entering
into the Line Documents (as defined in Section 3 of the
Security Agreement) and the bank commitment and high
yield debt highly confident letters in connection with the
Permanent Financing.
5
<PAGE>
Guaranty: The obligations of Borrower to the Lender Parties under the
Line Documents shall be guaranteed (as the same may be
amended, amended and restated, supplemented or otherwise
modified from time to time, the Guaranty) by Castle
Energy Corporation, a Delaware corporation (Parent) and
by Castle Resources Production Company (CPRC) and
Castle Production Company (CPC).
Collateral: (a) The obligations of Borrower to the Lender Parties under
the Line Documents shall be secured by all tangible and
intangible personal property and assets of Borrower
(including, without limitation, inventory, accounts, hedging
contracts, receivables and any platinum catalyst)
(collectively, the "Borrower Collateral"), as more
specifically described in the Borrower Security Agreement
being entered into simultaneously herewith by Borrower in
favor of the Collateral Agent (the "Security Agreement");
and (b) the obligations of Parent, CPRC and CPC
(collectively, the Guarantors) to the Lender Parties under
the Guaranty shall be secured by a pledge of the
Guarantors (i) limited and general partnership interests in
Castle Texas Production L.P., (ii) capital stock of Castle
Exploration Company, Inc., CPRC and CPC and (iii)
common stock of Borrower (collectively, the Parent
Collateral and, together with the Borrower Collateral,
the Collateral), as more specifically described in the
Guarantors Pledge Agreement being entered into
simultaneously herewith by the Guarantors in favor of the
Collateral Agent (the "Pledge Agreement" and, together
with the Security Agreement and any Lock-Box agreement,
the "Collateral Documents").
Interest Rate: The principal amount of Loans outstanding hereunder from
time to time shall bear interest at a rate per annum equal to
the Prime Rate (as defined below) plus 2%. Interest shall be
payable on such amounts on the last day of each calendar
month, upon any payment (other than automatic payments
6
<PAGE>
from the Loan Account), upon demand for repayment and
on the Scheduled Termination Date if any such amounts are
outstanding at such time. Any principal or interest
payments on such amounts not paid when due shall bear
interest at a rate which is 2.0% per annum in excess of the
rate otherwise payable under the note or notes executed in
connection herewith.
For purposes hereof, "Prime Rate" means, at any time, the
higher of:
(i) the rate announced by BTCo from time to time at
its principal office as its prime lending rate for domestic
unsecured commercial loans, the Prime Rate to change
when and as such prime lending rate changes; it being
understood that (A) the prime lending rate is a reference
rate and does not necessarily represent the lowest or best
rate actually charged to any customer; and (B) either or
both of the Line of Credit Lenders may make commercial or
other loans at rates of interest at, above or below the prime
lending rate; and
(ii) the Federal Funds Rate then in effect plus 1/2% of
1%.
Fees: Borrower shall pay to the Administrative Agent, for the pro
rata account of the Line of Credit Lenders, an Arrangement
Fee in the aggregate amount of $1 million in cash, which
amount shall be due and payable in full upon the execution
and delivery of this Letter Agreement (the Closing).
Borrower shall pay to the Administrative Agent, for its own
account, an Administrative Fee in the aggregate amount of
$100,000 in cash, which amount shall be due and payable in
full upon the Closing.
Borrower shall pay to the Administrative Agent, for the pro
rata account of the Line of Credit Lenders, a line letter fee
in an amount in cash equal to 0.50% per annum of the daily
average Differential, which amount shall be due and payable
7
<PAGE>
in arrears on the last day of each month after the Closing
and on the date this Letter Agreement is terminated or
expires and shall accrue from the date of the Closing.
Borrower shall pay to the Administrative Agent, for the pro
rata account of the Line of Credit Lenders, a fee in respect
of each Letter of Credit (the Letter of Credit Fees) in an
amount in cash equal to the greater of (a) 0.40% (flat) of
the stated amount of such Letter of Credit and (b) $400.
Each such Letter of Credit Fee shall be due and payable
monthly in arrears. Ten days after the earlier of the date
upon which the Letter of Credit is canceled (undrawn) or
the date the underlying obligation with respect to a Letter of
Credit is paid in full in respect of such Letter of Credit (such
earlier date being referred to as the Determination Date),
the Borrower shall multiply 2.50% by the face amount of
the Letter of Credit multiplied by the quotient obtained by
dividing the number of days beginning on the date such
Letter of Credit was issued and ending on the Determination
Date in respect of such Letter of Credit by 360. If such
amount is higher than the Letter of Credit Fee paid,
Borrower shall promptly pay in cash the shortfall amount to
the Administrative Agent, for the pro rata account of the
Line of Credit Lenders.
Borrower shall pay to the Issuing Lender, for its own
account, in respect of each Letter of Credit, a Facing Fee in
an amount in cash equal to 0.25% per annum of the
undrawn stated amount of such Letter of Credit, which
amount shall accrue through and including the
Determination Date in respect of such Letter of Credit and
shall be due and payable in arrears on the last day of each
month after the issuance of such Letter of Credit.
For purposes hereof, Differential means, at any time, $30
million minus (a) the aggregate principal amount of Loans
then outstanding (the Loan Usage) minus (b) the
8
<PAGE>
aggregate undrawn stated amount of all Letters of Credit
then outstanding and the aggregate amount of unreimbursed
drawings under all Letters of Credit at such time (the
Letter of Credit Usage).
Computation of Interest
and Fees; Payment
of Amounts by Agent: Interest and, when applicable, fees shall be computed on the
basis of a 360-day year and for the actual number of days
elapsed. Reasonably promptly upon its receipt of any
amount for the account of a Line of Credit Lender or the
Issuing Lender (and at least weekly in the case of principal),
the Administrative Agent shall remit such amount to or
credit the account of such Line of Credit Lender or the
Issuing Lender, as the case may be, in respect thereof.
Mandatory Repayments: Borrower shall immediately repay Loans to the extent the
Loan Usage at any time exceeds the Loan Sublimit then in
effect. Borrower shall immediately repay Loans and
thereafter Adequately Collateralize (as defined below)
Letters of Credit to the extent the Loan Usage plus Letter
of Credit Usage at any time exceeds the lesser of the Total
Facility and the Borrowing Base then in effect. Borrower
shall immediately reimburse the Issuing Lender for a draw
on any Letter of Credit. Borrower directs the
Administrative Agent to make Loans, subject to availability
under the Loan Sublimit and the Borrowing Base (but not
subject to the discretion of the Line of Credit Lenders), for
any such reimbursements in accordance with the terms
hereof.
The Loan Account (as defined in Annex 1 hereto) shall be
credited and charged as provided in said Annex 1.
In addition, (a) the aggregate amounts outstanding
hereunder from time to time shall be payable ON DEMAND
by either Line of Credit Lender in its sole discretion
(notwithstanding compliance by Borrower with all of the
terms hereof and all of the terms of the documents entered
9
<PAGE>
into in connection herewith (collectively, the "Line
Documents")) and, upon such demand, all outstanding
Letters of Credit shall be cash collateralized in an amount at
least equal to 103% of the stated amount thereof (or
supported with a "back-to-back" letter of credit reasonably
satisfactory to each Line of Credit Lender and the Issuing
Lender) (Adequately Collateralized) and (b) if no prior
demand is made by either Line of Credit Lender, all
amounts outstanding hereunder shall be repaid in full and all
outstanding Letters of Credit shall be Adequately
Collateralized on the earliest of (i) the date of execution,
delivery, closing and funding of definitive financing
agreements in an amount sufficient to pay the Lenders in full
(the Permanent Financing), including, without limitation,
pursuant to the proposed credit facility under which
revolving loans and letters of credit in an aggregate
principal amount and/or stated amount of up to $125 million
are to be made available to CORE Refining Corporation
(CORE) by BTCC or any of its affiliates and other
financial institutions as contemplated by the Commitment
Letter dated May 25, 1995 among CORE and BTCC, (ii)
the date on which there is a change of control in a
controlling interest in the record or beneficial ownership of
Indian Refining Limited Partnership, an Illinois Limited
Partnership (IRLP) (including the sale of all or
substantially all its assets) and (iii) the Scheduled
Termination Date, provided that any Letter of Credit issued
to support the August 1995 shipment of Caroline
Condensate pursuant to IRLP s Long-Term Supply
Agreement shall be permitted to be outstanding and be
subject to the terms hereof until September 30, 1995 so
long as it is Adequately Collateralized. Upon and after the
occurrence of any of the events described in the preceding
sentence, none of the Lender Parties shall make any
Extension of Credit hereunder.
Notwithstanding the foregoing, in the event of a demand by
either Line of Credit Lender for payment hereunder or
under any note evidencing the indebtedness hereunder (the
10
<PAGE>
Notes) prior to the Scheduled Termination Date, the Line
of Credit Lenders or the Administrative Agent shall inform
(a Demand Notice) Borrower of the reason (if any) for
the making of such demand and, if (a) there is no reason or
(b) the reason is unrelated to (i) Borrower or any
Guarantor, (ii) Borrower s or any Guarantor s business,
operations, properties, assets (including the Collateral),
prospects or condition (financial or other), or (iii) a Line of
Credit Lender having otherwise determined, in its sole
discretion, that it has become after the date hereof less
secure as to the likelihood of being repaid in full all amounts
owing to it under the Line Documents when due or (iv) the
breach by Borrower or any Guarantor of any of its
obligations under any of the Line Documents, then
Borrower shall not be required to honor such demand for
payment until the passage of ten calendar days. The
obligation, if any, of any Lender Party under applicable law
to provide notice of foreclosure actions or remedies may be
given with any Demand Notice.
Upon the occurrence of an Insolvency Event in respect of
Borrower, any Guarantor or IRLP (collectively, the
Relevant Parties), all amounts owing hereunder (whether
principal, interest, fees or otherwise) shall automatically,
without any action on the part of any Lender Party, be and
become immediately due and payable and Borrower shall
thereupon be required to cause all outstanding Letters of
Credit to be Adequately Collateralized.
For purposes hereof, Insolvency Event shall mean, in
respect of any Relevant Party, the occurrence of any of the
following: such Relevant Party shall make an assignment
for the benefit of, or composition with, creditors or shall
become insolvent or be unable, or generally fail, to pay its
debts when due; or any bankruptcy, insolvency or other
proceeding for the relief of financially distressed debtors
shall be commenced with respect to such Relevant Party, or
a receiver, liquidator, custodian or trustee shall be appointed
for such Relevant Party or a substantial part of its assets,
and, if any of the same shall occur involuntarily as to such
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<PAGE>
Relevant Party, it shall not be dismissed, stayed or
discharged within 60 days; or if any order for relief shall be
entered against such Relevant Party under Title 11 of the
United States Code entitled Bankruptcy ; or such Relevant
Party shall take any action to effect, or which indicates its
acquiescence in, any of the foregoing.
The making of a demand for payment by either Line of
Credit Lender, the occurrence of the Scheduled Termination
Date, and the automatic acceleration of all amounts owing
under the Line Documents described in the fifth paragraph
of this section Mandatory Payments, are each a Demand
Event for purposes of the Line Documents.
Voluntary Repayments: The amount outstanding from time to time hereunder may
be repaid in whole or in part from time to time on one
business day's notice from Borrower to the Line of Credit
Lenders and the Borrower to Administrative Agent, with
accrued interest to the date of prepayment on the amount
repaid.
Order of Payments: All payments received following maturity of the Notes (by
demand, acceleration or otherwise), including charges
against the Loan Account, shall be applied first to pay
unpaid fees, expenses and other amounts owing to the
Collateral Agent under the Line Documents, second to pay
unpaid fees, expenses and other amounts to the
Administrative Agent under the Line Documents, third to
pay unpaid fees, expenses and other amounts (excluding
unreimbursed draws on Letters of Credit) to the Issuing
Lender, fourth to pay (ratably) fees, expenses and other
amounts to the Line of Credit Lenders, fifth to pay (ratably)
unreimbursed draws on Letters of Credit and interest
thereon, with interest paid first, sixth to pay (ratably) unpaid
12
<PAGE>
interest on the Loans, seventh to pay (ratably) unpaid
principal of the Loans, eighth to cash collateralize undrawn
Letters of Credit outstanding and ninth to pay such other
obligations or be deposited to the account of such party or
parties as Borrower shall direct.
Capital Adequacy: If either Line of Credit Lender shall have reasonably
determined in good faith that the adoption or effectiveness
after the date hereof of any applicable law, rule or
regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or
administration thereof, or compliance by such Line of Credit
Lender or its holding company with any request or directive
regarding capital adequacy (whether or not having the force
of law) of any such authority, central bank or comparable
agency has or would have the effect in such Line of Credit
Lender's reasonable opinion of reducing the rate of return
on its or its holding company s capital or assets as a
consequence of this line of credit to a level below that which
it could have achieved but for such adoption, effectiveness,
change or compliance (taking into consideration its then
current policies with respect to capital adequacy), such Line
of Credit Lender will notify Borrower of such reduction
and, if Borrower does not prepay the amount then
outstanding hereunder in full (which payment may be made
at the option of Borrower), including such additional
amount or amounts, if any, as will compensate such Line of
Credit Lender for such reduction) upon receipt of such
notice from such Line of Credit Lender, then from time to
time, within 10 days of demand by such Line of Credit
Lender, Borrower shall pay to such Line of Credit Lender
such additional amount or amounts as will compensate such
Line of Credit Lender for such reduction (after such Line of
Credit Lender shall have allocated the same fairly and
equitably among all of its customers of any class generally
affected thereby). A certificate as to the amount of such
13
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cost, submitted to Borrower and the Administrative Agent
by such Line of Credit Lender, shall, absent manifest error,
be final, conclusive and binding for all purposes.
Payments Free and
Clear of Taxes, Etc.: (a) Any and all payments made by Borrower hereunder to
or for the benefit of any Lender Party shall be made free and
clear of and without deduction for any and all present or
future taxes (other than any taxes imposed on the gross
receipts or income of any Lender Party). If Borrower shall
be required by law to deduct any such taxes from or in
respect of any sum payable hereunder, to or for the benefit
of any Lender Party (i) the sum payable shall be increased as
may be necessary so that after making all required
deductions of such taxes (including deductions of taxes
applicable to additional sums payable under this Section)
such Lender Party, as the case may be, receives an amount
equal to the sum it would have received had no such
deductions been made, (ii) Borrower shall make such
deductions and (iii) Borrower shall pay the full amount so
deducted to the relevant taxation authority or other
authority in accordance with applicable law.
