<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
X QUARTERLY REPORT UNDER SECTION 13 or 15(d)
- -------- OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994.
TRANSITION REPORT PURSUANT TO SECTION 13 OR
- -------- 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________________
Commission File Number 1-2677
QUAKER STATE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 25-0742820
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
255 Elm Street
Oil City, Pennsylvania 16301
(Address of Principal Executive Offices)
(Zip Code)
(814) 676-7676
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
As of November 1, 1994, 31,500,081 shares of Capital Stock, par value $1.00
per share, of the registrant were outstanding.
<PAGE> 2
PART I.
FINANCIAL INFORMATION
<PAGE> 3
CONSOLIDATED STATEMENT OF OPERATIONS
QUAKER STATE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
9/30/94 9/30/93 9/30/94 9/30/93
- --------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA, UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Sales and operating revenues $184,427 $159,432 $528,097 $473,522
Other, net 1,589 3,180 4,682 7,209
- --------------------------------------------------------------------------------------------------------
186,016 162,612 532,779 480,731
COSTS AND EXPENSES
Cost of sales and operating costs 124,325 108,139 348,000 323,537
Selling, general and administrative 48,480 39,625 141,207 119,181
Depreciation, depletion and amortization 7,773 7,047 23,238 20,885
Interest 1,177 1,383 3,580 4,439
- --------------------------------------------------------------------------------------------------------
181,755 156,194 516,025 468,042
- --------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 4,261 6,418 16,754 12,689
- --------------------------------------------------------------------------------------------------------
PROVISION FOR (BENEFIT FROM) INCOME TAXES
Current (1,350) 9,557 6,725 13,687
Deferred 1,689 (8,082) (1,260) (10,066)
- --------------------------------------------------------------------------------------------------------
339 1,475 5,465 3,621
- --------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 3,922 4,943 11,289 9,068
INCOME FROM DISCONTINUED INSURANCE
OPERATIONS, NET OF TAXES (NOTE 3) 1,099 (967) 4,384 2,692
GAIN ON SALE OF DISCONTINUED INSURANCE OPERATIONS,
NET OF TAXES 377 -- 377 --
- --------------------------------------------------------------------------------------------------------
NET INCOME $ 5,398 $ 3,976 $ 16,050 $ 11,760
========================================================================================================
PER SHARE:
INCOME FROM CONTINUING OPERATIONS $.14 $.18 $.41 $.33
DISCONTINUED INSURANCE OPERATIONS .04 (.04) .16 .10
INCOME FROM SALE OF INSURANCE OPERATIONS .01 -- .01 --
- --------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $.19 $.14 $.58 $.43
========================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 27,390 27,285 27,438 27,215
========================================================================================================
CASH DIVIDENDS PAID PER SHARE $.10 $.10 $.30 $.50
========================================================================================================
</TABLE>
<PAGE> 4
CONSOLIDATED STATEMENT OF CASH FLOWS
QUAKER STATE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1994 1993
- ----------------------------------------------------------------------------------------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,050 $ 11,760
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 23,238 20,885
Deferred income taxes and investment tax credit 3,291 (2,446)
Gain on sale of discontinued insurance operations (377) --
Increase (decrease) from changes in:
Receivables (13,346) 2,026
Inventories (522) 7,754
Other current assets 4,770 6,960
Accounts payable (85) 3,504
Accrued liabilities 7,158 (21,184)
Other (13,744) (3,323)
Changes in discontinued insurance operations 4,089 11,339
- ----------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 30,522 37,275
- ----------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment 2,409 6,952
Capital expenditures (22,481) (14,191)
Proceeds from sale of discontinued coal operation assets 1,690 --
Proceeds from sale of discontinued insurance operations,
net of discontinued operations cash 76,851 --
Discontinued insurance operations
Proceeds from sale of bonds and securities 47,781 40,423
Purchase of bonds and securities (60,513) (54,527)
Acquisition of businesses, net of cash acquired (28,366) --
- ----------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 17,371 (21,343)
- ----------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid (8,206) (13,585)
Proceeds from notes payable 303 373
Payments on long-term debt (17,194) (26,930)
- ----------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (25,097) (40,142)
- ----------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 22,796 (24,210)
Cash and cash equivalents at beginning of year:
Other than discontinued insurance operations 6,220 34,146
Discontinued insurance operations 9,408 7,202
- ----------------------------------------------------------------------------------------
Total cash and cash equivalents at beginning of year 15,628 41,348
- ----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period:
Other than discontinued insurance operations 38,424 11,710
Discontinued insurance operations -- 5,428
- ----------------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,424 $ 17,138
- ----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
CONSOLIDATED BALANCE SHEET
Quaker State Corporation and Subsidiaries
<TABLE>
<CAPTION>
9/30/94 12/31/93*
- ---------------------------------------------------------------------------------------------
(in thousands except share data) (unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 38,424 $ 6,220
Accounts and notes receivable, less allowance of
$3,022 at 9/30/94 and $1,679 at 12/31/93. 105,579 56,818
- ---------------------------------------------------------------------------------------------
Inventories: (Note 2)
Crude oil 3,381 2,591
Finished and in-process petroleum products 44,349 23,225
Other 22,664 14,287
- ---------------------------------------------------------------------------------------------
Total inventories 70,394 40,103
- ---------------------------------------------------------------------------------------------
Deferred income taxes 15,084 18,375
Other current assets 12,495 17,468
- ---------------------------------------------------------------------------------------------
Total current assets 241,976 138,984
Property, plant, and equipment, net of accumulated depreciation
and depletion of $350,802 at 9/30/94 and $345,851 at 12/31/93. 244,896 225,828
Other assets 156,880 82,903
- ---------------------------------------------------------------------------------------------
Total assets other than insurance 643,752 447,715
Discontinued insurance assets -- 335,962
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS $643,752 $783,677
=============================================================================================
LIABILITIES
Current Liabilities:
Accounts payable $ 65,004 $ 35,980
Accrued liabilities 81,552 67,339
Installments on long-term debt 3,419 262
- ---------------------------------------------------------------------------------------------
Total current liabilities 149,975 103,581
- ---------------------------------------------------------------------------------------------
Long-term debt, less debt payable within one year 70,453 51,188
Other long-term liabilities 170,631 179,054
- ---------------------------------------------------------------------------------------------
Total liabilities other than insurance 391,059 333,823
Discontinued insurance liabilities -- 261,104
- ---------------------------------------------------------------------------------------------
Commitments and contingencies (Note 4)
STOCKHOLDERS' EQUITY
Capital stock, $1.00 par value; authorized shares, 37,500,000;
issued shares, 31,492,383 at 9/30/94 and 27,250,818 at 12/31/93 31,492 27,251
Treasury stock, 7,698 shares, at cost (106) --
Additional capital 119,951 63,044
Retained earnings 104,722 98,877
Cumulative foreign currency translation adjustment (182) 75
Unearned compensation (Note 6) (3,184) (497)
- ---------------------------------------------------------------------------------------------
Total stockholders' equity 252,693 188,750
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $643,752 $783,677
- ---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
*Amounts are from December 31, 1993 audited balance sheet and footnotes.
<PAGE> 6
OTHER FINANCIAL INFORMATION
Quaker State Corporation and Subsidiaries
The sales and operating revenues and contributions to income from continuing
operations, by industry segment, are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
QUARTER ENDED NINE MONTHS ENDED
9/30/94 9/30/93 9/30/94 9/30/93
- -----------------------------------------------------------------------------------------------------------
(in thousands, unaudited)
<S> <C> <C> <C> <C>
SALES AND OPERATING REVENUE
Motor oil $131,005 $113,952 $366,052 $332,827
Fast lube 30,470 26,524 84,596 77,558
Natural gas E&P 6,054 5,660 21,657 19,268
Truck-Lite 24,281 19,139 75,499 60,898
Docks 754 739 2,201 2,149
Intersegment sales (8,137) (6,582) (21,908) (19,178)
- -----------------------------------------------------------------------------------------------------------
Total sales and operating revenue $184,427 $159,432 $528,097 $473,522
===========================================================================================================
OPERATING PROFIT (LOSS)
Motor oil $ 4,702 $ 5,319 $ 12,970 $ 14,706
Fast lube 1,741 1,729 4,520 2,687
Natural gas E&P 60 (169) 4,200 2,858
Truck-Lite 2,680 1,207 10,114 4,775
Docks 306 296 775 856
- -----------------------------------------------------------------------------------------------------------
Total operating profit from continuing operations 9,489 8,382 32,579 25,882
Corporate income 788 1,651 2,041 2,461
Interest expense (1,125) (1,301) (3,443) (4,190)
Corporate expenses (4,891) (2,314) (14,423) (11,464)
- -----------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes $ 4,261 $ 6,418 $ 16,754 $ 12,689
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quaker State Corporation and Subsidiaries
(unaudited)
1. In the opinion of management of Quaker State Corporation (the company), the
accompanying financial statements include all adjustments which are
necessary to a fair statement of the results for such periods. All of these
adjustments are of a normal recurring nature. These statements should be read
in conjunction with the financial statements included as a part of the 1993
annual report on Form 10-K.
2. Inventories are stated at the lower of cost or market. Cost is determined on
the last-in, first-out (LIFO) basis for all crude oil, the majority of
company refined petroleum and vehicular lighting products; and on the
first-in, first-out (FIFO) basis for other inventories. The reserve to
reduce the carrying value of inventories from FIFO basis to LIFO basis
amounted to $21,760,000 at September 30, 1994, and $19,090,000 at
December 31, 1993.