(b) In addition, Borrower agrees to pay any present or
future stamp, documentary, excise, privilege, intangible or
similar levies that arise at any time or from time to time
(i) from any payment made under any and all Line
Documents, (ii) from the transfer of the rights of any Lender
Party under any Line Documents to any transferee, or
(iii) from the execution or delivery by Borrower of, or from
the filing or recording or maintenance of, or otherwise with
respect to the exercise by the Lender Parties of their rights
under, any and all Line Documents (hereinafter referred to
as "Other Taxes").
(c) Borrower hereby indemnifies each Lender Party and the
Agent with respect to any taxes referred to in clauses (a)
and (b) above paid by such Lender Party or the Agent, as
the case may be, and any liability (including penalties,
14
<PAGE>
interest and expenses) arising solely therefrom or with
respect thereto. Payment of this indemnification shall be
made within 30 days from the date such Lender Party
certifies and sets forth in reasonable detail the calculation
thereof as to the amount and type of such taxes. Any such
certificate submitted by the Lender Party in good faith to
the Borrower shall, absent manifest error, be final,
conclusive and binding on all parties.
(d) Within thirty days after having received a receipt of
taxes, Borrower will furnish to the applicable Lender Party,
at its address on the signature pages hereof, the original or a
certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other
agreement of Borrower hereunder, the agreements and
obligations of Borrower contained in this section shall
survive the termination of this Letter Agreement.
Borrowing Base
Certificate, Notice
and Inspection
Requirements: Borrower shall deliver to the Line of Credit Lenders and the
Administrative Agent by 5:00 p.m. New York City time on
(i) the day before the initial advance hereunder and (ii) each
day thereafter a Borrowing Base Certificate in the form
attached hereto as Exhibit B (a "Borrowing Base
Certificate"), reporting the Borrowing Base as of the close
of business on the business day prior to such day of
delivery, together with such financial and other information
regarding Borrower as the Line of Credit Lenders or the
Administrative Agent may reasonably request.
Borrower shall deliver to the Line of Credit Lenders and the
Administrative Agent the following financial information:
(a) unaudited quarterly financial statements of Parent within
45 days of the end of each of its fiscal quarters, prepared in
accordance with generally accepted accounting principles
15
<PAGE>
(GAAP) and on a basis consistent with its audited
financial statements for the most recently completed fiscal
year (the Annual Financial Statements), certified by its
President or Chief Financial Officer as true and complete;
(b) unaudited monthly financial statements of each of
Borrower and Parent within 45 days of each month-end,
prepared in accordance with GAAP (except as to the
absence of footnote disclosure and other year-end audit
adjustments as disclosed therein) and on a basis consistent
with the Annual Financial Statements, certified by such
entity s President or Chief Financial Officer as true and
complete; and (c) such other reports, documents and
financial statements as the Line of Credit Lenders or the
Administrative Agent may request from time to time,
including, without limitation, relating to inventory, accounts
receivable and hedging positions.
In addition, and without limiting the discretion of either
Line of Credit Lender to demand payment hereunder of all
obligations owing from time to time under the Line
Documents, Borrower shall promptly notify the
Administrative Agent of (i) any condition or event (a) which
has had or is reasonably likely to have a material adverse
effect on the business, operations, properties, assets,
prospects or condition (financial or other) of Borrower or
any Guarantor, or (b) which is reasonably likely to result in
a material diminution in the value of the Collateral, (ii) any
default or alleged default with respect to any instrument of
indebtedness of Borrower or any Guarantor, (iii) any
litigation, proceeding, inquiry or other action seeking an
injunction or other restraining order, damages or other relief
by any governmental authority or other person or entity or
investigation by any governmental authority or judgment,
order, injunction or other restraint pending or existing with
respect to or known to Borrower to be threatened with
respect to Borrower or any Guarantor or any of their
respective assets or any of the transactions contemplated
16
<PAGE>
hereby which is reasonably likely to have a material adverse
effect on the business, operations, properties, assets,
prospects or condition (financial or other) of Borrower or
any Guarantor; (iv) (a) the Collateral Agent s security
interests in the Collateral for any reason not constituting
valid, perfected and enforceable first priority security
interests subject to no other security interest in favor of any
other person or entity, other than Permitted Liens (as
defined in the Collateral Documents), and (v) the
occurrence of a Change of Control with respect to
Borrower or IRLP. For purposes hereof, "Change of
Control" shall mean any of (i) the failure of Parent to own
directly 100% of the common stock of Borrower or directly
or indirectly 100% of the limited and general partnership
interests of IRLP, (ii) the failure of Parent or its immediate
assignee to own directly 100% of the preferred stock (or the
right to acquire the preferred stock) of Borrower, (iii) the
failure of Parent to maintain, at all times, the ability, directly
or indirectly, to elect all of the members of the Board of
Directors of Borrower or IRLP s general partner or (iv) the
death, adjudicated incompetency, bankruptcy or insolvency
of Mr. William S. Sudhaus.
The Eligible Inventory will be subject to inspection at least
monthly by an independent inspector acceptable to the Line
of Credit Lenders, at the expense of Borrower. A copy of
the inspector s report of each such inspection shall be
delivered promptly after compilation thereof to the Line of
Credit Lenders and the Administrative Agent.
The Line of Credit Lenders or their designee shall be
permitted to perform an audit of the Borrowing Base at
least quarterly, at Borrower s expense.
Notwithstanding anything to the contrary in any of the Line
Documents, all notices, requests for loans or letters of
credit, requests for consents, requests for waivers or
amendments, financial statements, documents and
agreements that are delivered by the Borrower or any
17
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Guarantor to any Lender Party pursuant to any of the Line
Documents shall also be furnished by the Borrower at the
same time to all of the Lender Parties.
Covenants: Without limiting the discretion of either Line of Credit
Lender to demand payment hereunder of all obligations
owing from time to time under the Line Documents,
Borrower covenants to and agrees with the Lender Parties
as follows:
Borrower shall not amend or consent to any amendment or
waiver of any provision of any of the agreements,
instruments or documents referred to in any of the items set
forth in Annex 2 hereto. All such agreements, instruments
or documents shall remain in full force and effect until all
amounts outstanding under any of the Line Documents are
paid in full and all outstanding Letters of Credit have
expired or are canceled (undrawn).
Borrower shall not engage in any line of business other than
that in which it shall be engaged in on the date hereof.
Borrower shall not incur any indebtedness for money
borrowed or grant a lien on any of its assets (other than
pursuant to the Line Documents) or guarantee or otherwise
support or be contingently liable for the obligations of a
third party.
Borrower shall not declare or pay any dividend or other
distribution on its capital stock.
Borrower shall not merge or consolidate with or into any
Person.
Conditions: This Letter Agreement shall not become effective until all of
the conditions set forth in Annex 2 hereto are satisfied or
waived in writing by the Line of Credit Lenders.
Expenses: Whether or not the transactions contemplated hereby are
consummated and regardless of whether or not any Loans
18
<PAGE>
are made or Letters of Credit issued, Borrower agrees to
reimburse the Lender Parties, upon demand, for all rea-
sonable fees and disbursements of their special counsel,
Dorsey & Whitney and Sullivan & Worcester, any local
counsel retained by them, and all of their respective
reasonable travel and other expenses incurred in connection
with any of the Line Documents and, following the
occurrence of a Demand Event, all allocated costs and
expenses of internal counsel to any of the Lender Parties or
any of their respective affiliates.
Indemnity: Borrower shall indemnify and hold harmless each of the
Lender Parties and each of their respective present or future
directors, officers, employees, agents and affiliates (each an
"indemnified entity or person") in connection with any
losses, claims, damages, liabilities or other reasonable
expenses to which such indemnified entities or persons may
become subject, insofar as such losses, claims, damages,
liabilities (or actions or other proceedings commenced or
threatened in reaction thereto) or other expenses arise out
of or relate to or result from this Letter Agreement, the
making of the Extensions of Credit contemplated hereby or
any primary or secondary syndication thereof, or in any way
arising from any use or intended use of the proceeds of any
of the Extensions of Credit contemplated hereby (including,
without limitation, arising out of or relating to any
environmental matter), and to reimburse each indemnified
entity or person for any reasonable legal or other expenses
incurred in connection with (x) investigating, preparing to
defend, defending or participating in any such loss, claim,
damage, liability or action or other proceeding (whether or
not any such indemnified entity or person is a party to any
action or proceeding out of which any such expense arises)
or (y) any claim, action, suit, investigation or proceeding
relating to Borrower or any Guarantor or affiliate of any of
the foregoing, whether the indemnified person or entity is a
party thereto or target thereof or, if not, in which the
indemnified person or entity is subpoenaed or required to
19
<PAGE>
produce documents; provided, however, that Borrower shall
not be liable for any such loss, claim, damage, liability or
other expense to any indemnified entity or person to the
extent that it has been determined by a final decision (after
all appeals and the expiration of time to appeal) by a court
of competent jurisdiction that such loss, claim, damage,
liability or other expense resulted from the gross negligence
or willful misconduct of such indemnified entity or person.
To the extent that the undertaking to indemnify, pay and
hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public
policy, Borrower shall contribute the maximum portion
which it is permitted to pay and satisfy under applicable law,
to the payment and satisfaction of all such losses, claims,
damages, liabilities or other expenses incurred by any
indemnified entity or person. Borrower's obligation to
indemnify such indemnified entities or persons and pay such
expenses and to provide such contribution shall remain
effective regardless of whether any Extensions of Credit are
made hereunder. None of the Lender Parties shall be
responsible or liable to any other person or entity for
special, indirect, consequential or punitive damages which
may be alleged as a result of this Letter Agreement.
Appointment and Duties
of Administrative
Agent and Collateral
Agent: BTCC is hereby appointed Administrative Agent and Collateral
Agent under each of the Line Documents, having such rights and
responsibilities and on such other terms as are set forth in
Annex 3 hereto.
Notices: Any notice or other communication required or permitted to
be given hereby or in connection herewith shall be in writing
and may be personally served, faxed, telexed or sent by
United States mail and shall be deemed to have been given
when delivered in person, upon receipt of fax or telex or
20
<PAGE>
four business days after depositing it in the United States
mail, registered or certified, with postage prepaid and
properly addressed; provided that notices to the
Administrative Agent shall not be effective until received by
the Administrative Agent. For purposes hereof, the
addresses of the parties hereto (until notice of a change
thereof is delivered in writing by either party to the other)
shall be as set forth under each party's name on the
signature page hereto.
Assignments and
Participations: This Letter Agreement, the Notes, each other Line
Document, the Loan Usage and the Letter of Credit Usage
are assignable at any time by each of the Line of Credit
Lenders, with the prior written consent of the other Line of
Credit Lender and Borrower, which shall not be
unreasonably withheld or delayed; provided that any such
assignment shall be in a minimum amount of $5 million
(allocated pro rata between then outstanding Loan Usage
and Letter of Credit Usage). Any such assignment may be
made by a Line of Credit Lender without regard to amount
or consent if made to an affiliate of such Line of Credit
Lender or if made after the occurrence of a Demand Event.
The rights and obligations of Borrower and any Guarantor
or Pledgor under any Line Document are not assignable
without the prior written consent of each Line of Credit
Lender.
Any Line of Credit Lender may at any time sell
participations in its share of the Loan Usage, the Letter of
Credit Usage and any future Extension of Credit on such
terms as it shall desire, without consent of any other Person.
Miscellaneous: All payments hereunder and under the Note shall be made to
the Lender Parties in freely transferable U.S. dollars and in
same day funds without set-off or counterclaim.
No provision of any Line Document may be waived,
amended, supplemented or otherwise modified except by a
21
<PAGE>
written instrument executed by Borrower and both Line of
Credit Lenders.
No failure by any Lender Party to exercise, and no delay in
exercising, any right hereunder or under any other Line
Document shall operate as a waiver thereof; nor shall any
exercise or partial exercise of any right hereunder or under
any other Line Document preclude any other further
exercise thereof or the exercise of any other right. The
remedies provided are cumulative and not exclusive of any
remedies provided by law.
In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such
rights, each Lender Party is hereby authorized at any time
and from time to time, without notice to Borrower or to any
other person or entity, any such notice being hereby
expressly waived by Borrower, to setoff and to appropriate
and apply any and all deposits (general or special) and any
other indebtedness at any time held or owing by such
Lender Party to or for the credit or the account of Borrower
against and on account of the obligations and liabilities of
Borrower to the Lender Parties under this Letter Agreement
or the Notes, irrespective of whether or not such Lender
Parties shall have made any demand hereunder or
thereunder and although said obligations, liabilities or
claims, or any of them, shall be contingent or unmatured.
For purposes hereof, "Expenses" shall mean all costs and
expenses of the Lender Parties incurred in connection with
the Line Documents and the transactions contemplated
therein, including, without limitation, (i) the costs of
conducting record searches, examining collateral, opening
bank accounts and lockboxes, depositing checks, receiving
and transferring funds (including charges for checks for
which there are insufficient funds), and other costs of
administration and enforcement of the rights of the Lender
Parties under the Line Documents, (ii) the reasonable fees
22
<PAGE>
and expenses of legal counsel and paralegals (including the
allocated cost of internal counsel and paralegals),
accountants, appraisers and other consultants, experts or
advisors retained by the Lender Parties conducting reviews
or audits of the Borrowing Base, the Collateral and
applicable insurance or as mutually agreed, or, after the
occurrence of a Demand Event, for any reason,
(iii) reasonable fees and expenses incurred in connection
with the assignments of or sales of participations in the line
of credit granted under the Letter Agreement, (iv) fees and
taxes in connection with the filing of financing statements,
(v) the reasonable costs of preparing and recording
Collateral Documents, releases of Collateral, and waivers,
amendments, and terminations of any of the Line
Documents and (vi) all other fees and expenses set forth in
the Letter Agreement.
For purposes hereof, "Obligations" shall mean the unpaid
principal and interest hereunder and under the Notes
(including interest accruing on or after the occurrence of an
Insolvency Event, whether or not an allowed claim),
reimbursement obligations under Letters of Credit,
Expenses and all other obligations and liabilities of
Borrower to the Lender Parties under the Line Documents.
For purposes hereof, "Person" shall mean any individual,
sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation,
institution, entity, party or government (including any
division, agency or department thereof), and, as applicable,
the successors, heirs and assigns of each.
This Letter Agreement is solely for the benefit of Borrower
and may not be relied upon by any person or entity other
than Borrower.
The descriptive headings of this Letter Agreement are
inserted for convenience only and shall not in any way affect
the meaning or construction of any provision of this Letter
Agreement.