3. On August 31, 1994, the company completed the sale of all of the stock of its
wholly owned subsidary, Heritage Insurance Group, Inc., to General Electric
Capital Corporation for approximately $85,000,000 with net proceeds of
$82,000,000 paid at the time of closing after satisfaction of certain
intercompany obligations. Accordingly, the operating results of the insurance
business, including the gain on the sale, have been segregated and reported
as a discontinued operation in the accompanying Consolidated Statement of
Operations for the period ending September 30, 1994. Prior year and prior
period financial statements have been reclassified to conform to the current
period presentation.
The insurance operations sales and operating revenues for two months of
the third quarter and eight months of 1994 were $24,724,000 and $87,451,000
compared to the third quarter and nine months of 1993 which were $32,981,000
and $93,785,000.
4. In December 1993, the United States of America commenced a lawsuit against
the company in the U.S. District Court for Northern West Virginia. The
complaint alleges the company violated the federal Resource Conservation and
Recovery Act and the federal Clean Air Act at the Congo refinery on various
dates starting in 1980 and seeks civil penalties as allowable under federal
law not to exceed $25,000 per day for each violation. The company intends to
vigorously defend itself in this lawsuit. However, the ultimate outcome of
this litigation cannot presently be determined. A provision of $1,000,000 was
established in the first quarter for costs associated with the pending
litigation.
In addition, the company has received notices from the EPA and others
that it is a "potentially responsible party" relative to certain waste
disposal sites identified by the EPA and may be required to share in the cost
of cleanup. The company has accrued for all matters which are probable and
can be reasonably estimated.
Contingent liabilities of an indeterminate amount exist in connection
with suits and claims arising in the ordinary course of business.
In April 1994, three purported class actions were commenced in the
Federal District Court for the Western District of Pennsylvania against Witco
Corporation, Quaker State Corporation and Pennzoil Company. The complaints
allege violations of Section 1 of the Sherman Act. The company believes there
is no basis for the allegations in the complaints and intends to defend these
matters vigorously.
In the opinion of management, all matters discussed above are adequately
accrued for or covered by insurance or, if not so provided for, are without
merit or the disposition is not anticipated to have a material effect on the
company's financial position; however, one or more of these matters could
have a material effect on future quarterly or annual results of operations
when resolved.
(more)
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quaker State Corporation and Subsidiaries
(unaudited)
5. The effective income tax rate for continuing operations was lowered to 33%
for the nine months ended September 30, 1994 from 41% for the six months
ended June 30, 1994 due to a reduction in the estimated state tax rate and
additional available foreign and other tax credits and other changes in
estimates. This reduction in the year-to-date rate caused the effective
tax rate for continuing operations for the quarter ending September 30,
1994 to be reduced to 8%. The 1994 nine month effective tax rate of 33% for
continuing operations is higher than the 1993 restated effective tax rate
of 21% due to higher income, an enacted federal rate change in 1993 that
increased the value of deferred tax assets in 1993, 1993 net adjustments
to valuation allowance and other 1993 credits.
6. On May 12, 1994 the company's stockholders approved the 1994 Stock Incentive
Plan. The number of shares which may be issued under this plan is 1,250,000
and the plan includes stock options, alternative stock appreciation rights,
cash payment rights, restricted shares, performance shares and other share
awards. In 1994, 225,800 restricted performance shares were granted under
this plan to key employees subject to forfeiture if certain three year
performance goals are not met. As a result of the grant of these restricted
shares, the company recorded $3,109,000 as unearned compensation in the
equity section of the Consolidated Balance Sheet. This unearned compensation
is being amortized on a straight line basis as compensation expense over the
performance cycle period.
7. On September 30, 1994 the company acquired all the stock of Westland Oil
Company, Inc. (Westland) and the Specialty Oil Companies (Specialty) of
Shreveport, Louisiana. The purchase price of Westland was 4,000,000 shares of
common stock valued at $57,750,000 under a negotiated Stock Purchase
Agreement. Specialty was acquired by a negotiated Agreement and Plan of
Merger for a consideration of $19,500,000 paid in cash at the time of
closing. The company also purchased certain related equipment assets
for approximately $1,500,000. In addition, the company assumed
approximately $42,000,000 in indebtedness of the acquired companies
(of which approximately $22,000,000 was satisfied by Quaker State at the
time of closing).
The Agreement for Purchase and Sale also provides for the purchase by
Quaker State of certain real property used in the acquired companies'
operations, for $9,000,000 at a later date.
Westland and Specialty are engaged in the sale and distribution of motor
oils, lubricants, greases and antifreeze, the blending, packaging, sale and
distribution of private label and branded lubricants, antifreeze and greases
and the collection and transportation of used motor oil.
The source of funds used for the acquisition was the proceeds of the sale
of Quaker State's former subsidiary, Heritage Insurance Group, Inc., which
disposition was concluded on August 31, 1994.
The acquisition has been accounted for under the purchase method and,
accordingly, the operating results of Westland and Specialty will be included
in the accompanying consolidated financial statements from the date of
acquisition.
The purchase price allocation to assets and liabilities is preliminary.
The acquisition has resulted in a preliminary excess of purchase price over
fair value of assets of approximately $72,000,000 recorded on the
Consolidated Balance Sheet at September 30, 1994.
The unaudited Consolidated Results of Operations are on a pro forma basis
as though Westland and Specialty had been acquired as of the beginning of the
periods presented, after including the impact of adjustments, such as
amortization of goodwill, and related tax effects. The discontinued insurance
operations have also been excluded.
(more)
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quaker State Corporation and Subsidiaries
(unaudited)
The pro forma results are not necessarily indicative of what actually would
have occured if the acquisition had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from the
combined operations.
<TABLE>
<CAPTION>
Nine Months Ended
---------------------
1994 1993
---- ----
(Unaudited) (Unaudited)
(Dollars in thousands except per share amounts)
<S> <C> <C>
Revenue $769,197 $683,924
Net Income from
continuing operations $ 14,796 $ 11,811
Net Income per share,
from continuing operations $ .47 $ .38
</TABLE>
<PAGE> 10
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition
--------
The consolidated financial statements and related notes including
information about Quaker State Corporation's (the company) operations in
different segments included in this Form 10-Q should be read as an integral
part of this review.
--------
Quaker State Corporation reported third quarter net income of $5,398,000,
or $.19 per share compared to $3,976,000, or $.14 per share, in the same
quarter last year. Nine month net income was $16,050,000, or $.58 per share,
versus $11,760,000, or $.43 per share in 1993. Sales and operating revenues
from continuing operations in 1994 were $184,427,000 and $528,097,000 for the
quarter and nine months compared to $159,432,000 and $473,522,000 for the same
periods last year. Operating profits from continuing operations in 1994
increased 13%, to $9,489,000 in the third quarter and 26%, to $32,579,000, for
the nine months ended September 30, 1994. Income from continuing operations in
the third quarter was down 21% to $3,922,000 as a result of higher corporate
expenses. The nine month revenue, operating profit and net income improvements
are based primarily on sales volume increases.
On August 31, 1994 the company completed the sale of all of the stock of
its wholly owned subsidiary, Heritage Insurance Group, Inc., to General
Electric Capital Corporation for approximately $82,000,000 after satisfaction
of certain intercompany obligations. Accordingly, the insurance operations
have been accounted for as a discontinued operation in the Consolidated
Statement of Operations for the period ending September 30, 1994. Prior year
and prior period financial statements have been reclassified to conform to this
presentation. (Refer to Note 3.)
On September 30, 1994 the company completed the acquisition of Westland
Oil Company, Inc. and the Specialty Oil Companies, all of Shreveport,
Louisiana. The purchase price of the acquisition was 4,000,000 shares of
common stock valued at $57,750,000 and cash consideration of $19,500,000. The
company also assumed approximately $42,000,000 in indebtedness of the acquired
companies. In addition, the company also purchased certain related equipment
for $1,541,000 and the company agreed to purchase certain real property used in
the acquired companies' operations for $9,000,000 at a later date. Funds used
for the acquisition were the proceeds from the sale of Heritage Insurance
Group, Inc. which disposition was completed on August 31, 1994. The
acquisition was accounted for under the purchase method and, accordingly, the
Consolidated Balance Sheet for September 30, 1994 includes the assets and
liabilities related to this acquisition. The purchase price allocation to
assets and liabilities is preliminary as of September 30, 1994. Further
details of the transaction, including pro forma consolidated results of
operations, are provided in Note 7 of Notes to Consolidated Financial
Statements.
<PAGE> 11
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition
--------
In the quarter and nine months ending September 30, 1994, the motor oil
division operating profits declined 12% to $4,702,000 and $12,970,000 while
revenues in these periods increased 15% and 10% to $131,005,000 and
$366,052,000. Branded motor oil sales volume increased 16% in the third
quarter and 10% for the nine months to primarily account for the revenue
increases. Third quarter and year-to-date automotive consumer product sales
were up 25%. Other third quarter variances that impacted sales included:
gasoline, fuel oil and kerosene sales volume down 20%, refinery lube stock
sales volume down 39% and average lube stock sales prices up 25%. Operating
profit declines in the third quarter and nine months resulted from increases in
expenses of approximately $5,500,000 and $16,900,000 for marketing expenses,
higher selling expenses geared towards developing additional sales volume and
higher freight from additional volume. Additionally, during the third quarter
of 1993 certain inventory quantities were reduced resulting in liquidations of
LIFO inventories. The effect of these liquidations was a decrease in operating
profit of $600,000 for the quarter and nine months ended September 30, 1993.
Nine-month results also include expenses of approximately $1,500,000 associated
with the December 1993 lawsuit filed against the company for alleged
environmental violations at the Congo refinery. (Refer to Note 4.) Operating
profit has been negatively impacted by a shift to more bulk sales where the
gross profit margin is lower. Increases since January 1, 1994 for the cost of
packaging and additives also had a negative impact on operating profits. A
price increase for branded motor oil products effective September 1 should
improve branded motor oil gross profit margins for the remainder of 1994.
Starting in the fourth quarter of 1994, the operating results generated by the
purchase of Westland Oil Company, Inc. and the Specialty Oil Companies will be
included in the motor oil business segment.
The fast lube segment reported third quarter operating profits of
$1,741,000 on sales and operating revenues of $30,470,000 compared to profits
of $1,729,000 on revenues of $26,524,000 last year. Year-to-date operating
profits were $4,520,000 on revenues of $84,596,000 compared to profits of
$2,687,000 on revenues of $77,558,000 last year. Car counts in 1994 increased
10% and 8% for the three and nine months ended September 30. Third quarter and
year-to-date advertising expenses have increased $323,000 and $776,000 while
third quarter employee benefit expenses are up approximately $243,000.
`
Operating profits for the third quarter and first nine months of 1994 at
the natural gas exploration and production business were $60,000 and $4,200,000
compared to a third quarter operating loss of $169,000 and year-to-date
operating profit of $2,858,000 in 1993. Revenues increased 7% to $6,054,000 in
the third quarter
<PAGE> 12
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition
--------
while year-to-date revenues of $21,657,000 increased 12% over 1993. Natural
gas sales volume increased 20% for the quarter and nine months ended September
30 and included deliveries made through the new Stagecoach pipeline. Natural
gas year-to-date average sales prices were up 4% per MCF but third quarter
average prices dropped 6% per MCF. Natural gas prices are expected to decline
throughout the fourth quarter resulting in a deterioration of operating results
in this business segment for the remainder of 1994. Third quarter and
year-to-date crude oil sales volumes were down 19% and 14% while year-to-date
average sales prices were off 14% per barrel. Nine-month depreciation and
depletion expense has increased $1,219,000 due to changes in crude oil reserve
estimates and increased natural gas production.
Truck-Lite operating profits in 1994 of $2,680,000 and $10,114,000
increased 122% and 112% over the third quarter and first nine months of 1993.
Revenues were up 27% for the quarter to $24,281,000 and 24% for the nine months
to $75,499,000. Automotive and original equipment truck trailer lighting sales
volume is 19% and 17% ahead of the same periods last year. This combined with
the sale of higher priced products accounts for the increased operating
profits and revenues. Selling, general and administrative expenses are up
13% for the nine months and include a third quarter charge of $500,000 for
additional employee costs.
Corporate interest expense of $3,443,000 for the first nine months of 1994
is down 18% from last year due to lower average debt in 1994. Corporate
expenses of $14,423,000 through September 30, 1994 are up 26% primarily due to
higher postretirement, performance incentive and legal expenses and reduced
expenses in the third quarter of 1993 of approximately $1,600,000 to adjust
employee benefit reserves.
Income, net of taxes, from discontinued insurance operations in the third
quarter was $1,476,000, or $.05 per share, compared to a loss of $967,000, or
$.04 per share, in 1993. The third quarter results include a gain from the
sale of the business of $377,000, or $.01 per share. Year-to-date income was
$4,761,000 or $.17 per share, compared to $2,692,000 or $.10 per share last
year. The 1993 third quarter and nine month insurance income includes a
$5,000,000 pre-tax charge to reserve for an estimate of probable liability
related to an adverse California jury decision. This lawsuit was settled in
the fourth quarter of 1993.
<PAGE> 13
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition
--------
The effective income tax rate for continuing operations was lowered to 33%
for the nine months ended September 30, 1994 from 41% for the six months ended
June 30, 1994 due to a reduction in the estimated state tax rate and additional
available foreign and other tax credits. This change resulted in an 8%
effective tax rate for the quarter ended September 30, 1994.
Cash provided by operations for the first nine months of 1994 was
$30,522,000 compared to $37,275,000 in 1993. This decrease resulted primarily
from reduced cash from the discontinued insurance operations and additional
cash used by coal activities. Cash used by coal activities was $12,601,000 in
the first nine months. Investing activities included proceeds from the sale of
the discontinued insurance operations, net of discontinued operations' cash, of
$76,851,000. Cash proceeds from investing activities also included the sale of
property and equipment of $4,099,000 of which $1,690,000 related to the
discontinued coal operations, and proceeds from the sale of discontinued
insurance company bonds and securities of $47,781,000. Cash used in investing
activities included acquisition of businesses, net of cash acquired, of
$28,366,000, capital expenditures of $22,481,000, and disbursements to purchase
insurance company bonds and securities of $60,513,000. Cash used in financing
activities was $25,097,000 and included payments of $17,194,000 to primarily
pay Specialty Oil Company debt at the time of aquisition and $8,206,000 paid for
dividends.
On October 27, 1994 the Board of Directors of the company authorized a
quarterly dividend of 10 cents per share payable December 15 to shareholders of
record as of November 15, 1994.
<PAGE> 14
PART II.
OTHER INFORMATION
<PAGE> 15
PART II
OTHER INFORMATION
QUAKER STATE CORPORATION AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits:
4(a). Amendment No. 3 to Credit Agreement, dated as of August 1, 1994, by
and among Quaker State Corporation, certain Banks, and PNC Bank,
National Association, as Agent for the Banks, filed herewith.
4(b). Amendment No. 4 to Credit Agreement, dated as of September 30,
1994, by and among Quaker State Corporation, certain Banks, and
PNC Bank, National Association, as Agent for the Banks, filed
herewith.
4(c). Second Amendment to Note Agreements, dated as of September 30,
1994, between Quaker State Corporation and certain insurance
companies, filed herewith.
10(a). Employment Agreement, dated as of August 1, 1994, between Quaker
State Corporation and Herbert M. Baum, filed herewith.
10(b). Employment Agreement, dated as of September 30, 1994, between
Quaker State Corporation and L. David Myatt, filed herewith.
11. Computation of Net Income Per Share for the quarters and nine
month periods ended September 30, 1994 and 1993, filed herewith.
27. Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K:
A report on Form 8-K was filed by Quaker State on September 15, 1994.
The report disclosed under Item 2 that on August 31, 1994, Quaker
State completed the sale of all of the stock of its wholly owned
subsidiary, Heritage Insurance Group, Inc., to General Electric
Capital Corporation. Filed with this report were a Pro Forma
Consolidated Statement of Operations of Quaker State Corporation and
Subsidiaries for the fiscal year ending December 31, 1993 and a Pro
Forma Consolidated Balance Sheet of Quaker State Corporation and
Subsidiaries at June 30, 1994.
A report on Form 8-K was filed by Quaker State on October 14, 1994.
The report disclosed under Item 2 that on September 30, 1994, Quaker
State completed the acquisition of all of the capital stock of
Westland Oil Company, Inc. and the acquisition by merger of the
Specialty Oil Companies. The financial statements and pro forma
financial information required by Item 7 of Form 8-K with respect to
these acquisitions will be filed as soon as practicable but in any event
not later than 60 days following the required filing date for that
report on Form 8-K.
<PAGE> 16
QUAKER STATE CORPORATION AND SUBSIDIARIES
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.
QUAKER STATE CORPORATION
(Registrant)
Date 11/10/94 By Herbert M. Baum
--------- ----------------------------
Herbert M. Baum
Chairman of the Board,
President and
Chief Executive Officer
Date 11/10/94 By R. Scott Keefer
--------- ----------------------------
R. Scott Keefer
Vice President, Finance and
Chief Financial Officer
<PAGE> 17
QUAKER STATE CORPORATION
EXHIBIT LIST
------------
The following Exhibits are required to be filed with this quarterly report
on Form 10-Q.
<TABLE>
<CAPTION>
Exhibit No. and Document
- ------------------------
<S> <C>
4(a). Amendment No. 3 to Credit Agreement, dated as of August 1, 1994, by and
among Quaker State Corporation, certain Banks, and PNC Bank,
National Association, as Agent for the Banks, filed herewith.
4(b). Amendment No. 4 to Credit Agreement, dated as of September 30, 1994, by
and among Quaker State Corporation, certain Banks, and PNC Bank,
National Association, as Agent for the Banks, filed herewith.
4(c). Second Amendment to Note Agreements, dated as of September 30, 1994,
between Quaker State Corporation and certain insurance companies, filed
herewith.
10(a). Employment Agreement, dated as of August 1, 1994, between Quaker State
Corporation and Herbert M. Baum, filed herewith.
10(b). Employment Agreement, dated as of September 30, 1994, between Quaker
State Corporation and L. David Myatt, filed herewith.
11. Computation of Net Income Per Share for the quarters and nine month
periods ended September 30, 1994 and 1993, filed herewith.
27. Financial Data Schedule, filed herewith.
</TABLE>
<PAGE> 1
Exhibit 4(a)
AMENDMENT NO. 3 TO
------------------
CREDIT AGREEMENT
----------------
THIS AMENDMENT NO. 3 TO CREDIT AGREEMENT ("Amendment No. 3")
dated as of August 1, 1994 by and among Quaker State Corporation,
a Delaware corporation (the "Borrower"), the Banks party to the
Credit Agreement (as hereinafter defined) and PNC Bank, National
Association (formerly Pittsburgh National Bank), a national banking
association, as agent for the Banks (the "Agent");
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to that certain Credit
Agreement, dated as of March 31, 1992, pursuant to which the Banks
agreed to make revolving credit loans to the Borrower not to exceed
$45,000,000, all on the terms and conditions set forth therein, as
amended by that certain Amendment No. 1 to Credit Agreement dated
as of September 30, 1992 and as further amended by that certain
Amendment No. 2 to the Credit Agreement dated as of August 16, 1993
(the "Credit Agreement"); and
WHEREAS, the Borrower, the Banks and the Agent hereby desire
to amend the Credit Agreement as hereinafter provided.