23
</TABLE>
<PAGE>
THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICT OF LAWS. ALL DISPUTES AMONG BORROWER ON THE ONE HAND AND ANY OF THE
LENDER PARTIES ON THE OTHER SHALL BE RESOLVED ONLY BY STATE AND FEDERAL COURTS
LOCATED IN NEW YORK, NEW YORK, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY
BE TAKEN; PROVIDED, HOWEVER, THAT THE AGENT, ON BEHALF OF THE LINE OF CREDIT
LENDERS, AND EACH LINE OF CREDIT LENDER SHALL HAVE THE RIGHT, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST BORROWER OR ITS PROPERTY IN ANY
LOCATION REASONABLY SELECTED BY THE AGENT OR SUCH LENDER IN GOOD FAITH TO ENABLE
THE AGENT OR SUCH LENDER TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT
OR OTHER COURT ORDER IN FAVOR OF THE AGENT OR SUCH LENDER. BORROWER WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE AGENT OR
SUCH LENDER HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS. EACH OF THE
PARTIES HERETO HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY WITH REGARD TO ANY
MATTER RELATING TO ANY LINE DOCUMENT OR OTHERWISE.
NONE OF THE LENDER PARTIES SHALL HAVE ANY LIABILITY TO BORROWER FOR LOSSES
SUFFERED BY THE BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY
RELATED TO THE TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS LETTER
AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH,
UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OR COURT ORDER
BINDING ON SUCH PARTY, THAT THE LOSSES WERE THE RESULT OF ACTS OR OMISSIONS
CONSTITUTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. BORROWER HEREBY WAIVES ALL
FUTURE CLAIMS AGAINST ANY OF THE LENDER PARTIES FOR SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES.
Subject to any Adequately Collateralized Letters of Credit continuing to be
outstanding in accordance with their terms, this Letter Agreement and the line
of credit available hereunder will expire on the Scheduled Termination Date,
UNLESS EARLIER TERMINATED BY EITHER LINE OF CREDIT LENDER IN ITS SOLE
DISCRETION.
24
<PAGE>
Kindly indicate your agreement to the above by signing and returning to
each of the undersigned an enclosed copy of this letter.
Very truly yours,
BT COMMERCIAL CORPORATION, as Administrative
Agent, Collateral Agent and a Line of Credit Lender
By: /s/ J. Jeffcott Ogden
-------------------------------------------------
Name: J. Jeffcott Ogden
Title: Managing Director
Notice Address:
BT Commercial Corporation
14 Wall Street
New York, New York 10005
Attention: J. Jeffcott Ogden
Telephone No.: (212) 618-2609
Facsimile No.: (212) 618-2630
MEESPIERSON N.V., New York Agency, as a Line of
Credit Lender
By: /s/ Allan J. Lee
--------------------------------------------------
Name: Allan J. Lee
Title: Senior Vice President
By: /s/ Scott Samols
--------------------------------------------------
Name: Scott Samols
Title: Vice President
Notice Address:
MeesPierson N.V., New York Agency
445 Park Avenue
New York, New York 10022
Attention: Allan J. Lee
Telephone No.: (212) 801-0425
Facsimile No.: (212) 801-0435
25
<PAGE>
BANKERS TRUST COMPANY, as Issuing Lender
By: /s/ J. Jeffcott Ogden
---------------------------------------------------
Name: J. Jeffcott Ogden
Title: Managing Director
Notice Address:
Bankers Trust Company
14 Wall Street
New York, New York 10005
Attention: J. Jeffcott Ogden
Telephone No.: (212) 618-2609
Facsimile No.: (212) 618-2630
ACKNOWLEDGED AND AGREED TO:
INDIAN OIL COMPANY, as Borrower
By: /s/ William S. Sudhaus
---------------------------------------
Name: William S. Sudhaus
Title: President
Notice Address:
Indian Oil Company
South Seventh Street
Lawrenceville, Illinois 62439
Attention: William S. Sudhaus
Telephone No.: 618-943-5555
Facsimile No.: 618-943-4180
26
<PAGE>
EXHIBIT 10.16
BORROWER SECURITY AGREEMENT
This BORROWER SECURITY AGREEMENT is made and entered into as
of May 25, 1995 by INDIAN OIL COMPANY, an Illinois corporation (the "Borrower"),
having its chief executive office at South Seventh Street, Lawrenceville,
Illinois 62439, in favor of BT COMMERCIAL CORPORATION ("BTCC"), as collateral
agent (in such capacity and together with any successors in such capacity, the
"Agent"), for each of the Line of Credit Lenders (BTCC and MeesPierson N.V., New
York Agency) and Bankers Trust Company, as Issuing Lender (collectively, and
together with any assignees of such lenders, the "Lender Parties") parties to
the Letter Agreement (as hereafter defined).
W I T N E S S E T H:
WHEREAS, the Borrower is entering into a line of credit letter
agreement dated as of even date herewith (as amended, amended and restated,
supplemented or otherwise modified from time to time, the "Letter Agreement";
capitalized terms which are used herein and not otherwise defined shall have the
meanings given to them in the Letter Agreement) with the Lender Parties and the
Agent, as administrative and collateral agent, pursuant to which the Lender
Parties have agreed, subject to the terms and conditions therein, to extend in
their sole discretion certain financial accommodations to the Borrower; and
WHEREAS, it is a condition precedent to the obligations of the
Lender Parties under the Letter Agreement that the Borrower execute and deliver
to the Agent this Agreement.
NOW THEREFORE, in consideration of the premises and in order
to induce the Lender Parties to extend financial accommodations to the Borrower
under the Letter Agreement, and for other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the Borrower hereby
agrees as follows:
SECTION Creation of Security Interest. The Borrower hereby
pledges, assigns and grants to the Agent, for the equal and ratable benefit of
itself and the Lender Parties (collectively, the "Secured Parties"), a
continuing perfected lien on and security interest in all of the right, title
and interest of the Borrower in and to the Collateral (as such term is defined
in Section 2 hereof) in order to secure the prompt and complete payment and
performance when due (whether upon demand or otherwise) of all the Secured
Obligations (as such term is defined in Section 3 hereof).
<PAGE>
SECTION Collateral. For purposes hereof, the "Collateral"
shall mean:
(a) Accounts. All of the Borrower's accounts, including,
without limitation, (i) all accounts receivable, (ii) all unpaid seller's rights
(including rescission, replevin, reclamation and stoppage in transit) relating
to the foregoing or arising therefrom, (iii) all rights to any goods represented
by any of the foregoing, including returned or repossessed goods, (iv) all
reserves and credit balances held by the Borrower with respect to any such
accounts receivable or account debtors and (v) all guarantees or collateral for
any of the foregoing (all of the foregoing property and similar property being
hereinafter referred to as "Accounts");
(b) Inventory. All of the Borrower's inventory in all of its
forms, whether in the possession of the Borrower, of Indian Refining Limited
Partnership ("IRLP") pursuant to the Processing Agreement of even date herewith
between the Borrower and IRLP (the "Processing Agreement") or of any other
individual, corporation, partnership or other legal entity ("Persons"),
including, without limitation, (i) all elements, catalysts (including platinum),
or other chemicals used in connection with the processing and/or manufacture of
petroleum and petroleum by-products, all hydrocarbons, crude oil, other refining
feedstocks and blend feedstocks, petroleum and petroleum by-products used,
consumed or produced in or by Pledgor's business, and all other raw materials,
work in process, parts, components, assemblies, supplies and materials used or
consumed in the Borrower's business, (ii) all goods, wares and merchandise,
finished or unfinished, held for sale or lease or leased or furnished or to be
furnished under contracts of service, (iii) all goods returned to or repossessed
by the Borrower; and (iv) all accessions thereto and products thereof and
documents therefor (all of the foregoing property being hereinafter referred to
as "Inventory");
(c) Equipment. All of the equipment owned or leased by the
Borrower in all of its forms, including, without limitation, all machinery,
office equipment and supplies, computers and related hardware, central
processing units, terminals, drives, memory units, printers, keyboards, screens,
peripherals and input and output devises, furniture, furnishings, tools,
tooling, jigs, dies, fixtures, manufacturing implements, fork lifts, trucks,
trailers, motor vehicles, and other equipment and all parts thereof and all
accessions thereto (all of the foregoing property being hereinafter referred to
as "Equipment");
(d) Intangibles. All of the Borrower's general intangibles,
instruments, securities (including, without limitation, United States of America
Treasury Bills), credits, claims, demands, documents, letters of credit for
which the Borrower is a beneficiary and letter of credit proceeds, chattel
paper, documents of title, certificates of title, certificates of deposit,
drafts, trusts, warehouse receipts, bills of lading, leases and leasehold
interests which are permitted to be assigned or pledged, deposit accounts,
money, tax refund claims, contract rights, rights of setoff, rights of
contribution, indemnity rights and all other rights (including all rights to the
payment of money) which are permitted to be assigned or pledged, other
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<PAGE>
obligations of any kind and interest on any of the foregoing (all of the
foregoing property and similar property being hereinafter referred to as
"Intangibles");
(e) Agreement Collateral. All of the agreements listed in
Schedule 2(e) hereto (the "Basic Agreements") and all other agreements
(including without limitation all Hedging Contracts or Positions) to which the
Borrower is now or may hereafter become a party or of which the Borrower is now
or hereafter an assignee, and all letters of credit for which the Borrower is a
beneficiary, in each case, as such agreements may be amended or otherwise
modified from time to time (collectively, the "Assigned Agreements"), including,
without limitation, (i) all rights of the Borrower to receive moneys due and to
become due under or pursuant to the Assigned Agreements, (ii) all rights of the
Borrower to receive proceeds of any insurance, indemnity, warranty or guaranty
with respect to the Assigned Agreements, (iii) claims of the Borrower for
damages arising out of or for breach of or default under the Assigned
Agreements, (iv) all rights of the Borrower under any liens or security
interests granted under the Assigned Agreements, and (v) the right of the
Borrower to amend, modify or terminate the Assigned Agreements, to perform
thereunder and to compel performance and otherwise exercise all remedies
thereunder (all of the foregoing being the "Agreement Collateral");
(f) Chattel Paper. All of the Borrower's chattel paper,
including, without limitation, any writing or writings which evidence both a
monetary obligation and a security interest in or a lease of specific goods;
(g) Other Property. All other tangible and intangible personal
property of the Borrower of whatsoever nature and description, and in
whomsoever's possession, including, without limitation all rights, assets and
property purchased by the Borrower from IRLP pursuant to the Asset Purchase
Agreement of even date herewith between IRLP, as seller, and the Borrower, as
buyer (the "Purchase Agreement"); and
(h) After-acquired Collateral and Proceeds. The Collateral
shall include all of the kinds and types of property described in this Section
2, whether now owned or hereafter at any time arising, acquired or created by
the Borrower and wherever located and in whomsoever's possession, and includes
all replacements, additions, accessions, substitutions, repairs, proceeds and
products relating thereto or therefrom, and all documents, books, records,
ledger sheets, print-outs, computer discs, computer software and other paper
containing information relating to the Collateral and files of the Borrower
relating thereto. Proceeds hereunder include (i) whatever is now or hereafter
received by the Borrower upon the sale, exchange, collection or other
disposition of any item of Collateral, whether such proceeds constitute
inventory, accounts, accounts receivable, general intangibles, instruments,
securities (including, without limitation, United States of America Treasury
Bills), credits, claims, demands, documents, letters of credit and letter of
credit proceeds, chattel paper, documents of title, certificates of title,
certificates of deposit, warehouse receipts, bills of lading, leases, deposit
accounts, money, tax refund claims, contract rights, goods or equipment
- 3 -
<PAGE>
or otherwise, (ii) any such items which are now or hereafter acquired by the
Borrower with any proceeds of Collateral hereunder and (iii) cash.
SECTION 3. Secured Obligations. For purposes hereof, "Secured
Obligations" shall mean all obligations and liabilities of the Borrower of any
kind owing to the Agent or any Lender Party, whether now or hereafter owing or
required to be paid to the Agent or any Lender Party, in respect of or under the
Letter Agreement, the Notes, the Collateral Documents or any other document,
instrument or certificate delivered by the Borrower in connection with the
Letter Agreement and the line of credit granted thereunder (collectively,
including the Guaranty and the Guarantors Pledge Agreement and related
documents, the "Line Documents"). Without limiting the generality of the
foregoing, the Secured Obligations include the obligation of the Borrower to pay
principal, interest (including interest accruing on or after any assignment for
the benefit of creditors, the issuing of a notice of intention to make a
proposal or the making of a proposal under the United States Bankruptcy Code,
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding relating to the Borrower, whether or not a
claim for such post-filing or post-petition interest is allowed), reimbursement
obligations, letter of credit fees or commissions, charges, expenses, fees,
reasonable attorneys' fees and disbursements, indemnities and other present and
future amounts payable by the Borrower to the Agent or any Lender Party in
respect of or under any Line Document.
SECTION 4. The Borrower's Representations and Warranties.
(a) Place of Business. The Borrower's only places of business
and warehouses in which it leases space are listed on Schedule 4(a) hereto.
(b) Location of Collateral. All of the Collateral is located
at the Borrower's chief executive office or other places of business or
warehouses listed on Schedule 4(a) hereto, or at the Refinery (as such term is
defined in the Processing Agreement) and other facilities maintained or used by
IRLP listed on Schedule 4(b) hereto, or in transit between any such locations
or, in the case of Inventory, in transit from suppliers or to customers, and
not at any other location.
(c) No Restrictions on Collateral Disposition. Except insofar
as Inventory is obligated to be sold to Louis Dreyfus Energy Corp. pursuant to
its Agreement dated as of May 1, 1995 with the Borrower (as assignee of IRLP)
(the "Dreyfus Agreement") none of the Collateral is subject to contractual
obligations that may restrict or inhibit the Agent's rights or ability to sell
or dispose of the Collateral or any part thereof after the occurrence of a
Demand Event.
(d) Status of Accounts and Inventory. Each Account is based on
an actual and bona fide sale and delivery of goods or rendition of services to
customers, made by the Borrower or (in the case of Accounts sold to the Borrower
pursuant to the Purchase Agreement) IRLP in the ordinary course of its business.
The Borrower's and IRLP's customers have accepted the goods or services in
- 4 -
<PAGE>
respect of the Accounts, and owe and are obligated to pay the full amounts
stated in the invoices according to their terms, without any dispute, offset,
defense, or counterclaim. When included in the Borrowing Base Certificate and
the schedules attached thereto, each Account and item of Inventory conforms to
the representations and warranties contained in this paragraph (d), and the
standards for eligibility set forth in the definition of Eligible Accounts
Receivable and Eligible Inventory, respectively.