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and intending
to be legally bound hereby, covenant and agree as follows:
1. DEFINITIONS.
Defined terms used herein unless otherwise defined herein
shall have the meanings ascribed to them in the Credit Agreement.
2. AMENDMENT OF CREDIT AGREEMENT.
The parties hereto do hereby modify and amend the Credit
Agreement as follows:
A. Article I, Section 1.01 [Certain Definitions, p.8]
is hereby amended as follows:
(i) The definition of "Expiration Date" is hereby
amended and restated to read as follows:
Expiration Date shall mean, with respect to the
Commitments, June 30, 1997 or such later date
determined pursuant to Section 2.08 hereof.
<PAGE> 2
3. CONDITIONS OF EFFECTIVENESS. The effectiveness of this
Amendment No. 2 is expressly conditioned upon: (i) the Agent's
receipt of counterparts of this Amendment No. 3 duly executed by
the Borrower and each of the Banks and (ii) the Agent's receipt of
a certificate signed by the Secretary or Assistant Secretary of the
Borrower, dated as of a date satisfactory to the Agent, certifying
as to all action taken by the Borrower to authorize the execution,
delivery and performance of this Amendment No. 3.
4. MISCELLANEOUS.
A. Except as expressly modified and amended by
this Amendment No. 3, the Credit Agreement and the other Loan
Documents are hereby ratified and confirmed and shall remain in
full force and effect.
B. The Borrower affirms the representations and
warranties made by it to the Banks in Article V of the Credit
Agreement as of the date hereof (except representations and
warranties which expressly relate to an earlier date or time, which
representations and warranties shall be true and correct on and as
of the specific dates or times referred to therein). The Borrower
represents and warrants to the Banks that no Event of Default or
Potential Default has occurred and is continuing, and the execution
and performance of this Amendment No. 3 shall not give rise to an
Event of Default or Potential Default.
5. COUNTERPARTS. This Amendment No. 3 may be executed by
different parties hereto in any number of separate counterparts,
each of which, when so executed and delivered shall be an original
and all of such counterparts shall together constitute one and the
same instrument.
6. GOVERNING LAW. This Amendment No. 3 shall be governed by
and construed in accordance with the internal laws of the
Commonwealth of Pennsylvania.
[INTENTIONALLY BLANK]
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto by their officers
duly authorized, have executed this Amendment No. 3 as of the day
and year first above written.
BORROWER:
QUAKER STATE CORPORATION
By: R. SCOTT KEEFER
----------------------------
R. Scott Keefer
Vice President, Finance and
Chief Financial Officer
BANKS:
PNC BANK, NATIONAL ASSOCIATION
Individually and as Agent
By:
----------------------------
Louis R. Cestello
Assistant Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
----------------------------
Caroline R. Shapiro
Vice President
INTEGRA NATIONAL BANK/NORTH
By:
----------------------------
Edward R. Say
Vice President
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto by their officers
duly authorized, have executed this Amendment No. 3 as of the day
and year first above written.
BORROWER:
QUAKER STATE CORPORATION
By:
----------------------------
R. Scott Keefer
Vice President, Finance and
Chief Financial Officer
BANKS:
PNC BANK, NATIONAL ASSOCIATION
Individually and as Agent
By: LOUIS R. CESTELLO
----------------------------
Louis R. Cestello
Assistant Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
----------------------------
Caroline R. Shapiro
Vice President
INTEGRA NATIONAL BANK/NORTH
By:
----------------------------
Edward R. Say
Vice President
-3-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto by their officers
duly authorized, have executed this Amendment No. 3 as of the day
and year first above written.
BORROWER:
QUAKER STATE CORPORATION
By:
----------------------------
R. Scott Keefer
Vice President, Finance and
Chief Financial Officer
BANKS:
PNC BANK, NATIONAL ASSOCIATION
Individually and as Agent
By:
----------------------------
Louis R. Cestello
Assistant Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: ROBERT BOTTAMEDI
----------------------------
Robert Bottamedi
Vice President
INTEGRA NATIONAL BANK/NORTH
By:
----------------------------
Edward R. Say
Vice President
-3-
<PAGE> 1
Exhibit 4(b)
AMENDMENT NO. 4 TO
CREDIT AGREEMENT
THIS AMENDMENT NO. 4 TO CREDIT AGREEMENT ("Amendment
No. 4") dated as of September 3O, 1994 by and among Quaker State
Corporation, a Delaware corporation (the "Borrower"), the Banks
party to the Credit Agreement (as hereinafter defined) and PNC
Bank, National Association, a national banking association, as
agent for the banks (the "Agent").
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to that certain
Revolving Credit Agreement, dated as of March 31, 1992, as
amended by Amendment No. 1 ("Amendment No. 1") to Credit
Agreement dated as of September 30, 1992, Amendment No. 2 to
Credit Agreement dated as of August 16, 1993 and Amendment No. 3
to Credit Agreement dated as of August 1, 1994, (as amended, the
"Credit Aqreement"); and
WHEREAS, the Borrower proposes pursuant to the
Acquisition Documents (as herein defined) (i) to purchase all of
the capital stock of Westland Oil Company, Inc. and the Specialty
Oil Companies and certain related assets for an aggregate
consideration of approximately $130,000,000 consisting of cash,
assumption of indebtedness of the Acquired Companies and shares
of common stock of the Borrower and (ii) to merge the Specialty
Oil Companies into Specialty Oil (as herein defined).
WHEREAS, the Borrower, the Banks and the Agent hereby
desire to amend the Credit Agreement to permit such transactions
as hereinafter provided.
NOW, THEREFORE, the parties hereto, in consideration of
their mutual covenants and agreements hereinafter set forth and
intending to be legally bound, hereby covenant and agree as
follows:
1. DEFINITIONS.
Defined terms used herein unless otherwise defined
herein shall have the meanings given to them in the Credit
Agreement.
2. AMENDMENT OF CREDIT AGREEMENT.
The parties hereto do hereby modify and amend the
Credit Agreement as follows:
A. Article I, Section 1.01 [Certain Definitions, pp.
1-16] is hereby amended as follows:
<PAGE> 2
(i) Immediately prior to the definition of "Adjusted
Interest Charqes", the following definitions are inserted:
Acquired Companies shall mean Westland Oil
Company, Inc. and the Specialty Oil
Companies.
Acquisition shall mean the consummation of
the transactions contemplated by the
Acquisition Documents.
Acquisition Documents shall mean the
Agreement and Plan of Merger dated as of
August 3, 1994 by and among the Borrower, SO
Acquisition Corp. and the Specialty Oil
Companies; the Stock Exchange Agreement dated
as of August 3, 1994 by and among the
Borrower and the shareholders of Westland Oil
Company, Inc., and the Agreement to Buy and
Sell between Moon Realty and the Borrower,
the Registration Rights and Transfer
Agreement dated August 3, 1994 between the
Borrower and certain shareholders of the
Borrower, the Assignment of Scrip Dividend
Note between L. David Myatt and the Borrower;
the Indemnification Agreements among the
Borrower and certain shareholders of the
Acquired Companies, the Employment Agreements
between the Borrower and certain employees of
the Acquired Companies, and any other
instruments, certificates or documents
delivered in connection therewith.
(ii) Immediately prior to the definition of "month",
the following definition is inserted:
Moon Realty shall mean a partnership in which
certain shareholders of the Acquired
Companies are partners.
(iii) The definition of "Permitted Liens" is hereby
amended by deleting the "." at the end of such definition and
inserting in lieu thereof the following:
;
(xi) Liens on the assets of the Acquired
Companies or Specialty Oil securing
Indebtedness of such Subsidiaries to any
person or persons as in effect upon the
consummation of the Acquisition.
(iv) Immediately prior to the definition of
"Subsidiary", the following definitions are inserted:
-2-
<PAGE> 3
Specialty Oil shall mean Specialty Oil
Company, Inc., formerly named SO Acquisiton
Corp., a wholly owned subsidiary of the
Borrower and successor by merger to the
Specialty Oil Companies.
Specialty Oil Companies shall mean Specialty
Oil Company, Inc.-I, Specialty Oil Company,
Inc.-II, Specialty Oil Company, Inc.-III and
Specialty Oil Company, Inc.-IV.
B. Article II, Section 2.03 [Commitment Fees, p.17]
is hereby amended by deleting from the eighth line thereof "one-
fourth percent (1/4%)" and inserting in lieu thereof "three
sixteenths percent (3/16%)."
C. Article VII, Section 7.02(1) [Negative Covenants -
Guaranties, p. 10 of Amendment No. 1] is hereby amended and
restated to read as follows:
(1) Guaranties. The Borrower will not, and
will not permit any Subsidiary to, become or
be liable in respect of any Guaranty except:
(i) Guaranties by the Borrower or
any Subsidiary which are limited in
amount to a stated maximum dollar
exposure;
(ii) Guaranties by the Borrower of
guaranty obligations of certain
shareholders of the Acquired
Companies, as set forth in the
Acquisition Documents;
(iii) Guaranties by the Acquired
Companies and Specialty Oil of
obligations of Moon Realty as in
effect upon the consummation of the
Acquisition, as set forth in the
Commercial Guaranty Agreements each
dated March 19, 1990, among the
Acquired Companies and Moon Realty;
or
(iv) Guaranties of obligations of
any Subsidiary incurred in
compliance with the provisions of
this Agreement.
D. Article VII, Section 7.02(m) [Negative Covenants -
Limitations Affecting Subsidiaries, p. 10-11 of Amendment No. 1],
is hereby amended by deleting the "." at the end of such section
and inserting in lieu thereof the following:
-3-
<PAGE> 4
;
(D) any restriction contained in any
agreement or instrument applicable to the
Acquired Companies or Specialty Oil in effect
at the time of the Acquisition, including any
restriction contained in the Acquisition
Documents.
3. CONDITIONS OF EFFECTIVENESS. The effectiveness of
this Amendment No. 4 is expressly conditioned upon: (i) the
Agent's receipt for the benefit of each Bank of a written opinion
of counsel for the Borrower, satisfactory to the Agent, dated a
date satisfactory to the Agent; (ii) the Agent's receipt of
counterparts of this Amendment No. 4 duly executed by the
Borrower and each of the Banks; (iii) the Agent's receipt of a
certificate signed by the Secretary or Assistant Secretary of the
Borrower, dated as of a date satisfactory to the Agent,
certifying as to all action taken by the Borrower to authorize
the execution, delivery and performance of this Amendment No. 4;
and (iv) the consummation of the Acquisition on or before
October 31, 1994. If all of the conditions to the effectiveness
of this Amendment No. 4 are not met on or before October 31,
1994, this Amendment No. 4 shall become null and void and of no
force or effect.
4. DELIVERY OF PRO FORMA. The Borrower hereby
covenants to deliver to the Agent and the Banks, as soon as
available and in any event no later than the date on which the
Borrower files its pro forma balance sheet with the Securities
and Exchange Commission required in connection with reporting the
Acquisition on Form 8-K, an unaudited consolidated balance sheet
of the Borrower and its Subsidiaries as of the date of the
Acquisition after giving effect to the Acquisition. The Banks
hereby waive compliance with Section 7.03(a) of the Credit
Agreement to the extent such Section would otherwise require the
Borrower to deliver the pro forma balance sheet described in the
foregoing sentence at an earlier time than described in the
foregoing sentence.
5. MISCELLANEOUS.
A. Except as expressly modified and amended by
this Amendment No. 4, the Credit Agreement and the other Loan
Documents are hereby ratified and confirmed and shall remain in
full force and effect.
B. The Borrower affirms the representations and
warranties made by it to the Banks in Article V of the Credit
Agreement as of the date hereof (except representations and
warranties which expressly relate to an earlier date or time,
which representations and warranties shall be true and correct on
and as of the specific dates or times referred to therein). The
Borrower represents and warrants to the Banks that no Event of
Default or Potential Default shall have occurred and be
-4-
<PAGE> 5
continuing, and the execution and performance of this Amendment
No. 4 shall not give rise to an Event of Default or Potential
Default.
C. This Amendment No. 4 may be executed by
different parties hereto in any number of separate counterparts,
each of which, when so executed and delivered shall be an
original and all of such counterparts shall together constitute
one and the same instrument.
D. This Amendment No. 4 shall be governed by and
construed in accordance with the internal laws of the
Commonwealth of Pennsylvania.
INTENTIONALLY BLANK
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto by their
officers duly authorized, have executed this Amendment No. 4 as
of the date and year first above written.
BORROWER:
QUAKER STATE CORPORATION
By: R. SCOTT KEEFER
----------------------------
R. Scott Keefer
Vice President, Finance and
Chief Financial Officer
BANKS:
PNC BANK, NATIONAL ASSOCIATION
Individually and as Agent
By:
----------------------------
Judith P. Hannon
Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
----------------------------
James Finch
Vice President
INTEGRA NATIONAL BANK/NORTH
By:
----------------------------
Edward R. Say
Vice President
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto by their
officers duly authorized, have executed this Amendment No. 4 as
of the date and year first above written.
BORROWER:
QUAKER STATE CORPORATION
By:
----------------------------
R. Scott Keefer
Vice President, Finance and
Chief Financial Officer
BANKS:
PNC BANK, NATIONAL ASSOCIATION
Individually and as Agent
By: JUDITH P. HANNON
----------------------------
Judith P. Hannon
Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
----------------------------
James Finch
Vice President
INTEGRA NATIONAL BANK/NORTH
By:
----------------------------
Edward R. Say
Vice President
-6-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto by their
officers duly authorized, have executed this Amendment No. 4 as
of the date and year first above written.
BORROWER:
QUAKER STATE CORPORATION
By:
----------------------------
R. Scott Keefer
Vice President, Finance and
Chief Financial Officer
BANKS:
PNC BANK, NATIONAL ASSOCIATION
Individually and as Agent
By:
----------------------------
Judith P. Hannon
Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: ROBERT BOTTAMEDI
----------------------------
Robert Bottamedi
Vice President
INTEGRA NATIONAL BANK/NORTH
By:
----------------------------
Edward R. Say
Vice President
-6-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto by their
officers duly authorized, have executed this Amendment No. 4 as
of the date and year first above written.
BORROWER:
QUAKER STATE CORPORATION
By:
----------------------------
R. Scott Keefer
Vice President, Finance and
Chief Financial Officer
BANKS:
PNC BANK, NATIONAL ASSOCIATION
Individually and as Agent
By:
----------------------------
Judith P. Hannon
Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
----------------------------
James Finch
Vice President
INTEGRA NATIONAL BANK/NORTH
By: EDWARD R. SAY
----------------------------
Edward R. Say
Vice President
-6-
<PAGE> 1
Exhibit 4(c)
================================================================================
QUAKER STATE CORPORATION
255 Elm Street
Oil City, Pennsylvania 16301
SECOND AMENDMENT TO NOTE AGREEMENTS
Dated as of September 30, 1994
Re: Note Agreements dated as of September 1, 1992
and
$50,000,000 Principal Amount
of 8.73% Senior Notes
due September 30, 2002
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
Parties .......................................................... 1
SECTION 1. AMENDMENTS ....................................... 2
Section 1.1. Amendments of Section 5.9 ...................... 2
Section 1.2. Amendment of Section 5.11(a) ................... 2
Section 1.3. Amendment of Section 5.13 ...................... 3
Section 1.4. Amendment of Section 5.14 ...................... 3
Section 1.5. Amendment of Section 6.1(c) .................... 3
Section 1.6. Amendment of Section 8.1 ....................... 3
Section 2. MISCELLANEOUS .................................... 5
Section 2.1. Requisite Approval ............................. 5
Section 2.2. Counterparts ................................... 5
Section 2.3. Fees and Expenses .............................. 5
Section 2.4. No Legend Required ............................. 5
Section 2.5. Governing Law .................................. 5
Section 2.6. Successors ..................................... 5
Section 2.7. No Default or Event of Default ................. 6
Signature Page ................................................... 6
ATTACHMENTS TO SECOND AMENDMENT TO NOTE AGREEMENTS:
Schedule I-- Outstanding Principal Amount of Notes
Schedule II-- Description of Debt of Westland and Specialty Oil
</TABLE>
-i-
<PAGE> 3
QUAKER STATE CORPORATION
255 Elm Street
Oil City, Pennsylvania 16301
SECOND AMENDMENT TO NOTE AGREEMENTS
Re: Note Agreements dated as of September 1, 1992
and
$50,000,000 Principal Amount
of 8.73% Senior Notes
due September 30, 2002
----------------------
To the Purchaser Named in
Schedule I which is a Signatory
to this Agreement Dated as of
September 30, 1994
Ladies and Gentlemen:
Reference is hereby made to the separate Note Agreements, each dated as of
September 1, 1992 (the "Agreements") by and between Quaker State Corporation, a
Delaware corporation (the "Company" ), and, respectively, Allstate Life
Insurance Company, Nationwide Life Insurance Company, Employers Life Insurance
Company of Wausau, American United Life Insurance Company, The Franklin Life
Insurance Company, The Franklin United Life Insurance Company, The American
Franklin Life Insurance Company and Jefferson-Pilot Life Insurance Company
(collectively, the "Purchasers") under and pursuant to which $50,000,000
aggregate principal amount of the 8.73% Senior Notes due September 30, 2002 of
the Company (the "Notes") were issued. Capitalized terms not otherwise defined
herein shall have the respective meanings assigned thereto in the Agreements.
The Company proposes to acquire, directly or indirectly, all of the
capital stock of Westland Oil Company, Inc., a Louisiana corporation ("Westland
Oil Company"), and Specialty Oil Company, Inc.-I, a Louisiana corporation,
Specialty Oil Company, Inc.-II, an Arkansas corporation, Specialty Oil Company,
Inc.-III, a Louisiana corporation, and Specialty Oil Company, Inc.-IV, a
Louisiana corporation (collectively, "Specialty Oil Company" ) (such
acquisition of the capital stock of Westland Oil Company and Specialty Oil
Company is herein referred to as the "Acquisition"). The Company believes that
the Acquisition would violate certain of the covenants of the Company set forth
in the Agreements unless they are amended as set forth herein. Pursuant to
Section 7.1 of the Agreements, the holders of at least 66-2/3% of the
outstanding principal amount of the Notes must consent to an amendment of the
Agreements as set forth herein. As you are the owner and holder of outstanding
Notes in the principal amount set opposite your name in Schedule I, the Company
hereby requests that you accept each of the amendments as set
<PAGE> 4
Quaker State Corporation Second Amendment
forth below in the manner herein provided. Upon receipt of acceptance of the
aforementioned amendments from the holders of at least 66-2/3% of the
outstanding principal amount of the Notes, this instrument shall constitute a
contract which amends and restates the Agreements in the respect, but only in
the respect, hereinafter set forth:
SECTION 1. AMENDMENTS.