(e) Possession and Control of Equipment and Inventory. The
Borrower has exclusive possession and control of all Inventory, except only as
IRLP has possession thereof in accordance with and for purposes of the
Processing Agreement.
(f) Assigned Agreements. The Assigned Agreements have been
duly authorized, executed and delivered by the Borrower and, to the best
knowledge of the Borrower, by each other party thereto, have not been amended
or otherwise modified, are in full force and effect and, to the best knowledge
of the Borrower, are binding upon and enforceable against all parties thereto
in accordance with their terms. There exists no default under any Assigned
Agreement by the Borrower and, to the best knowledge of the Borrower, any other
party thereto.
(g) Ownership; No Liens. The Borrower is, or will be at the
time of acquisition thereof, the legal and beneficial owner of all of the
Collateral, free and clear of any Lien other than the Lien created hereunder and
Permitted Liens. No effective financing statement or other similar document used
to perfect and preserve a security interest under the laws of any jurisdiction
covering all or any part of the Collateral is on file in any recording office,
except such as may have been filed by the Agent for the benefit of the Secured
Parties and except such as for which UCC-3 termination statements or other
similar documents terminating such financing statements have been executed by
the secured parties named thereon and delivered to the Agent for filing in the
appropriate recording office. No filing, of a financing statement or any other
document, with any U.S., state or local governmental agency or authority is
necessary, except as described in Schedule 4(g) hereto, to preserve or protect
the Borrower's interest in and rights to, as contemplated by the Line Documents
and the Purchase Agreement and the Processing Agreement, all of the Collateral
from and against the claims and demands of any and all persons claiming the same
or any interest therein (other than Permitted Liens against the Borrower),
including without limitation IRLP and creditors of IRLP. This Agreement creates
a valid and, immediately upon the filing of the documents listed in Schedule
4(g) hereto in the corresponding governmental offices listed therein, perfected
first priority security interest in all of the Collateral securing the payment
of the Secured Obligations, except to the extent that under the Uniform
Commercial Code as enacted in applicable jurisdictions possession of an item of
Collateral by the secured party is the exclusive means of perfecting a security
interest therein.
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SECTION 5. Covenants of the Borrower.
(a) Defend Against Claims. The Borrower shall defend the
Collateral against all claims and demands of all persons at any time claiming
the same or any interest therein, other than Permitted Liens, unless the Agent
otherwise agrees in writing. The Borrower shall not permit any Lien notices with
respect to the Collateral or any portion thereof to exist or be on file in any
public office, other than Permitted Liens.
(b) Change in Collateral Location. The Borrower shall not (i)
change its legal name or do business under any name other than its legal name,
(ii) change the location of its chief executive office or establish any place of
business other than those specified in Schedule 4(a) hereto, (iii) move or
permit movement of the Collateral from the locations specified in Schedules 4(a)
and 4(b) hereto except from one such location to another such location, or (iv)
keep its records concerning the Collateral at any location other than the
location designated as its chief executive office in Schedule 4(a) hereto.
(c) Additional Financing Statements, Etc. Promptly upon the
reasonable request of the Agent, at the expense of the Borrower, the Borrower
shall execute and deliver or use its best efforts to procure any document, give
any notices, execute and file any financing statements, mortgages or other
documents, all in form and substance satisfactory to the Agent, mark any chattel
paper, deliver any chattel paper or instruments to the Agent and take any other
actions that are necessary or, in the opinion of the Agent, desirable to perfect
or continue the perfection and the first priority of the Agent's security
interest in the Collateral and the Borrower's ownership or other interests in
the Collateral, to protect the Collateral against the rights, claims, or
interests of third persons (including IRLP and creditors of IRLP), other than
holders of Permitted Liens, to enable the Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral, or to effect the
purposes and intent of this Agreement. Without limiting the generality of the
foregoing, the Borrower shall: (i) mark conspicuously each chattel paper
included in the Collateral and, at the request of the Agent, each of its records
pertaining to the chattel paper with a legend, in form and substance
satisfactory to the Agent, indicating that such chattel paper is subject to the
security interest granted hereby; (ii) if any other Collateral shall be
evidenced by a promissory note with a term of more than 90 days or other
instrument or chattel paper, deliver and pledge to the Agent such note or
instrument or chattel paper duly indorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
the Agent; (iii) take such actions, or cause IRLP or any other third party to
take such actions, including without limitation filing financing statements and
posting signs at the third party's premises, as the Agent may require to protect
the Borrower's ownership of or other interest in any Collateral in such third
party's possession and the Agent's Lien hereunder thereon; (iv) only enter into
Hedging Contracts or Positions or any similar contract or arrangement upon prior
notice to the Agent and on terms and conditions (A) providing that any amounts
which may become owing thereunder to the Borrower shall only be paid to the
Agent or as it may otherwise direct and (B) otherwise acceptable to the Agent
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and the Line of Credit Lenders in their sole discretion; and (v) execute and
file such financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or desirable, or as the Agent
may reasonably request, to perfect or continue the perfection and the first
priority of the Agent's Lien granted or purported to be granted hereby.
(d) Additional Liens; Transfers. Without the prior written
consent of the Agent, the Borrower shall not in any way (i) hypothecate or
create or permit to exist any Lien, security interest, charge or encumbrance on
or other interest in the Collateral, except for the Liens created hereunder and
Permitted Liens, or (ii) sell, transfer, assign (by operation of law or
otherwise), pledge, collaterally assign, exchange or otherwise dispose of, or
grant any option with respect to, any of the Collateral, except that the
Borrower may sell Inventory to its customers pursuant to the Dreyfus Agreement
or otherwise in the ordinary course of business, provided, that Inventory
consisting of platinum catalyst may be sold by the Borrower only on prior
written notice to the Agent and only on such price and other terms as are
acceptable to the Line of Credit Lenders in their sole discretion. Upon any such
permitted sale of Collateral the Agent shall release its Lien in favor of the
Secured Parties thereon, provided that the proceeds of such sale shall be
directly deposited in the Loan Account for application in accordance with the
Letter Agreement. If the proceeds of any sale of Inventory or any other
permitted sale of Collateral consist of notes, instruments, documents of title,
letters of credit or chattel paper (collectively "Non-cash Proceeds"), such
Non-cash Proceeds shall be promptly delivered to the Agent to be held as
Collateral hereunder. If the Collateral, or any part thereof, is sold,
transferred, assigned, exchanged, or otherwise disposed of in violation of these
provisions, the security interest of the Agent shall continue in such Collateral
or part thereof notwithstanding such sale, transfer, assignment, exchange or
other disposition. At any time as Collateral, or any part thereof, is sold,
transferred, assigned, exchanged or otherwise disposed of, whether as permitted
hereunder or in violation of the provisions hereof, the Borrower shall hold the
proceeds thereof for the benefit of the Agent, and promptly transfer such
proceeds to the Agent in kind in accordance with the Letter Agreement.
(e) Contractual Obligations. The Borrower shall not enter into
any contractual obligations which may restrict or inhibit the Agent's rights or
ability to sell or otherwise dispose of the Collateral or any part thereof after
the occurrence of a Demand Event.
(f) Further Obligations With Respect to Accounts. In
furtherance of the continuing assignment of and security interest in the
Accounts of the Borrower granted pursuant to this Agreement, upon the creation
of Accounts, the Borrower shall execute and deliver to the Agent in such form
and manner as the Agent may require, solely for its convenience in maintaining
records of Collateral, such confirmatory schedules of Accounts, and other
appropriate reports designating, identifying and describing the Accounts as the
Agent may reasonably require. In addition, upon the Agent's request, the
Borrower shall provide the Agent with copies of agreements with, or purchase
orders from, the customers of the Borrower and copies of invoices to customers,
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proof of shipment or delivery and such other documentation and information
relating to said Accounts and other Collateral as the Agent may reasonably
require. Furthermore, promptly after its receipt thereof, the Borrower shall
deliver to the Agent any documents or certificates of title issued with respect
to any property included in the Collateral, any promissory note, letter of
credit, document or instrument related to or otherwise in connection with any
property included in the Collateral, which in any such case shall come into the
possession of the Borrower, or shall cause the issuer thereof to deliver any of
the same directly to the Agent, in each case with any necessary endorsements in
favor of the Agent. Failure to provide the Agent with any of the foregoing shall
in no way affect, diminish, modify or otherwise limit the security interests
granted herein. The Borrower hereby authorizes the Agent to regard the
Borrower's printed name or rubber stamp signature on assignment schedules or
invoices as the equivalent of a manual signature by the Borrower's authorized
officers or agents.
(g) Turnover of Collections. Unless a Demand Event has
occurred and is continuing, the Borrower may and shall enforce, collect and
receive, at its own expense, all amounts owing on the Accounts, for the benefit
of and on behalf of the Secured Parties. In connection with such collections,
the Borrower may take (and, at the Agent's direction, upon the occurrence and
during continuance of a Demand Event the Borrower shall take) such action as the
Borrower or the Agent may deem necessary or advisable to enforce collection of
the Accounts owing to the Borrower. Such privilege shall terminate
automatically, however, upon the occurrence of a Demand Event which has not
otherwise been waived by the Line of Credit Lenders. Whether or not a Demand
Event has occurred, the Borrower shall direct all of its account debtors to make
all payments with respect to Accounts directly to such lockbox or lockboxes as
may from time to time be established pursuant to agreements entered into by the
Agent ("Lockboxes") including without limitation the Lockbox established
pursuant to the Lockbox Processing Agreement between the Agent and Texas
Commerce Bank National Association, a copy of which is attached hereto as
Schedule 5(g), and shall, except to the extent otherwise permitted by the Agent,
notify all account debtors that (i) the Borrower has assigned to the Agent all
of its rights to such payments and (ii) direct that the Agent shall be the payee
of all such payments. Account debtors who make payment via wire transfer shall
be directed to make their payment to such deposit account of the Agent as the
Agent shall specify. Any checks, cash, notes or other instruments or property
received by the Borrower shall be held by the Borrower in trust for the benefit
of the Secured Parties, separate from the Borrower's own property and funds, and
immediately (i) if received with respect to Accounts (A) transmitted to a
Lockbox or (B) if such property is not suitable for deposit, turned over
directly to the Agent with proper assignments or endorsements, or (ii) if
received as insurance proceeds or with respect to any other source, turned over
directly to the Agent (with proper assignments or endorsements, as necessary).
No checks, drafts or other instruments received by the Agent shall constitute
final payment unless and until such instruments have actually been collected.
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(h) Notification of Disputes. The Borrower agrees to notify
the Agent promptly of any matters materially affecting the value, enforceability
or collectibility of any Account, and of all material customer disputes,
offsets, defenses, counterclaims, returns and rejections, and all reclaimed or
repossessed merchandise or goods; provided, that such notice shall only be
required as to any such matter that affects Accounts outstanding at one time
from any account debtor having a value greater than $250,000. The Borrower
agrees to issue credit memos promptly (with duplicates to the Agent upon its
request for same) upon accepting returns or granting allowances, and may
continue to do so until the occurrence and continuance of a Demand Event. After
the occurrence and during the continuance of a Demand Event, the Borrower agrees
that, if the Agent so requests, all returned, reclaimed or repossessed goods
shall be set aside by the Borrower, marked (to the extent practicable) with the
Agent's name and held by the Borrower for the Agent's account as owner and
assignee, or, at the election of the Agent, sold by the Borrower in the ordinary
course of business.
(i) The Assigned Agreements. The Borrower shall, at its
expense: (A) perform and observe all the terms and provisions of the Assigned
Agreements to be performed or observed by it, and maintain the Assigned
Agreements in full force and effect, enforce the Assigned Agreements in
accordance with their terms and take all such action to such end as may be from
time to time reasonably requested by the Agent, provided, that the Borrower
shall maintain in full force and effect and enforce in accordance with their
terms all Basic Agreements except as may otherwise be consented to in writing by
the Line of Credit Lenders in their sole discretion; and (B) furnish to the
Agent for inspection, upon the reasonable request of the Agent, copies of all
notices, requests and other documents received by the Borrower under or pursuant
to the Assigned Agreements, and upon the reasonable request of the Agent, make
to each other party to any Assigned Agreement such requests for information and
reports or such demands for action as the Borrower is entitled to make
thereunder.
(j) Capital Stock. The Borrower shall not hold any capital
stock of, or otherwise make or hold any equity investments in, any Person.
(k) Bank Accounts. The Borrower shall not open or establish
any banking or other account with any financial institution, or deposit any
remittance or payments received in respect of any Accounts or Assigned
Agreements in any such account, without the prior written consent of the Agent.
(l) Insurance. The Borrower shall provide at its own expense,
or shall cause IRLP or an affiliate to procure at its expense pursuant to the
Processing Agreement, and maintain in full force and effect at all times with
insurance carriers acceptable to the Line of Credit Lenders in their sole
discretion, insurance covering such risks and in such amounts as the Line of
Credit Lenders in their sole discretion may require. All such policies shall
provide that (i) there shall be no recourse against the Agent or the Secured
Parties for payment of premiums or other amounts with respect to such policies,
(ii) the insurer is required to provide the Agent with at least 30 days prior
written notice of reduction of coverage or amount or of cancellation or non-
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renewal, and (iii) the proceeds of all policies shall be payable to the Agent.
All such policies shall insure the interests of the Secured Parties, as their
interests may appear. The Borrower shall provide to the Agent such evidence of
the maintenance of insurance in accordance with this paragraph (l) as the Agent
may from time to time require.
SECTION 6. Remedies.
(a) Obtaining the Collateral Upon Default. If any Demand Event
shall have occurred and be continuing, then and in every such case, subject to
any mandatory requirements of applicable law then in effect, the Agent, in
addition to other rights and remedies provided for herein and any rights now or
hereafter existing under applicable law, shall have all rights and remedies as a
secured creditor under the Uniform Commercial Code in all relevant jurisdictions
and may (and shall, if directed by a Line of Credit Lender):
(i) personally, or by agents or attorneys, immediately retake
possession of the Collateral or any part thereof, from the Borrower or any
other Person who then has possession of any part thereof, with or without
notice or process of law, and for that purpose may enter upon the
Borrower's premises where any of the Collateral is located and remove the
same and use in connection with such removal any and all services,
supplies, aids and other facilities of the Borrower;
(ii) instruct the obligor or obligors on any agreement,
instrument or other obligation (including, without limitation, the
Accounts) constituting the Collateral to make any payment required by the
terms of such instrument or agreement directly to the Agent;
(iii) withdraw, for application to the Secured Obligations,
all monies, securities and instruments held in any deposit account
maintained by of for the benefit of the Borrower;
(iv) sell, assign or otherwise liquidate, or direct the
Borrower to sell, assign or otherwise liquidate, any or all of the
Collateral or any part thereof, and take possession of the proceeds of any
such sale or liquidation;
(v) take possession of the Collateral or any part thereof, by
directing the Borrower in writing to deliver the same to the Agent at any
place or places designated by the Agent, in which event Borrower shall at
its own expense:
(A) forthwith cause the same to be moved to the place or
places so designated by the Agent and delivered to the Agent,
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(B) store and keep any Collateral so delivered to the Agent
at such place or places pending further action by the Agent as
provided in Section 6(b) hereof, and
(C) while the Collateral shall be so stored and kept,
provide such guards and maintenance services as shall be necessary to
protect the same and to preserve and maintain them in good condition;
it being understood that the Borrower's obligation to so deliver the
Collateral is of the essence of this Agreement and that, accordingly, upon
application to a court of equity having jurisdiction, the Agent shall be
entitled to a decree requiring specific performance by the Borrower of said
obligation.
(b) Disposition of the Collateral. Any collateral repossessed by
the Agent under or pursuant to Section 6(a) hereof and any other Collateral
whether or not so repossessed by the Agent, may be sold, assigned, leased or
otherwise disposed of under one or more contracts or as an entirety, and without
the necessity of gathering at the place of sale the property to be sold, and in
general in such manner, at such time or times, at such place or places and on
such terms as the Agent may, in compliance with any mandatory requirements of
applicable law, determine to be commercially reasonable. Any of the Collateral
may be sold, leased or otherwise disposed of, in the condition in which the same
existed when taken by the Agent or after any overhaul or repair which the Agent
shall determine to be commercially reasonable. The Borrower acknowledges and
agrees that, to the extent notice of sale shall be required by law, five days'
notice (which may overlap in whole or in part with the ten-day period referred
to in the fourth paragraph under "Mandatory Repayments" in the Letter Agreement)
to the Borrower of the time and place of any public sale or the time after which
any private sale is to be made shall constitute reasonable notification. To the
extent permitted by any such requirement of law, the Agent may bid for and
become the purchaser of the Collateral, or any item thereof, offered for sale in
accordance with this Section without accountability to the Borrower (except to
the extent of surplus money received). If, under mandatory requirements of
applicable law, the Agent shall be required to make disposition of the
Collateral within a period of time which does not permit the giving of notice to
the Borrower as hereinabove specified, the Agent need give the Borrower only
such notice of disposition as shall be reasonably practicable in view of such
mandatory requirements of applicable law. The Agent shall not be obligated to
make any sale of Collateral regardless of notice of sale having been given. The
Agent may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. The Borrower hereby
waives any claims against the Agent arising by reason of the fact that the price
at which any Collateral may have been sold at such a private sale was less than
the price which might have been obtained at a public sale, even if the Agent
accepts the first offer received and does not offer such Collateral to more than
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one offeree. The Borrower acknowledges that any disposition of the Collateral
which takes place substantially in accordance with this Section 6 shall be
deemed to be commercially reasonable.
(c) Agent's Right to Protect Collateral. Upon the occurrence and
continuance of a Demand Event, the Agent shall have the right at any time to
make any payments and do any other acts the Agent may deem necessary to protect
its security interests in the Collateral, including, without limitation, the
rights to pay, purchase, contest or compromise any encumbrance, charge or Lien
which, in the reasonable judgment of the Agent, appears to be prior to or
superior to the security interests granted hereunder, and appear in and defend
any action or proceeding purporting to affect its security interests in, and/or
the value of, the Collateral. The Borrower hereby agrees to reimburse the Agent
for all payments made and expenses incurred under this Agreement including
reasonable fees, expenses and disbursements of attorneys and paralegals acting
for the Agent, including any of the foregoing payments under, or acts taken to
protect its security interests in, the Collateral, which amounts shall be
secured under this Agreement and which shall bear interest at the highest rate
than in effect under the Letter Agreement during the period from and including
the date on which such funds were so expended to the date of repayment, and
agrees it shall be bound by any payment made or act taken by the Agent hereunder
absent the Agent's gross negligence or willful misconduct. The Agent shall have
no obligation to make any of the foregoing payments or perform any of the
foregoing acts.
(d) Power of Attorney. The Borrower hereby irrevocably authorizes
and appoints the Agent, or any Person or agent the Agent may designate, as the
Borrower's attorney-in-fact, with full authority in the place and stead of the
Borrower and in the name of the Borrower or otherwise, at the Borrower's cost
and expense, in the Agent's discretion, to take any action and to execute any
instrument that the Agent may deem necessary or advisable to accomplish the
purposes and intent of this Agreement and to exercise all of the following
powers upon and at any time after the occurrence and during the continuance of a
Demand Event, which powers, being coupled with an interest, shall be irrevocable
until all of the Obligations shall have been paid and satisfied in full:
(i) ask for, demand, collect, bring suit, recover,
compromise, administer, accelerate or extend the time of payment, issue
credits, receive and give acquittance and receipts for moneys due and
to become due under or in respect of any of the Collateral;
(ii) obtain and adjust insurance required to be paid to the
Agent;
(iii) receive, take, endorse, negotiate, sign, assign and
deliver and collect any checks, notes, drafts or other instruments,
documents and chattel paper, in connection with clause (i) or (ii) above;
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(iv) receive, open and dispose of all mail addressed to the
Borrower and notify postal authorities to change the address for delivery
thereof to such address as the Agent may designate;
(v) give customers indebted on Accounts notice of the Agent's
interest therein, and/or to instruct such customers to make payment
directly to the Agent for the Borrower's account and/or to request, at any
time from customers indebted on Accounts, verification of information
concerning the Accounts and the amounts owing thereon;
(vi) convey any item of Collateral to any purchaser thereof;
(vii) give any notices or record any Liens under Section 5(c)
hereof;
(viii) make any payments or take any acts under Section 6(c)
hereof; and
(ix) ile any claims or take any action or institute any
proceedings that the Agent may reasonably deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce compliance
with the terms and conditions of any Assigned Agreement or the rights of
the Agent with respect to any of the Collateral.
The Agent's authority under this section 6(d) shall include, without limitation,
the authority to execute and give receipt for any certificate of ownership or
any document, transfer title to any item of Collateral, sign the Borrower's name
on all financing statements or any other documents deemed necessary or
appropriate to preserve, protect or perfect the security interest in the
Collateral and to file the same, prepare, file and sign the Borrower's name on
any notice of Lien, assignment or satisfaction of Lien or similar document in
connection with any Account and prepare, file and sign the Borrower's name on a
proof of claim in bankruptcy or similar document against any customer of the
Borrower, and to take any other actions arising from or incident to the rights,
powers and remedies granted to the Agent in this Agreement. This power of
attorney is coupled with an interest and is irrevocable by the Borrower.
(e) Application of Proceeds. All cash proceeds received by the
Agent in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral shall be applied by the Agent against the
Obligations in such order as the Agent may determine in accordance with the
Letter Agreement.
(f) Waiver Of Claims. Except as otherwise provided in this
Agreement, THE BORROWER HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE AGENT'S TAKING
POSSESSION OF OR DISPOSING OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT
LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR
REMEDIES AND ANY SUCH RIGHT WHICH THE BORROWER WOULD OTHERWISE HAVE UNDER THE
CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, and the
Borrower hereby further waives, to the extent permitted by law:
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(i) all damages occasioned by such taking of possession
except any damages which are the direct result of the Agent's gross
negligence or wilful misconduct;
(ii) l other requirements as to the time, place and terms of
sale or other requirements with respect to the enforcement of the Agent's
rights hereunder; and
(iii) all rights of redemption, appraisement, valuation,
stay, extension or moratorium now or hereafter in force under any
applicable law in order to prevent or delay the enforcement of this
Agreement or the absolute sale of the Collateral or any portion thereof,
and the Borrower, for itself and all who may claim under it, insofar as it
or they now or hereafter lawfully may, hereby waives the benefit of all
such laws.
Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the Borrower therein and thereto, and
shall be a perpetual bar both at law and in equity against the Borrower and
against any and all persons claiming or attempting to claim the Collateral so
sold, optioned or realized upon, or any part thereof, from, through and under
the Borrower.
(g) Remedies Cumulative. Each and every right, power and remedy
hereby specifically given to the Agent shall be in addition to every other
right, power and remedy specifically given under this Agreement or under the
other Line Documents or now or hereafter existing at law or in equity, or by
statute, and each and every right, power and remedy whether specifically herein
given or otherwise existing may be exercised from time to time or simultaneously
and as often and in such order as may be deemed expedient by the Agent. All such
rights, powers and remedies shall be cumulative and the exercise or the
beginning of exercise of one shall not be deemed a waiver of the right to
exercise of any other or others. No delay or omission of the Agent in the
exercise of any such right, power or remedy and no renewal or extension of any
of the Obligations shall impair any such right, power or remedy or shall be
construed to be a waiver of any Demand Event or any acquiescence therein.
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SECTION 7. Miscellaneous Provisions.
(a) Notices. Any notice or other communication herein required
or permitted to be given shall be given in the manner set forth in the Letter
Agreement, if to the Borrower, addressed to it at the address set forth on the
signature page of this Agreement, and if to the Agent, addressed to it at the
address set forth on the signature page of this Agreement. All such notices and
other communications shall be deemed to have been given when delivered in
person, or received by facsimile or telex; or 4 Business Days after deposit in
the United States mail, registered or certified, with postage prepaid and
properly addressed; provided, that notices to the Agent shall not be effective
until received by the Agent.
(b) Headings. The headings in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
(c) Severability. The provisions of this Agreement are
severable, and if any clause or provision shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect, in that jurisdiction only, such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
(d) Amendments, Waivers and Consents. Any amendment or waiver
of any provision of this Agreement and any consent to any departure by the
Borrower from any provision of this Agreement shall not be effective unless the
same shall be in writing and signed by the Borrower, the Agent (with the consent
of the Lender Parties, as required by the Letter Agreement) and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given. No failure on the part of the Agent to exercise, and no
delay in exercising any right hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right.
(e) Interpretation. Time is of the essence in each provision
of this Agreement of which time is an element. All terms not defined herein or
in the Letter Agreement shall have the meaning set forth in the Uniform
Commercial Code as in effect at the time of determination in the State of New
York, except where the context otherwise requires. Acceptance of or acquiescence
in a course of performance rendered under this Agreement shall not be relevant
in determining the meaning of this Agreement even though the accepting or
acquiescing party had knowledge of the nature of the performance and opportunity
for objection.
(f) Continuing Security Interest. This Agreement shall create
a continuing security interest in the Collateral and shall (i) remain in full
force and effect until the payment in full in cash of the Secured Obligations,
the termination of the Letter Agreement and the other Line Documents and the
expiry or cancellation (undrawn) of all Letters of Credit that are not
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Adequately Collateralized (the "Termination Date"), (ii) be binding upon the
Borrower, and its successors and assigns and (iii) inure, together with the
rights and remedies of the Agent hereunder, to the benefit of the Secured
Parties and their respective successors, transferees and assigns. Without
limiting the generality of the foregoing clause (iii), any Secured Party may
assign or otherwise transfer all or any portion of any indebtedness secured by
this Agreement to any other Person, and such other Person shall thereupon become
vested with all the benefits in respect thereof granted to such Secured Party
herein or otherwise, in each case as provided in the Letter Agreement.
(g) Reinstatement. To the extent permitted by law, this
Agreement shall continue to be effective or be reinstated if at any time any
amount received by any Secured Party in respect of the Secured Obligations is
rescinded or must otherwise be restored or returned by such or any other Secured
Party upon the occurrence or during the pendency of any bankruptcy,
reorganization or other similar proceeding applicable to the Borrower, or upon
or during the occurrence of any dissolution, liquidation or winding up of the
Borrower, all as though such payments had not been made.
(h) Survival of Provisions. All representations, warranties
and covenants of the Borrower contained herein shall survive the execution and
delivery of this Agreement, and shall terminate only upon the occurrence of the
Termination Date.
(i) Agent May Perform. If the Borrower fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the expenses of the Agent incurred in connection
therewith shall be payable by the Borrower and shall constitute Secured
Obligations secured by this Agreement.
(j) No Duty on Agent. The powers conferred on the Agent
hereunder are solely to protect the interest of the Secured Parties in the
Collateral and shall not impose any duty upon the Agent to exercise any such
powers. Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any Collateral, or as to the taking of any necessary steps to
preserve rights against any parties or any other rights pertaining to any
Collateral. The Agent shall be deemed to have exercised reasonable care in the
custody and preservation of any Collateral in its possession if such Collateral
is accorded treatment substantially equal to that which the Agent accords its
own property. To the extent the Collateral is held by a custodian, the Agent
shall be deemed to have exercised reasonable care if it has selected the
custodian with reasonable care.
(k) No Release of Obligations. Nothing set forth in this
Agreement shall relieve the Borrower from the performance of any term, covenant,
condition or agreement on the Borrower's part to be performed or observed under
or in respect of any of the Collateral or from any liability to any person under
or in respect of any of the Collateral or shall impose any obligation on the
Agent or any Secured Party to perform or observe any such term, covenant,
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condition or agreement on the Borrower's part to be so performed or observed or
shall impose any liability on the Agent or any Secured Party for any act or
omission on the part of the Borrower relating thereto or for any breach of any
representation or warranty on the part of the Borrower contained in this
Agreement or any other Line Document or under or in respect of the Collateral or
made in connection herewith or therewith. Without limiting the foregoing, the
Borrower shall remain liable under each Assigned Agreement to the extent set
forth therein to perform all of the duties and obligations thereunder to the
same extent as if this Agreement had not been executed, the Agent shall not have
any obligation or liability under any Assigned Agreement by reason of this
Agreement, and the exercise by the Agent of any of its rights hereunder shall
not release the Borrower from any of its duties or obligations under any
Assigned Agreement. In the event that the Agent on behalf of the Secured Parties
succeeds to the Borrower's interest in, to and under any Assigned Agreement,
whether by foreclosure or otherwise, the Agent shall not, either on behalf of
itself or the Secured Parties, assume any liabilities or obligations of the
Borrower relating to such Assigned Agreement.
(l) Delays; Partial Exercise of Remedies. No delay or omission
of the Agent to exercise any right or remedy hereunder, whether before or after
the happening of any Demand Event, shall impair any such right or shall operate
as a waiver thereof or as a waiver of any such Demand Event. No single or
partial exercise by the Agent of any right or remedy shall preclude any other or
further exercise thereof, or preclude any other right or remedy.