Section 1.1. Amendments of Section 5.9.
(a) Amendment of Section 5.9(f). Section 5.9(f) of the Agreements is hereby
amended by deleting the word "and" from the end thereof.
(b) Amendment of Section 5.9(g). Section 5.9(g) of the Agreements is
hereby amended by inserting immediately after the word "hereof" in the second
line thereof the phrase "and clause (h) hereof" and by deleting the period at
the end thereof and inserting in its place the following phrase: "; and".
(c) Addition to Section 5.9. Section 5.9 of the Agreements is hereby
amended by adding a new subsection (h) thereto to read in its entirety as
follows:
"(h) Liens on the assets of Westland Oil Company securing its Funded
Debt or Current Debt under the Westland Credit Agreement and the Specialty
Credit Agreement and, for any period prior to December 31, 1994, Liens on
the assets of Specialty Oil Company securing its Funded Debt or Current
Debt under the Specialty Credit Agreement."
Section 1.2. Amendment of Section 5.11(a). Section 5.11(a) of the
Agreements is hereby amended by deleting it in its entirety and inserting in
its place the following:
"(a) Investments by the Company and its Subsidiaries in and to:
(i) Wholly-owned Subsidiaries, including any Investment in a
corporation which, after giving effect to such Investment, will become a
Wholly-owned Subsidiary;
(ii) Donaldson Mine Company, Quaker State Minit-Lube, Inc.,
Truck-Lite Co., Inc., McQuik's Oilube, Inc., Valley Camp Inc., Kanawha and
Hocking Coal and Coke Company and The Valley Camp Coal Company (so long as
the Company or any Wholly-owned Subsidiary shall own not less than 100% of
the Voting Stock of such Subsidiaries); or
(iii) Westland Oil Company, Specialty Oil Company and the Specialty
Oil Companies (so long as each such Subsidiary would be a Wholly-owned
Subsidiary if its Indebtedness for borrowed money, as set forth on
Schedule II to the Second Amendment to Note Agreements dated as of
September 30, 1994 among the Company and the Purchasers, were not given
effect);"
-2-
<PAGE> 5
Quaker State Corporation Second Amendment
Section 1.3. Amendment of Section 5.13. Section 5.13 of the Agreements is
hereby amended by deleting it in its entirety and inserting in its place the
following:
"Section 5.13. Guaranties. The Company will not, and will not permit
any Subsidiary to, become or be liable in respect of any Guaranty
except (i) Guaranties by the Company or any Subsidiary which are
limited in amount to a stated maximum dollar exposure or which
constitute Guaranties of obligations of any Subsidiary incurred in
compliance with the provisions of this Agreement, (ii) Guaranties of
obligations of certain shareholders of Westland Oil Company and the
Specialty Oil Companies as set forth in those certain Indemnification
Agreements each dated as of September 30, 1994 and each by and among
L. David Myatt, Dennis M. Myatt, Jr. and the Company entered into
in connection with and in the form as in effect on the date of the
Acquisition, and (iii) the Moon Realty Guaranties, except that, in the
case of (ii) and (iii), the only amounts being guaranteed which are not
limited to a stated maximum dollar exposure shall be those amounts
relating to interest, legal fees, collection expenses, trade accounts
payable, amounts payable to a bank lender as a result of any increase
in the cost of making the loan or maintaining the loan agreement or due
to the reduction in the amount of any payment receivable by the bank
lender thereunder or due to a reduction in the rate of return on the
capital of the bank lender, fees otherwise payable to the bank lender
as a commitment fee, filing and recording fees, stamp taxes, and
reimbursement to the bank lender for the expenses it incurred in making
the loan."
Section 1.4. Amendment of Section 5.14.
(a) Amendment of Section 5.14(b). Section 5.14(b) of the Agreements is
hereby amended by deleting the word "and" from the end thereof.
(b) Amendment of Section 5.14(c). Section 5.14(c) of the Agreements is
hereby amended by deleting the period at the end thereof and inserting in its
place the phrase: "; and".
(c) Addition to Section 5.14. Section 5.14 is hereby amended by adding a
new Subsection (d) to read in its entirety as follows:
"(d) any restriction contained in (i) the Specialty Credit
Agreement; provided, however, that any such restriction set forth in the
Specialty Credit Agreement shall only be permitted under the terms of
this Section 5.14(d) during any period prior to December 31, 1994, and
(ii) the Westland Credit Agreement."
Section 1.5. Amendment of Section 6.1(c). Section 6.1(c) of the
Agreements is hereby amended by deleting the phrase "Section 5.9(e) through
(g)" in the second line thereof and inserting in its place the phrase "Section
5.9(e) through (h)".
Section 1.6. Amendment of Section 8.1. Section 8.1 of the Agreements is
hereby amended by adding the following definitions in alphabetical order:
-3-
<PAGE> 6
Quaker State Corporation Second Amendment
"'Acquisition' shall mean the acquisition by the Company or a
Subsidiary of Westland Oil Company pursuant to that certain Stock Exchange
Agreement dated as of August 3, 1994 by and among the Company and the
shareholders of Westland Oil Company and the Specialty Oil Companies
pursuant to that certain Agreement and Plan of Merger dated as of August 3,
1994 by and among the Company, SO Acquisition Corp., the Specialty Oil
Companies and certain shareholders of the Specialty Oil Companies.
'Moon Realty Guaranties' shall mean, those certain separate Commercial
Guaranties each dated March 19, 1990 and entered into, respectively, by
Specialty Oil Company, Inc.-I, Specialty Oil Company, Inc.-II and Westland
Oil Company (collectively, the "Moon Guarantors") for the benefit of
Hibernia National Bank pursuant to which the Moon Guarantors have guaranteed
the obligations of Moon Realty, a Louisiana ordinary partnership, under one
or more promissory notes in the amount of not more than $5,000,000 in the
aggregate and all interest, costs, expenses and attorney's fees and other
fees and charges relating thereto, and in the form as in effect on the date
of the consummation of the Acquisition.
'Specialty Credit Agreement' shall mean that certain Credit, Security
and Guaranty Agreement dated on and as of June 25, 1993 by and among the
Specialty Oil Companies (other than Specialty Oil Company, Inc. - IV),
Westland Oil Company, L. D. Myatt, D. M. Myatt, Jr., Premier Bank, National
Association, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland," New York Branch, and Commercial National Bank in Shreveport, as
amended by (i) First Amendment of Credit, Security and Guaranty Agreement
dated on and as of July 7, 1994 and (ii) Second Amendment of Credit,
Security and Guaranty Agreement dated on and as of September 8, 1994, all in
the form and as in effect on the date of the consummation of the Acquisition
and pursuant to which the Speciaity Oil Companies may borrow an aggreate of
not more than $17,000,000.
'Specialty Oil Companies' shall mean, collectively, Specialty Oil
Company, Inc.-I, a Louisiana corporation, Specialty Oil Company, Inc.-II, an
Arkansas corporation. Specialty Oil Company, Inc.-III, a Louisiana
corporation, and Specialty Oil Company, Inc.-IV, a Louisiana corporation.
'Specialty Oil Company' shall mean Specialty Oil Company, Inc.
(formerly known as SO Acquisition Corp.), a Delaware corporation and
successor by merger to the Specialty Oil Companies.
'Westland Credit Agreement' shall mean that certain Credit, Security
and Guaranty Agreement dated on and as of September 8, 1994 by and among
Westland Oil Company, L. D. Myatt, D. M. Myatt, Jr., Cooperatieve Centrale
Raiffeisen- Boerenleenbank B.A., "Rabobank Nederland", New York Branch, and
Commercial National Bank in Shreveport, individually and as agent, in the
form as in effect on the date of the consummation of the Acquisition and
pursuant to which Westland Oil Company may borrow an aggregate of not more
than $25,720,000 (not including the
-4-
<PAGE> 7
Quaker State Corporation Second Amendment
guaranty thereunder by Westland Oil Company of the obligations of the
Specialty Oil Companies under the Specialty Credit Agreement).
'Westland Oil Company' shall mean Westland Oil Company, Inc., a
Louisiana corporation."
SECTION 2. MISCELLANEOUS.
Section 2.1. Requisite Approval. If the foregoing is acceptable to you,
please note your acceptance in the space provided below. Upon (i) the execution
and delivery of this Second Amendment by the holders of at least 66-2/3% of the
outstanding principal amount of the Notes and (ii) the consummation of the
Acquisition, the Agreements shall be deemed to be amended as set forth above.
Except as amended and restated herein, the terms and provisions of the
Agreements and the Notes are hereby ratified, confirmed and approved in all
respects.
Section 2.2. Counterparts. This Second Amendment may be executed in any
number of counterparts, each executed counterpart constituting an original but
altogether one and the same instrument.
Section 2.3. Fees and Expenses. The Company agrees to pay all reasonable
fees and expenses of you and your special counsel connected with the
preparation of this Second Amendment.
Section 2.4. No Legend Required. Any and all notices, requests,
certificates and any other instruments, including the Notes, may refer to the
Note Agreements or the Note Agreements dated as of September 1. 1992, without
making specific reference to this Second Amendment, but nevertheless all such
references shall be deemed to include this Second Amendment unless the context
shall otherwise require.
Section 2.5. Governing Law. This Second Amendment shall be governed by and
construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania.
Section 2.6. Successors. This Second Amendment shall be binding upon and
shall inure to the benefit of the Company and each holder of a Note and their
respective successors and permitted assigns, including each successive holder
or holders of each Note.
-5-
<PAGE> 8
Quaker State Corporation Second Amendment
Section 2.7. No Default or Event of Default. By execution of this Second
Amendment, the Company hereby represents to each of you that as of the date of
delivery hereof, and premised upon the effectiveness hereof, no Default or
Event of Default has occurred and is continuing under the Agreements, as
amended by this Second Amendment.
QUAKER STATE CORPORATION
By R. SCOTT KEEFER
-----------------------------
R. Scott Keefer
Its Vice President
The foregoing is hereby accepted and agreed to as of the date referred
to on the cover page:
ALLSTATE LIFE INSURANCE COMPANY
By GARY W. FRIDLEY
-----------------------------
Gary W. Fridley
By BARRY S. PAUL
-----------------------------
Barry S. Paul
Authorized Signatories
NATIONWIDE LIFE INSURANCE COMPANY
By
-----------------------------
Its
EMPLOYERS LIFE INSURANCE COMPANY OF
WAUSAU
By
-----------------------------
Its
AMERICAN UNITED LIFE INSURANCE
COMPANY
By
-----------------------------
Its
-6-
<PAGE> 9
Quaker State Corporation Second Amendment
Section 2.7. No Default or Event of Default. By execution of this Second
Amendment, the Company hereby represents to each of you that as of the date of
delivery hereof, and premised upon the effectiveness hereof, no Default or
Event of Default has occurred and is continuing under the Agreements, as
amended by this Second Amendment.
QUAKER STATE CORPORATION
By R. SCOTT KEEFER
-----------------------------
R. Scott Keefer
Its Vice President
The foregoing hereby accepted and agreed to as of the date referred to on
the cover page:
ALLSTATE LIFE INSURANCE COMPANY
By
-----------------------------
By
-----------------------------
Authorized Signatories
NATIONWIDE LIFE INSURANCE COMPANY
By JEFFREY G. MILBURN
-----------------------------
Jeffrey G. Milburn
Vice President
Corporate Fixed-Income Securities
EMPLOYERS LIFE INSURANCE COMPANY OF
WAUSAU
By JEFFERY G. MILBURN
-----------------------------
Jeffery G. Milburn
Attorney-in-fact
AMERICAN UNITED LIFE INSURANCE
COMPANY
By
-----------------------------
Its
-6-
<PAGE> 10
Quaker State Corporation Second Amendment
Section 2.7. No Default or Event of Default. By execution of this Second
Amendment, the Company hereby represents to each of you that as of the date of
delivery hereof, and premised upon the effectiveness hereof, no Default or
Event of Default has occurred and is continuing under the Agreements, as
amended by this Second Amendment.
QUAKER STATE CORPORATION
By R. SCOTT KEEFER
-----------------------------
R. Scott Keefer
Its Vice President
The foregoing hereby accepted and agreed to as of the date referred to on
the cover page:
ALLSTATE LIFE INSURANCE COMPANY
By
-----------------------------
By
-----------------------------
Authorized Signatories
NATIONWIDE LIFE INSURANCE COMPANY
By
-----------------------------
Its
EMPLOYERS LIFE INSURANCE COMPANY OF
WAUSAU
By
-----------------------------
Its
AMERICAN UNITED LIFE INSURANCE
COMPANY
By KENT R. ADAMS
-----------------------------
Kent R. Adams
Vice President
-6-
<PAGE> 11
Quaker State Corporation Second Amendment
THE FRANKLIN LIFE INSURANCE COMPANY
By DANIEL C. LEIMBACH
--------------------------
Daniel C. Leimbach
Its Vice President
By ELIZABETH E. ARTHUR
--------------------------
Elizabeth E. Arthur
Its Assistant Secretary
THE FRANKLIN UNITED LIFE INSURANCE
COMPANY
By ROBERT G. SPENCER
--------------------------
Robert G. Spencer
Its Treasurer
By ELIZABETH E. ARTHUR
--------------------------
Elizabeth E. Arthur
Its Assistant Secretary
THE AMERICAN FRANKLIN LIFE INSURANCE
COMPANY
By DANIEL C. LEIMBACH
--------------------------
Daniel C. Leimbach
Its Vice President
By ELIZABETH E. ARTHUR
--------------------------
Elizabeth E. Arthur
Its Assistant Secretary
JEFFERSON-PILOT LIFE INSURANCE
COMPANY
By
--------------------------
Its
-7-
<PAGE> 12
Quaker State Corporation Second Agreement
THE FRANKLIN LIFE INSURANCE COMPANY
By
--------------------------
Its
By
--------------------------
Its
THE FRANKLIN UNITED LIFE INSURANCE
COMPANY
By
--------------------------
Its
By
--------------------------
Its
THE AMERICAN FRANKLIN LIFE INSURANCE
COMPANY
By
--------------------------
Its
By
--------------------------
Its
JEFFERSON-PILOT LIFE INSURANCE
COMPANY
By ROBERT E. WHALEN II
--------------------------
Robert E. Whalen II
Its
-7-
<PAGE> 13
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL AMOUNT OF
OF PURCHASERS NOTES OWNED AND HELD
<S> <C>
ALLSTATE LIFE INSURANCE COMPANY $21,000,000
Allstate Plaza West
3100 Sanders Road
Northbrook, Illinois 60062-6287
NATIONWIDE LIFE INSURANCE COMPANY $7,000,000
One Nationwide Plaza
Columbus, Ohio 43216
EMPLOYERS LIFE INSURANCE COMPANY $3,000,000
OF WAUSAU
2000 Westwood Avenue
Wausau, Wisconsin 54401
AMERICAN UNITED LIFE INSURANCE $8,000,000
COMPANY
One American Square
Post Office Box 368
Indianapolis, Indiana 46206-0368
THE FRANKLIN LIFE INSURANCE $4,900,000
COMPANY
Franklin Square
Springfield, Illinois 62713
THE FRANKLIN UNITED LIFE INSURANCE $700,000
COMPANY
591 Stewart Avenue
Garden City, New York 11530
THE AMERICAN FRANKLIN LIFE $400,000
INSURANCE COMPANY
Franklin Square
Springfield, Illinois 62713
JEFFERSON-PILOT LIFE INSURANCE $5,000,000
COMPANY
Post Office Box 21008
100 North Greene
Greensboro, North Carolina 27420
</TABLE>
SCHEDULE I
(to Second Amendment to Note Agreements)
<PAGE> 14
<TABLE>
<CAPTION>
INDEBTEDNESS FOR BORROWED MONEY
WESTLAND OIL COMPANY AMOUNT
<S> <C>
1. Commercial National Bank in Shreveport--Revolver $ 7,500,000.00
2. Rabobank--Revolver 7,500,000.00
3. Commercial National Bank--Beckham Blow Molder No. 229,286.03
4200
4. Hibernia National Bank--Rectangular Packaging Line 226,800.64
5. Concord Commercial Corporation--Plant Equipment 1,814,468.20
6. Commercial National Bank--Term Note 10,720,000.00
--------------
$27,990,554.87
--------------
7. Guaranty of obligations of Specialty Oil Companies under
Revolving Credit, Security and Guaranty Agreement dated
June 25, 1993, as amended
8. Commercial Guaranty dated March 19, 1990 of obligations
of Moon Realty to Hibernia National Bank
SPECIALTY OIL COMPANIES AMOUNT
9. Commercial National Bank in Shreveport--Revolver $ 8,500,000.00
10. Rabobank--Revolver 8,500,000.00
11. Commercial National Bank--1992 International Tanker, 3,562.50
Note No. 305400
12. Commercial National Bank--1992 International Tanker, 3,562.50
Note No. 305500
13. Commercial National Bank--1992 International Tanker, 3,562.50
Note No. 305600
1. Commercial National Bank--three 1993 International Used 49,061.00
Oil Tankers, Note No. 1500
15. Quaker State Corporation--Loaned Equipment 25,192.38
16. Crystal Clean--Original Investment 500,000.00
17. Split Dollar Insurance 107,219.49
--------------
$17,692,160.37
==============
18. Commercial Guaranty dated March 19, 1990 of obligations
of Moon Realty to Hibernia National Bank
19. Guaranties of obligations of Westland Oil Company to
Concord Commercial Corporation and Hibernia National
Bank on equipment notes (items 4 and 5 under description of
Westland debt above)
</TABLE>
SCHEDULE II
(to Second Amendment to Note Agreements)
<PAGE> 1
Exhibit 10(a)
EMPLOYMENT AGREEMENT
by and between
QUAKER STATE CORPORATION
and
HERBERT M. BAUM
Effective August 1, 1994
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of
August 1, 1994, by and between Quaker State Corporation
(hereinafter called the "Corporation"), a Delaware corporation,
and Herbert M. Baum, an individual currently residing in Oil
City, Pennsylvania (hereinafter called the "Executive";
WITNESSETH THAT:
WHEREAS, the Executive is employed by the Corporation
as its Chairman and Chief Executive Officer under an Employment
Agreement, dated as of June 9, 1993 (the "Prior Employment
Agreement"); and
WHEREAS, the parties desire to continue such employment
relationship on the terms and conditions hereinafter set forth;
NOW, THEREFORE, the Corporation and the Executive, each
intending to be legally bound, hereby mutually covenant and agree
as follows:
1. EMPLOYMENT AND TERM.
(a) EMPLOYMENT. The Corporation hereby offers to
employ the Executive as the Chairman, President and Chief
Executive Officer of the Corporation, and the Executive hereby
accepts such employment, for the term set forth in Paragraph 1(b).