(m) Release of Lien. Upon the occurrence of the Termination
Date, the Agent shall, upon the request and at the sole cost and expense of the
Borrower, forthwith assign, transfer and deliver to the Borrower, against
receipt and without recourse to or warranty by the Agent, such of the Collateral
as may be in the possession of the Agent and as shall not have been sold or
otherwise applied pursuant to the terms hereof, on the order of and at the sole
cost and expense of the Borrower, and proper instruments (including UCC
termination statements on Form UCC-3) acknowledging the termination of this
Agreement and/or the release of such Collateral. Except as provided in this
Section 7(m), none of the Collateral may be released from the Lien hereof by the
Agent without the written consent of each Line of Credit Lender.
(n) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
shall together constitute one and the same agreement.
(o) GOVERNING LAW. THE VALIDITY, INTERPRETATION AND
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK, WITHOUT GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES.
(p) SUBMISSION TO JURISDICTION. THE BORROWER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
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(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER LINE DOCUMENTS TO
WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT
COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO THE BORROWER AT ITS ADDRESS SET FORTH IN SECTION 7(a) HEREOF OR
AT SUCH OTHER ADDRESS OF WHICH THE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT
THERETO;
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND
(v) WAIVES THE RIGHT TO ASSERT ANY SETOFF, COUNTERCLAIM OR
CROSS-CLAIM IN RESPECT OF, AND ALL STATUTES OF LIMITATIONS WHICH MAY BE
RELEVANT TO, SUCH ACTION OR PROCEEDING.
(q) WAIVER OF JURY TRIAL. THE BORROWER AND THE AGENT EACH
HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING
OUT OF THIS AGREEMENT, ANY OF THE OTHER LINE DOCUMENTS, OR ANY OTHER AGREEMENTS
OR TRANSACTIONS RELATED HERETO OR THERETO.
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<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Agreement to
be duly executed and delivered as of the day and year first above written.
INDIAN OIL COMPANY
By: /s/ William S. Sudhaus
------------------------------------
Name: William S. Sudhaus
Title: CEO
Facsimile No.: (610) 995-2477
Accepted and Agreed as of the date first above written:
BT COMMERCIAL CORPORATION,
as Agent
By: /s/ J. Jeffcott Ogden
-----------------------------------
J. Jeffcott Ogden, SVP
14 Wall Street
New York, New York 10005
Fasimile No.: (212) 618-2630
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EXHIBIT 10.17
GUARANTY AGREEMENT
GUARANTY AGREEMENT, dated as of May 25, 1995 (as amended,
supplemented or otherwise modified from time to time, this "Guaranty"), made by
CASTLE ENERGY CORPORATION, a corporation organized and existing under the laws
of the State of Delaware ("CEC"), CASTLE PRODUCTION RESOURCE COMPANY, a
corporation organized and existing under the laws of the State of Pennsylvania
("CPRC") and CASTLE PRODUCTION COMPANY, a corporation organized and existing
under the laws of the State of Texas ("CPC," and, together with CEC and CPRC,
the "Guarantors"), in favor of BT COMMERCIAL CORPORATION ("BTCC"), as
Administrative Agent (in such capacity, the "Agent") for each of the Line of
Credit Lenders (BTCC and MeesPierson N.V., New York Agency) and Bankers Trust
Company, as Issuing Lender (collectively, and together with any assignees of
such lenders, the "Lender Parties") parties to the Letter Agreement (as
hereinafter defined). Capitalized terms used herein without definition shall
have the meanings assigned to such terms in the Letter Agreement.
W I T N E S S E T H :
WHEREAS, under the terms of a Letter Agreement, dated as of
the date hereof (as the same may be amended, amended and restated, supplemented
or otherwise modified from time to time, the "Letter Agreement"), among the
Lender Parties, BTCC, as Administrative Agent and Collateral Agent, and Indian
Oil Company (the "Borrower") , the Lender Parties have granted to the Borrower a
line of credit of up to $30,000,000 in revolving loans and letters of credit;
WHEREAS, CEC is the owner of all of the issued and outstanding
common stock, par value $.01 per share, of the Borrower (the "Borrower Common
Stock") and all of the issued and outstanding capital stock of CPRC and CPC, and
in recognition of certain benefits to be received by CEC, CPRC and CPC in
connection with the availability of the line of credit to the Borrower, the
Guarantors desire to absolutely, unconditionally and irrevocably guarantee the
payment and all other obligations of the Borrower under and in connection with
the Letter Agreement and the line of credit granted pursuant thereto;
WHEREAS, in connection herewith the Guarantors have entered
into that certain Pledge Agreement, dated as of the date hereof, pursuant to
which, among other things, as security for the performance of their obligations
under this Guaranty, the Guarantors have pledged to the Agent for the benefit of
<PAGE>
itself and the Lender Parties the Borrower Common Stock, all limited and general
partnership interests of the Guarantors in Castle Texas Production L.P. and all
of the outstanding capital stock of CPRC, CPC and Castle Exploration Company,
Inc.
NOW, THEREFORE, as an inducement to the Agent and the Lender
Parties to execute and deliver the Letter Agreement and extend to the Borrower
the line of credit and, in recognition of the substantial direct and indirect
benefit from the transactions contemplated by the Letter Agreement, the
Guarantors hereby jointly and severally agree with the Agent for the benefit of
itself and the Lender Parties as follows:
SECTION 1. Guaranty. The Guarantors hereby unconditionally,
absolutely, continuingly and irrevocably guarantee on a joint and several basis
to the Agent for the benefit of the Lender Parties the full and punctual payment
when due (upon demand or otherwise) of all obligations and liabilities of the
Borrower of any kind owing to the Agent or any Lender Party, whether now or
hereafter owing or required to be paid to the Agent or any Lender Party, in
respect of or under the Letter Agreement, the Notes, the Collateral Documents or
any other document, instrument or certificate delivered by the Borrower in
connection with the Letter Agreement and the line of credit granted thereunder
(collectively, the "Line Documents"), whether or not the right of the Agent or
such Lender Party to payment in respect of such claim is reduced to judgment,
liquidated or unliquidated, fixed, contingent, matured, disputed, undisputed,
legal, equitable, secured or unsecured, and whether or not such claim is
discharged, stayed or otherwise affected by any proceeding seeking to adjudicate
the Borrower bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or consolidation of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property (collectively, the
"Obligations"). Without limiting the generality of the foregoing, the
Obligations include the obligation of the Borrower to pay principal, interest
(including interest accruing on or after any assignment for the benefit of
creditors, the issuing of a notice of intention to make a proposal or the making
of a proposal under the United States Bankruptcy Code, the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding relating to the Borrower, whether or not a claim for such
post-filing or post-petition interest is allowed), reimbursement obligations,
letter of credit fees or commissions, charges, expenses, fees, reasonable
attorneys' fees and disbursements, indemnities and other present and future
amounts payable by the Borrower to the Agent or any Lender Party in respect of
or under any Line Document. Without limiting the generality of the foregoing,
each Guarantor's liability shall extend to all amounts that constitute part of
the Obligations and would be owed by the Borrower to the Agent or any Lender
Party but for the fact that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding involving the
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Borrower. Anything herein to the contrary notwithstanding, the maximum
liability of each Guarantor hereunder shall in no event exceed the amount which
can be guaranteed by such Guarantor under applicable federal and state laws
relating to the insolvency of debtors.
SECTION 2. Guaranty Absolute and Unconditional. The Guarantors
guarantee that, with respect to the Agent and each Lender Party, the Obligations
will be paid strictly in accordance with the terms of the Letter Agreement and
the other Line Documents, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Agent or any Lender Party with respect thereto. This Guaranty is
one of payment and performance and not collection and the obligations of each
Guarantor under this Guaranty are independent of the Obligations, and a separate
action or actions may be brought and prosecuted against each Guarantor to
enforce this Guaranty, irrespective of whether any action is brought against the
Borrower or any other Guarantor or other guarantor or whether the Borrower or
any other Guarantor or guarantor is joined in any such action or actions. The
liability of each Guarantor under this Guaranty shall be absolute and
unconditional irrespective of:
(i) any lack of validity or enforceability of any contractual or other
agreement, instrument or document including, without limitation, the Letter
Agreement, any of the other Line Documents, any of the Obligations, or any
guarantee thereof;
(ii) any change in the time, manner or place of payment of, or in any
other terms of, all or any of the Obligations, or any other amendment or
waiver of or any consent to departure from any contractual or other
agreement between the Borrower and the Agent or any Lender Party or any
instrument or document relating thereto, including, without limitation, any
increase in the Obligations resulting from the extension of additional
credit to the Borrower or otherwise;
(iii) any taking, exchange, release or non-perfection of any
Collateral, or any taking, release or amendment or waiver of or consent to
or departure from any other guaranty (including this Guaranty with respect
to any other Guarantor), for all or any of the Obligations;
(iv) any failure of any other Guarantor or guarantor to satisfy its
obligations in respect of any Obligations;
(v) any manner of application of Collateral securing any Obligation,
or proceeds thereof, to all or any of the Obligations, or any manner of
sale or other disposition of any Collateral for all or any of the
Obligations or any other assets of the Borrower;
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(vi) any change, restructuring or termination of the corporate
structure or existence of the Borrower;
(vii) any failure or delay of the Agent or any Lender Party to
exercise any right or remedy under this Guaranty, the Letter Agreement or
the other Line Documents or with respect to the Collateral or any other
property or assets pledged to the Agent for the benefit of the Lender
Parties under any Line Document;
(viii) any creditors' rights, bankruptcy, receivership or other
insolvency proceeding of the Borrower or in respect of the property of the
Borrower or any merger, consolidation, reorganization, dissolution,
liquidation or winding up of the Borrower;
(ix) impossibility or illegality of performance on the part of the
Borrower of its obligations under the Letter Agreement, any Notes or any
other Line Document;
(x) in respect of the Borrower, any change of circumstances, whether
or not foreseen or foreseeable, whether or not imputable to the Borrower,
or other impossibility of performance through fire, explosion, accident,
labor disturbance, floods, droughts, embargoes, wars (whether or not
declared), civil commotions, acts of God or the public enemy, delays or
failure of suppliers or carriers, inability to obtain materials, action of
any federal or state regulatory body or agency, change of law or any other
causes affecting performance, or any other force majeure, whether or not
beyond the control of the Borrower and whether or not of the kind
hereinbefore specified;
(xi) any order, judgment, decree, ruling or regulation (whether or not
valid) of any court of any nation or of any political subdivision thereof
or any body, agency, department, official or administrative or regulatory
agency of any thereof which shall delay, interfere with, hinder or prevent,
or in any way adversely affect, the performance of the Borrower's
obligations under the Letter Agreement or any Note or any other Line
Document;
(xii) the failure of such Guarantor to receive any consideration from
or as a result of its execution, delivery and performance of this Guaranty
or the Pledge Agreement; or
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(xiii) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Borrower, such Guarantor or
any other Guarantor or guarantor with respect to the Obligations
(including, without limitation, all defenses based on suretyship or
impairment of collateral, and all defenses that the Borrower may assert to
the repayment of the Obligations, including, without limitation, failure of
consideration, breach of warranty, fraud, statute of frauds, bankruptcy,
lack of legal capacity, statute of limitations, lender liability, accord
and satisfaction, and usury) or which might otherwise constitute a defense
to this Guaranty and the obligations of such Guarantor under this Guaranty.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Obligations is rescinded or must
otherwise be returned by the Agent or any Lender Party upon the insolvency,
bankruptcy or reorganization of the Borrower or otherwise, all as though such
payment had not been made. Each Guarantor agrees that if the Borrower or any
other guarantor of all or a portion of the Obligations is the subject of a
bankruptcy proceeding under Title 11 of the United States Code or similar laws
affecting creditors' rights or insolvent corporations, it will not assert the
pendency of such proceeding or any order entered therein as a defense to the
timely payment of the Obligations.
SECTION 3. Waivers. (a) Each Guarantor hereby waives
promptness, diligence, notice of acceptance and any other notice with respect to
any of the Obligations and this Guaranty and any requirement that the Agent or
any Lender Party protect, secure, perfect or insure any lien securing any
Obligation or any property subject thereto or exhaust any rights or take any
action against the Borrower or any other individual, corporation, partnership or
other legal entity ("Persons") or any collateral. Each Guarantor hereby waives
notice of or proof of reliance by the Agent or any Lender Party upon this
Guaranty, and the Obligations shall conclusively be deemed to have been created,
contracted, incurred, renewed, extended, amended or waived in reliance upon this
Guaranty.
(b) Each Guarantor hereby agrees that, until such time as the
Obligations and all such Guarantor's obligations hereunder are paid in full in
cash, and the Letter Agreement and the other Line Documents are terminated and
the expiry or cancellation (undrawn) of all Letters of Credit (other than those
that are Adequately Collateralized) (the "Termination Date"), it shall not
assert any claim or other right that it may now or hereafter acquire against the
Borrower or any other insider guarantor that arises from the existence, payment,
performance or enforcement of such Guarantor's obligations under this Guaranty
or the Letter Agreement, the other Line Documents or the Obligations or
guarantees thereof, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy of the Agent or any Lender Party against such
Guarantor, any other insider guarantor or any collateral securing any Guaranteed
Obligation, whether or not such claim, remedy or right arises in equity or under
contract, statute or common law, including, without limitation, the right to
take or receive from such Guarantor or any other insider guarantor, directly or
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indirectly, in cash or other property or by set-off (including under Section 10
hereof) or in any other manner, payment or security on account of such claim,
remedy or right. If any amount shall be paid to such Guarantor in violation of
the preceding sentence at any time prior to the payment in full in cash of the
Obligations and all other amounts payable under this Guaranty, such Guarantor
shall immediately give the Agent notice of its receipt of such amount and such
amount shall be held in trust for the benefit of the Agent and the Lender
Parties owed the Obligations which gave rise to such Guarantor's right of
recovery, segregated from other funds of such Guarantor, and shall forthwith be
paid to the Agent to be credited and applied to the Obligations then due and
payable and all other amounts payable under this Guaranty then due and payable,
whether matured or unmatured, in such order as the Agent may determine. Each
Guarantor acknowledges that it will receive direct and indirect benefits from
the Letter Agreement and the transactions consummated in connection therewith
and that the waiver set forth in this subsection is knowingly made in
contemplation of such benefits.
(c) Until all of the Obligations shall have been paid in full
in cash, no Guarantor will enforce any other claim or exercise any other rights
which it may have against the Borrower.
SECTION 4. Payments Free and Clear of Taxes, Etc. (a) Any and
all payments made by the Guarantors hereunder to or for the benefit of any
Lender Party or the Agent shall be made free and clear of and without deduction
for any and all present or future taxes (other than any taxes imposed on the
gross receipts or income of any Lender Party or to the Agent). If any Guarantor
shall be required by law to deduct any such taxes from or in respect of any sum
payable hereunder, to or for the benefit of any Lender Party or the Agent, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions of such taxes (including deductions of taxes applicable to
additional sums payable under this Section) such Lender Party or the Agent, as
the case may be, receives an amount equal to the sum it would have received had
no such deductions been made, (ii) such Guarantor shall make such deductions and
(iii) such Guarantor shall pay the full amount so deducted to the relevant
taxation authority or other authority in accordance with applicable law.
(b) In addition, each Guarantor agrees to pay any present or
future stamp, documentary, excise, privilege, intangible or similar levies that
arise at any time or from time to time (i) from any payment made under any and
all Line Documents, (ii) from the transfer of the rights of any Lender Party
under any Line Documents to any transferee, or (iii) from the execution or
delivery by the Borrower of, or from the filing or recording or maintenance of,
or otherwise with respect to the exercise by the Agent or the Lender Parties of
their rights under, any and all Line Documents (hereinafter referred to as
"Other Taxes").
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(c) The Guarantors hereby indemnify each Lender Party and the
Agent with respect to any taxes referred to in (a) and (b) of this Section 4
paid by such Lender Party or the Agent, as the case may be, and any liability
(including penalties, interest and expenses) arising solely therefrom or with
respect thereto. Payment of this indemnification shall be made within 30 days
from the date such Lender Party or the Agent certifies and sets forth in
reasonable detail the calculation thereof as to the amount and type of such
taxes. Any such certificate submitted by the Lender Party or the Agent in good
faith to the Borrower shall, absent manifest error, be final, conclusive and
binding on all parties.
(d) Within thirty days after having received a receipt of
taxes, each Guarantor will furnish to the Agent or the applicable Lender Party,
at its address referred to in Section 8 hereof, the original or a certified copy
of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement
of the Guarantors hereunder, the agreements and obligations of the Guarantors
contained in this Section 4 shall survive the Termination Date.
SECTION 5. Representations and Warranties. Each Guarantor
hereby represents and warrants as follows as to itself:
(a) The Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation and
has the requisite power and authority to own or lease and operate its
properties and to carry on its business as now conducted and as proposed to be
conducted. The Guarantor is duly qualified and is authorized to do business and
is in good standing in each jurisdiction where the nature of its business or
location of its properities and assets requires it to be so qualified.
(b) The execution and delivery by the Guarantor of this
Guaranty and any other Line Document to which it is a party and the performance
by the Guarantor of its obligations hereunder and thereunder are within the
Guarantor's corporate powers, have been duly authorized by all necessary action
and do not and will not (i) require any consent or approval of the stockholders
of the Guarantor, (ii) contravene (A) the Guarantor's Certificate of
Incorporation, By-laws or similar organizational documents, (B) any statute or
any order, rule or regulation of any court or governmental agency or body (a
"Governmental Authority") having jurisdiction over the Guarantor or any of its
properties or assets ("Requirements of Law"), (C) any franchise, license,
permit, indenture, contract, lease, agreement, instrument or other commitment to
which it is a party or by which any of its properties or assets are bound
("Contractual Provisions"), or (iii) result in or require the creation or
imposition of any lien or encumbrance upon or with respect to any of the
Guarantor's properties or assets, except for the liens in favor of the
Collateral Agent created, for the benefit of the Collateral Agent and the Lender
Parties, under the Collateral Documents. The Guarantor is not in default under
any Contractual Provision nor has the Guarantor violated or failed to comply
with any Requirement of Law which would, individually or in the aggregate, be
reasonably likely to have a material adverse effect on the financial condition
of the Guarantor or its ability to perform its obligations under this Guaranty
or the Pledge Agreement (a "Material Adverse Effect").
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(c) No consent, authorization, approval or filing with any
Governmental Authority or third party is required in connection with the
execution, delivery and performance by the Guarantor of this Guaranty, the
Pledge Agreement or any other Line Document to which it is a party, except for
the filings, if any, necessary to create, perfect or retain the perfection of
liens against the Collateral.
(d) This Guaranty and each of the Line Documents to which the
Guarantor is a party is the legal, valid and binding obligation of the Guarantor
enforceable against the Guarantor in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and general equitable principles.
(e) There is not now outstanding with respect to the
Guarantor nor is there now pending or, to the best of the Guarantor's knowledge
after diligent inquiry, threatened any litigation, contested claim,
investigation, arbitration, or governmental proceeding, by or against the
Guarantor, that (i) could individually or in the aggregate, be reasonably likely
to have a Material Adverse Effect (other than the litigation commenced by Shell
Canada Ltd. et al. against Indian Refining Limited Partnership et al. and the
pending or threatened arbitration between CEC, Inc. and MG Refining & Marketing
Inc., or (ii) purports to affect the legality, validity or enforceability of
this Guaranty or any other Line Document to which the Guarantor is a party or
the consummation of the transactions contemplated hereby or thereby.
(f) The Guarantor has, independently and without reliance
upon the Agent or any Lender Party and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Guaranty.
(g) The performance of the Guarantor's obligations under this
Guaranty and the other Line Documents to which it is a party would not render it
Insolvent; for purposes hereof "Insolvent" shall mean, with respect to the
Guarantor on a particular date, that on such date (i) the fair value of the
property of the Guarantor is less than the total amount of liabilities
(including the reasonably estimated amount of contingent liabilities) of the
Guarantor; (ii) the present fair market value of the assets of the Guarantor is
less than the amount that will be required to pay the probable liability
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of the Guarantor on its existing debts as they become absolute and mature; (iii)
the Guarantor is not able to realize upon its assets and pay its debts and other
liabilities, contingent obligations and other commitments as they mature in the
normal course of business; or (iv) the Guarantor has unreasonably small capital
to engage in business or a transaction.
(h) The Guarantor has timely filed (including any permitted
extensions) all income tax returns it is required to file, except for certain
tax returns that were due on December 15, 1994 and not timely filed because
CEC's request for a change in tax year has been granted. The information filed
in such tax returns is complete and accurate in all material respects. All
deductions taken in such income tax returns are in accordance with applicable
laws and regulations, except deductions that may have been disallowed but are
being challenged in good faith and for which adequate reserves have been made in
accordance with generally accepted accounting principles. All taxes,
assessments, fees and other governmental charges for periods beginning prior to
the date hereof, have been timely paid and the Guarantor does not have any
material liability for taxes in excess of the amounts so paid or reserves so
established. No deficiencies for taxes have been claimed, proposed or assessed
by any taxing or other Governmental Authority against the Guarantor and no tax
lien has been filed. There are no pending or threatened audits, investigations
or claims for or relating to any material liability for taxes and there are no
matters under discussion with any Governmental Authority which could result in a
material additional liability for taxes. No extension of a statute of
limitations relating to taxes, assessments, fees or other governmental charges
is in effect with respect to the Guarantor. The Guarantor does not have any
obligation under any written tax sharing agreement or agreement regarding
payments in lieu of taxes.
SECTION 6. Certain Covenants. The Guarantors covenant and
agree that, until the occurrence of the Termination Date:
(a) CEC shall not create or incur, and the consolidated
subsidiaries (including any corporation or partnership owned or controlled,
directly or indirectly ("Subsidiaries") of CEC other than those Subsidiaries
listed in Schedule II hereto (the "Excluded Subsidiaries") shall not create or
incur, any obligation, direct or indirect and contingent or otherwise, with
respect to indebtedness for borrowed money or for the deferred purchase price of
property or services ("Indebtedness") other than (i) Indebtedness created or
incurred prior to the date hereof (including, without limitation, the
approximately $41 million principal amount outstanding as of the date hereof of
certain term loans made to certain subsidiaries of CEC pursuant to a Loan
Agreement dated as of August 6, 1993 among such subsidiaries, General Electric
Capital Corporation as Agent for the Lenders and the other parties thereto) and
(ii) Indebtedness created or incurred on or after the date hereof if the
aggregate amount thereof (excluding the Obligations) does not exceed $20 million
at any time.
-9-
<PAGE>
(b) Neither CEC nor any of its consolidated Subsidiaries
other than the Excluded Subsidiaries shall voluntarily create, assume, or incur,
or permit to be created, assumed, or incurred, any mortgage, lien, pledge,
security interest or other charge or encumbrance or other preferential
arrangement of any kind upon or with respect to any of their properties, whether
such properties and assets are now owned or hereafter acquired, or upon or with
respect to any right to receive income, now or hereafter existing; provided,
that CEC and any Subsidiary thereof shall be permitted, without making or
causing to be made the provision above described, to assume or create other
security interests (i) for taxes, assessments or government charges if the same
shall not at the time be delinquent or thereafter can be paid without penalty,
(ii) imposed by law, such as carriers', warehousemen's and mechanics' liens and
other similar liens arising in the ordinary course of business and not material
in amount, (iii) arising out of pledges or deposits under workmen's compensation
laws, unemployment insurance, old-age pensions, or other social security or
retirement benefits or similar legislation and (iv) securing Indebtedness which
CEC and its consolidated Subsidiaries are permitted to create or incur under
Section 6(a)(ii) hereof.
(c) CEC shall give written notice to the Agent and each of
the Lender Parties of the commencement or occurrence of any action (including
substantive negotiations) or event which CEC is, or if successfully pursued
would be, required under the Securities and Exchange Commission's rules and
regulations, to report on Form 8-K. CEC agrees that it shall provide to the Line
of Credit Lenders periodic updates of the status of any such action (including
substantive negotiations) or event on a reasonably frequent basis, as well as at
the request of either Line of Credit Lender. No such information disclosed by
CEC in any such notice shall be publicly disclosed by the Agent or any Lender
Party until CEC's public disclosure of such information or until such
information shall otherwise become public (other than by action of the Line of
Credit Lenders).
(d) CEC shall not amend or consent to any amendment or waiver
of, or permit the Borrower or any other subsidiary of CEC to amend or consent to
any amendment or waiver of, any provision of any of (i) the articles or
certificates of incorporation, by-laws, partnership agreements, other
constituting documents, or any other agreements, instruments or documents
governing or affecting the ownership of any equity interest which are
contemplated by or referred to in Annex 2 to the Letter Agreement or (ii) any of
the other agreements, instruments or documents which are contemplated by or
referred to in Annex 2 to the Letter Agreement if, in the case of this clause
(ii), the effect of such amendment, consent or waiver could be reasonably likely
to be materially adverse to the interests of any of the Lender Parties or the
Agent. CEC agrees that unless such agreements, instruments or documents are
terminated by a party other than CEC or one of its affiliates, all such
agreements, instruments or documents shall remain in full force and effect;
provided, however, that the covenant contained in this sentence shall not apply
in the case of a termination of the agreement referred to in item 5 of
Annex 2 to the Letter Agreement.
-10-
<PAGE>
(e) CEC shall not declare or pay any dividend on or make any
payment or other distribution to holders of its capital stock (other than in
additional shares of such capital stock).
(f) The Guarantors shall not, and shall not permit any of the
Pledged Subsidiaries (as defined in the Guarantors Pledge Agreement) or any
direct or indirect Subsidiary of any of the Pledged Subsidiaries to, sell,
transfer or otherwise dispose of any assets of any of the Pledged Subsidiaries
or any such Subsidiaries (i) to any affiliate of CEC other than the Borrower or
any Guarantor, (ii) to any Person other than the Borrower or any Guarantor
unless such sale, transfer or other disposition is for all cash or Cash
Equivalents and such cash or Cash Equivalents remain an undiminished asset of
any such Pledged Subsidiaries or such other Subsidiary. The foregoing
restriction shall not apply to (A) sales of Inventory to unaffiliated Persons in
the ordinary course of business, consistent with past practice, (B) arrangements
in existence on the date hereof and disclosed on Schedule III hereto, (C) the
intercompany transfer between Castle and its Subsidiaries of the cash proceeds
of working capital assets in the ordinary course of business, consistent with
past practice, and (D) the intercompany transfer of cash by any of the Pledged
Subsidiaries to any other Pledged Subsidiary that is a Guarantor.
SECTION 7. Amendments; Supplement. No amendment or waiver of
any provision of this Guaranty, and no consent to any departure by one or more
Guarantors herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Agent, each Lender Party and the relevant Guarantor or
Guarantors and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 8. Addresses for Notices. All notices and
correspondence hereunder shall be in writing and sent by certified or registered
mail, return receipt requested, or by overnight delivery service with all
charges prepaid, if to any Guarantor at its address set forth in Schedule I
hereto, with a copy to Duane, Morris & Heckscher, One Liberty Place,
Philadelphia, PA 19103, Attention: Sheldon M. Bonovitz, Esq., Facsimile No.:
215-979-1020; and if to the Agent or any of the Lender Parties, at its address
specified on Schedule I hereto, with a copy to Dorsey & Whitney, 350 Park
Avenue, New York, NY 10022, Attention: Joel M. Simon, Esq. Facsimile No.: (212)
888-0018, or, as to any party, at such other address as shall be designated by
such party in a written notice to each other party. All such notices and
correspondence shall be deemed given (i) if sent by certified or registered
mail, four (4) Business Days after being post marked, (ii) if sent by overnight
delivery service, when received at the above stated addresses or when delivery
-11-
<PAGE>
is refused and (iii) if sent by facsimile transmission, when receipt of such
transmission is acknowledged; provided, that notices to the Agent shall not be
effective until received by the Agent.
SECTION 9. No Waiver; Remedies. No failure on the part of the
Agent or any Lender Party to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
SECTION 10. Right of Set-off. Upon the occurrence of a Demand
Event, the Agent and each Lender Party is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set-off and appropriate
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by the Agent
or such Lender Party to or for the credit or the account of a Guarantor against
any and all of the obligations of such Guarantor now or hereafter existing under
this Guaranty, whether or not the Agent or such Lender Party shall have made any
demand under this Guaranty and although such obligations may be contingent and
unmatured. Each of the Agent and the Lender Parties agrees to notify the
Guarantors after any such set-off and application made by such Person, provided
that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of each of the Agent and the Lender Parties
under this Section are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which the Agent or such Lender
Parties may have.
SECTION 11. Continuing Guaranty; Assignments under Letter
Agreement. This Guaranty is a continuing guaranty and shall (i) remain in full
force and effect until the occurrence of the Termination Date, (ii) be binding
upon each of the Guarantors and their respective successors and permitted
assigns, and (iii) inure to the benefit of, and be enforceable by, the Agent and
the Lender Parties and their respective successors, transferees and permitted
assigns. Without limiting the generality of the foregoing clause (iii), the
Agent or any Line of Credit Lender may assign or otherwise transfer all or any
portion of its rights and obligations under this Guaranty to any other Person to
whom an assignment is made in accordance with the Letter Agreement and such Line
of Credit Lender's Note, and such other Person shall thereupon become vested
with all the benefits in respect thereof granted to the Agent or such Lender
Party herein or otherwise. No Guarantor may assign any of its rights and
obligations under this Guaranty without the prior written consent of each of the
Lender Parties.
-12-
<PAGE>
SECTION 12. Indemnification. The Guarantors hereby agree to
indemnify and hold harmless the Agent, each Lender Party and each director,
officer, employee, affiliate and agent thereof (each, an "Indemnified Person")
against, and to reimburse each Indemnified Person, upon its demand, for, any
losses, claims, damages, liabilities or other reasonable expenses ("Losses") to
which such Indemnified Person may become subject insofar as such Losses arise
out of or relate to or result from (x) any investigation or defense of, or
participation in, any legal proceeding relating to the Letter Agreement, this
Guaranty, the Pledge Agreement and any other Line Document and the transactions
contemplated hereby and thereby or (y) any claim, action, suit, investigation or
proceeding relating to the Agent or any Lender Party or affiliate thereof,
whether the Indemnified Party is a party thereto or target thereof, or, if not,
in which the indemnified person or entity is subpoenaed or required to produce
documents, including, without limitation, in each case Losses consisting of
reasonable attorneys' fees or other expenses incurred in connection with
investigating, defending or participating in any such legal proceeding (whether
or not such Indemnified Person is a party thereto), provided that the foregoing
will not apply to any Losses to the extent they (i) are found by a decision of a
court of competent jurisdiction in a final non-appealable judgment to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person or (ii) arise out of claims by one Indemnified Person against another
Indemnified Person.
SECTION 13. Payments. The Guarantors agree that all payments
made hereunder will be paid to the Agent without set-off or counterclaim at the
office of the Agent located at the address set forth in Section 10. Each
Guarantor agrees that whenever it shall make any payment on account of its
liability hereunder it will promptly notify the Agent in writing that such
payment is made under this Guaranty for such purpose.
SECTION 14. Expenses. Each Guarantor agrees to pay or
reimburse the Agent and the Lender Parties for any and all expenses (including
reasonable attorneys' fees and expenses) incurred by the Agent or any Lender
Party in enforcing any rights under this Guaranty.
SECTION 15. Submission to Jurisdiction; Waiver of Immunities.
EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER LINE DOCUMENTS TO
WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK AND APPELLATE COURTS FROM ANY THEREOF;
-13-
<PAGE>
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT
COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO THE BORROWER AT ITS ADDRESS SET FORTH IN SECTION 7(a) HEREOF OR
AT SUCH OTHER ADDRESS OF WHICH THE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT
THERETO;
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND
(v) WAIVES THE RIGHT TO ASSERT ANY SETOFF, COUNTERCLAIM OR
CROSS-CLAIM IN RESPECT OF, AND ALL STATUTES OF LIMITATIONS WHICH MAY BE
RELEVANT TO, SUCH ACTION OR PROCEEDING.
SECTION 16. Governing Law. THE VALIDITY, INTERPRETATION AND
ENFORCEMENT OF THIS GUARANTY AND THE OTHER LINE DOCUMENTS TO WHICH ANY GUARANTOR
IS A PARTY AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR
ANY OF THE OTHER LINE DOCUMENTS, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR
OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL LAWS AND DECISIONS OF THE STATE OF
NEW YORK.
SECTION 17. Waiver of Jury Trial. EACH GUARANTOR HEREBY
IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
ARISING OUT OF THIS GUARANTY OR ANY OTHER LINE DOCUMENTS TO WHICH IT IS A PARTY
OR THE TRANSACTIONS RELATED HERETO OR THERETO.
-14-
<PAGE>
SECTION 18. Entire Agreement. THIS WRITTEN AGREEMENT, TOGETHER
WITH THE OTHER AGREEMENTS REFERRED TO HEREIN, REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE MATTERS COVERED HEREBY AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
-15-
<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to
be duly executed and delivered by its respective officer thereunto duly
authorized as of the date first above written.
CASTLE ENERGY CORPORATION
By: /s/ Joseph L. Castle II
-------------------------------------
Name: Joseph L. Castle II
Title: CEO
CASTLE PRODUCTION RESOURCE
COMPANY
By: /s/ Joseph L. Castle II
-------------------------------------
Name: Joseph L. Castle II
Title: CEO
CASTLE PRODUCTION COMPANY
By: /s/ Joseph L. Castle II
-------------------------------------
Name: Joseph L. Castle II
Title: CEO
Accepted as of the date first above written:
BT COMMERCIAL CORPORATION,
as Agent
By: /s/ J. Jeffcott Ogden
--------------------------------
Name: J. Jeffcott Ogden
Title:
-16-
<PAGE>
EXHIBIT 10.18
AMENDMENT TO STOCK AND ASSET PURCHASE AGREEMENT
AMENDMENT TO STOCK AND ASSET PURCHASE AGREEMENT (this "Amendment") dated
July 31, 1995, among CASTLE ENERGY CORPORATION, a Delaware corporation; INDIAN
REFINING & MARKETING I INC., an Illinois corporation (f/k/a Indian Refining &
Marketing Inc.), INDIAN REFINING I LIMITED PARTNERSHIP, an Illinois limited
partnership (f/k/a Indian Refining Limited Partnership), IP OIL CO., an Illinois
corporation, INDIAN POWERINE L.P., an Illinois limited partnership, and INDIAN
OIL COMPANY, an Illinois corporation; and CORE REFINING CORPORATION, A Delaware
corporation.
The parties hereto are parties to a Stock and Asset Purchase Agreement
dated May 25, 1995 (the "Purchase Agreement"). Capitalized terms not otherwise
defined herein have the meaning ascribed to them in the Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Section 1.1 of the Purchase Agreement is hereby amended, effective as
of the date first set forth above, by (i) deleting the defined term
"Termination Date" in its entirety and (ii) substituting therefor the
following:
"Termination Date" shall mean August 15, 1995; provided, that if, on or
before August 15, 1995, CORE shall give notice to Castle that the Issuer has
commenced marketing the first mortgage notes that comprise a portion of the Debt
Financing and that CORE reasonably believes it can obtain the Financing and
consummate the Closing on or before August 31, 1995, the Termination Date shall
be extended to August 31, 1995.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
CORE REFINING CORPORATION
By: /s/William S. Sudhaus
----------------------------------------------
William S. Sudhaus, President
CASTLE ENERGY CORPORATION
By: /s/Joseph L. Castle II
----------------------------------------------
Joseph L. Castle II
Chief Executive Officer
<PAGE>
INDIAN REFINING & MARKETING I INC.
By: /s/David M. Hermes
----------------------------------------------
David M. Hermes, Senior Vice President- Raw
Material Supply
INDIAN REFINING I LIMITED PARTNERSHIP
By: Indian Refining & Marketing I Inc.
By: /s/David M. Hermes
----------------------------------------------
David M. Hermes, Senior Vice President- Raw
Material Supply
IP OIL CO.
By: /s/David M. Hermes
----------------------------------------------
David M. Hermes, Senior Vice President- Raw
Material Supply
INDIAN POWERINE L.P.
By: IP OIL CO.
By: /s/David M. Hermes
----------------------------------------------
David M. Hermes, Senior Vice President- Raw
Material Supply
INDIAN OIL COMPANY
By: /s/David M. Hermes
----------------------------------------------
David M. Hermes, Senior Vice President- Raw
Material Supply
-2-
<PAGE>
EXHIBIT 10.19
SECOND AMENDMENT TO STOCK AND ASSET PURCHASE AGREEMENT
SECOND AMENDMENT TO STOCK AND ASSET PURCHASE AGREEMENT (this "Amendment")
dated August 15, 1995, among CASTLE ENERGY CORPORATION, a Delaware corporation;
INDIAN REFINING & MARKETING I INC., an Illinois corporation (f/k/a Indian
Refining & Marketing Inc.), INDIAN REFINING I LIMITED PARTNERSHIP, an Illinois
limited partnership (f/k/a Indian Refining Limited Partnership), IP OIL CO., an
Illinois corporation, INDIAN POWERINE L.P., an Illinois limited partnership, and
INDIAN OIL COMPANY, an Illinois corporation; and CORE REFINING CORPORATION, A
Delaware corporation.
The parties hereto are parties to a Stock and Asset Purchase Agreement
dated May 25, 1995 (the "Purchase Agreement"), as amended by an Amendment to
Stock and Asset Purchase Agreement dated July 31, 1995. Capitalized terms not
otherwise defined herein have the meaning ascribed to them in the Purchase
Agreement.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Section 1.1 of the Purchase Agreement is hereby amended, effective as
of the date first set forth above, by (i) deleting the defined term
"Termination Date" in its entirety and (ii) substituting therefor the
following:
"Termination Date" shall mean August 31, 1995; provided, that if, on or
before August 31, 1995, CORE shall give notice to Castle that the Issuer has
commenced marketing the first mortgage notes that comprise a portion of the Debt
Financing and that CORE reasonably believes it can obtain the Financing and
consummate the Closing on or before September 10, 1995, the Termination Date
shall be extended to September 10, 1995.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
CORE REFINING CORPORATION
By: /s/William S. Sudhaus
----------------------------------------------
William S. Sudhaus
CASTLE ENERGY CORPORATION
By: /s/Joseph L. Castle II
----------------------------------------------
Joseph L. Castle II
Chief Executive Officer
<PAGE>
INDIAN REFINING & MARKETING I INC.
By: /s/David M. Hermes
----------------------------------------------
David M. Hermes, Senior Vice President-Raw
Material Supply
INDIAN REFINING I LIMITED PARTNERSHIP
By: Indian Refining & Marketing I Inc.
By: /s/David M. Hermes
----------------------------------------------
David M. Hermes, Senior Vice President-Raw
Material Supply
IP OIL CO.
By: /s/David M. Hermes
----------------------------------------------
David M. Hermes, Senior Vice President-Raw
Material Supply
INDIAN POWERINE L.P.
By: IP OIL CO.
By: /s/David M. Hermes
----------------------------------------------
David M. Hermes, Senior Vice President-Raw
Material Supply
INDIAN OIL COMPANY
By: /s/David M. Hermes
----------------------------------------------
David M. Hermes, Senior Vice President-Raw
Material Supply
-2-
<PAGE>
Exhibit 11.1
Castle Energy Corporation
Statement of Computation of Earnings Per Share
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------------------------------------
1995 1994
---------------------------- ------------------------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- --------
<S> <C> <C> <C> <C>
I. Shares outstanding, net of treasury 6,668,646 6,668,646 11,222,646 11,222,646
Stock issued during the period:
Options exercised 330 330 5,000 5,000
II. Weighted equivalent shares:
Assumed exercise of options and warrants 43,529 313,203 646,847
Assumed conversion of debentures 500,000 500,000
--------- ---------- ----------- ----------
III. Weighted average shares and equivalent
shares 6,668,976 6,712,505 12,040,849 12,374,493
========= ========== =========== ==========
IV. Net income (loss):
Net income (loss) before adjustment ($ 1,873) ($ 1,873) $ 4,345 $ 4,345
Assumed interest savings, net of tax, "as
if" the convertible debenture had been
exercised and debt had been retired
utilizing proceeds of the exercise of
options and warrants 61 40
--------- ---------- ----------- ----------
Adjusted net income (loss) ($ 1,873) ($ 1,873) $ 4,406 $ 4,385
========= ========== =========== ==========
V. Net income (loss) per share: ($ .28) ($ .28) $ .37 .35
========= ========== =========== ==========
</TABLE>
<PAGE>
Exhibit 11.1
Castle Energy Corporation
Statement of Computation of Earnings Per Share
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
-----------------------------------------------------------------------
1995 1994
----------------------------- ----------------------------------
Fully Fully
Primary Diluted Primary Diluted
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
I. Shares outstanding, net of treasury 7,627,646 7,627,646 7,722,646 7,722,646
Stock issued during the period:
Stock, net (919,290) (919,290) 2,705,150 2,705,150
Options exercised 4,542 4,542 1,722 1,722
II. Weighted equivalent shares:
Assumed exercise of options and warrants 58,944 47,313 415,519 617,014
Assumed conversion of debenture 25,650 25,650 500,000 500,000
---------- ----------- ------------- ------------
III. Weighted average shares and equivalent
shares 6,797,492 6,785,861 11,345,037 11,546,532
========== =========== ============= ============
IV. Net Income:
Net Income before adjustment $ 12,247 $ 12,247 $ 19,427 $ 19,427
Assumed interest savings, net of tax, "as
if" the convertible debenture had been
exercised and debt had been retired
utilizing proceeds of the exercise of
options and warrants. 86 86
---------- ----------- ------------- -------------
Adjusted net income $ 12,247 $ 12,247 $ 19,513 $ 19,513
========== =========== ============= ============
V. Net income per share $ 1.80 $ 1.80 $ 1.72 $ 1.69
========== =========== ============= ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains Summary Financial Data
extracted from the Company's Form 1O-Q for
the Nine Months Ended June 30, 1995 included
in Part I. Financial information and is
qualified in its entirety by reference
to such Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 15,903
<SECURITIES> 0
<RECEIVABLES> 61,613
<ALLOWANCES> 0
<INVENTORY> 37,159
<CURRENT-ASSETS> 211,709
<PP&E> 28,327
<DEPRECIATION> 4,889
<TOTAL-ASSETS> 300,022
<CURRENT-LIABILITIES> 193,581
<BONDS> 30,326
<COMMON> 3,342
0
0
<OTHER-SE> 35,587
<TOTAL-LIABILITY-AND-EQUITY> 300,022
<SALES> 737,008
<TOTAL-REVENUES> 737,008
<CGS> 598,990
<TOTAL-COSTS> 665,584
<OTHER-EXPENSES> 000,000
<LOSS-PROVISION> 000,000
<INTEREST-EXPENSE> 7,894
<INCOME-PRETAX> 66,058
<INCOME-TAX> 53,811
<INCOME-CONTINUING> 12,247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,247
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.80
</TABLE>