(b) TERM. The term of the Executive's employment under
this Agreement shall commence on August 1, 1994 and end on
July 31, 1998. The term of this Agreement shall be extended
automatically for one additional year as of August 1, 1998,
August 1, 1999 and August 1, 2000 unless, no later than ninety
(90) days prior to any such renewal date, either the Board of
Directors of the Corporation (the "Board"), on behalf of the
Corporation, or the Executive gives written notice to the other,
in accordance with Paragraph 10, that the term of this Agreement
shall not be so extended. The term of this Agreement, and any
renewal term hereof, shall be subject to earlier expiration as
provided in Paragraph 7.
2. DUTIES. During the period of employment as
provided in Paragraph 1(b) hereof, unless otherwise agreed in
writing by the parties, the Executive shall serve as Chairman,
President and Chief Executive Officer of the Corporation and have
all powers and duties consistent with such positions subject to
the direction of the Board. During the term of this Agreement,
the Executive shall continue to serve as a director and Chairman
of the Board if elected as such. In addition, the Executive shall
serve as a member of the Executive Committee of the Board, if
appointed as such, and of such other committees of the Board to
which he is appointed. The Executive shall devote substantially
<PAGE> 3
his entire time during reasonable business hours (reasonable sick
leave and vacations excepted) and best efforts to fulfill
faithfully, responsibly and to the best of his ability his duties
hereunder.
3. SALARY.
(a) BASE SALARY. For services performed by the
Executive for the Corporation pursuant to this Agreement during
the period of employment as provided in Paragraph 1(b) hereof, the
Corporation shall pay the Executive a base salary at the rate of
at least $550,000.00 per year, payable in substantially equal
installments in accordance with the Corporation's regular payroll
practices. Any compensation which may be paid to the Executive
under any additional compensation or incentive plan of the
Corporation or which may be otherwise authorized from time to time
by the Board (or an appropriate committee thereof) shall be in
addition to the base salary to which the Executive shall be
entitled under this Agreement.
(b) SALARY INCREASES. During the period of employment
as provided in Paragraph 1(b) hereof, the base salary of the
Executive shall be reviewed no less frequently than annually by
the Organization and Compensation Committee of the Board to
determine whether or not the same should be increased in light of
the duties and responsibilities of the Executive and the
performance thereof, and, if it is determined that an increase is
merited, such increase shall be promptly put into effect and the
base salary of the Executive as so increased shall constitute the
base salary of the Executive for purposes of Paragraph 3(a)
4. ANNUAL BONUSES. For calendar year 1994, the
Executive shall be eligible to receive a cash bonus based on the
Corporation's achievement of certain operating and/or financial
goals established at the beginning of such year by the
Organization and Compensation Committee of the Board. Such bonus
shall equal 50% of the Executive's base salary as in effect on
December 31, 1994 (prorated for a partial year of employment) upon
the Corporation's attaining or exceeding the targeted performance
goals. Such bonus shall be paid to the Executive no later than
March 1, 1995. This bonus arrangement shall be in lieu of the
Executive's participation during such one-year period in any other
cash bonus or incentive plan or arrangement of the Corporation;
provided, however, that the foregoing shall not preclude the
Executive from participating in any equity or equity-based
compensation program of the Corporation. For all years during the
term of this Agreement after 1994, unless the Organization and
Compensation Committee approves a different arrangement no less
favorable to the Executive, the Executive shall participate in the
same cash bonus and incentive plans and arrangements as are
applicable to other executive officers of the Corporation on such
basis, no less favorable than is applicable to any other executive
-2-
<PAGE> 4
officer, as the Organization and Compensation Committee of the
Board shall determine.
5. OTHER BENEFITS. In addition to the base salary to
be paid to the Executive pursuant to Paragraph 3 and the annual
bonuses paid to the Executive pursuant to Paragraph 4, the
Executive shall also be entitled to the following:
(a) CURRENT STOCK AGREEMENTS. The Restricted Share
Award Agreement, dated as of July 26, 1993, the Supplemental Stock
Option Agreement, dated as of June 24, 1993, the Basic Stock
Option Agreement, dated as of June 9, 1993, and the 1986 Plan
Stock Option Agreement, dated as of June 9, 1993, between the
Executive and the Corporation (collectively, the "Current Stock
Agreements"), shall each remain in full force and effect in
accordance with its terms and conditions; provided, however, that
capitalized terms used in the Current Stock Agreements, unless
otherwise defined therein, shall henceforth have the respective
meanings given to such terms in this Agreement. At the election
of the Executive, any tax withholding obligations with respect to
the shares of Capital Stock of the Corporation ("Capital Stock")
subject to the Current Stock Agreements shall be satisfied by the
purchase by the Corporation from the Executive of a number of
shares of Capital Stock equal in value to the amount of such tax
withholding obligation.
(b) ADDITIONAL RESTRICTED SHARE AWARD. As of
August 1, 1994, the Corporation shall award to the Executive
pursuant to the Corporation's 1994 Stock Incentive Plan (the "1994
Plan") 60,000 restricted shares of Capital Stock. Such 60,000
restricted shares (the "Basic Restricted Stock Award") shall be
subject to transferability and forfeiture restrictions which shall
expire with respect to 20,000 such shares on each of July 31,
1995, July 31, 1996 and July 31, 1997. In addition, as of August 1,
1994, the Corporation shall award to the Executive pursuant to
the 1994 Plan 100,000 restricted shares of Capital Stock (the
"Performance Restricted Stock Award"). Such 100,000 restricted
shares shall be subject to transferability and forfeiture
restrictions which shall expire as to the number of shares set
forth below if, prior to August 1, 1999, the average closing price
of the Capital Stock for any ten (10) consecutive trading days
equals or exceeds the following levels:
<TABLE>
<CAPTION>
Average Closing Price No. of Shares Vesting
--------------------- ---------------------
<S> <C>
$20.00 per share 33,333
$25.00 per share 33,333
$30.00 per share 33,334
</TABLE>
-3-
<PAGE> 5
The foregoing target prices shall be appropriately adjusted, as
determined in the discretion of the Organization and Compensation
Committee of the Board, to reflect any material stock split, stock
dividend, recapitalization or similar transaction with respect to
the Capital Stock. All transfer and forfeiture restrictions with
respect to the shares of Capital Stock under the Basic Restricted
Stock Award and the Performance Restricted Stock Award shall lapse
in their entirety in the event that (i) the Executive is
discharged without Cause (as hereinafter defined in Paragraph
7(d)(ii)), (ii) the Executive resigns with Good Reason (as
hereinafter defined in Paragraph 7(d)(v)) or (iii) a Section 8
Event (as defined in Section 8 of the 1994 Plan) occurs. The
Basic Restricted Stock Award and The Performance Restricted Stock
Award shall also be subject to the other terms and conditions set
forth in the applicable award agreement.
(c) PARTICIPATION IN BENEFIT PLANS. Except as
otherwise expressly provided herein, the Executive shall be
entitled to participate in the various retirement, welfare, fringe
benefit and executive perquisite plans, programs and arrangements
of the Corporation to the extent the Executive is eligible for
participation under the terms of such plans, programs and
arrangements. The Executive and his dependents shall continue to
be enrolled in the Corporation's health, life, disability and
other insurance plans and programs immediately upon his
commencement of employment hereunder and without any exclusion for
pre-existing conditions.
(d) EXPENSE REIMBURSEMENT. The Company shall reimburse
the Executive, upon proper accounting, for reasonable business
expenses and disbursements incurred by him in the course of the
performance of his duties under this Agreement.
(e) VACATION AND HOLIDAYS. The Executive shall be
entitled to five (5) weeks of vacation during each calendar year
during which this Agreement is in effect, or such greater period
as the Board or the Organization and Compensation Committee
thereof may approve, and to paid holidays given by the Corporation
to its domestic employees generally, without reduction in salary
or other benefits. Vacation time for a calendar year shall be
forfeited if not used during such year.
(f) PHYSICAL EXAMINATIONS. The Corporation shall
reimburse the Executive, upon proper accounting, for the cost of
an annual physical examination. Such a physical examination shall
be mandatory in each year during the term of this Agreement, and
the Executive shall cause copies of the physician's report for
each such examination to be furnished to the Chairmen of the
Executive Committee and Organization and Compensation Committee of
the Board.
-4-
<PAGE> 6
6. COVENANTS OF THE EXECUTIVE. In order to induce the
Corporation to enter into this Agreement, the Executive hereby
agrees as follows:
(a) CONFIDENTIALITY. Except for and on behalf of the
Corporation with the consent of or as directed by the Board, the
Executive shall keep confidential and shall not divulge to any
other person or entity, during the term of employment or
thereafter, any of the business secrets or other confidential
information regarding the Corporation and its subsidiaries which
has not otherwise become public knowledge; provided, however, that
nothing in this Agreement shall preclude the Executive from
disclosing information (i) to parties retained to perform services
for the Corporation or its subsidiaries, or (ii) under any other
circumstances to the extent such disclosure is, in the reasonable
judgment of the Executive, appropriate or necessary to further the
best interests of the Corporation or its subsidiaries, or (iii) as
may be required by law.
(b) RECORDS. All papers, books and records of every
kind and description relating to the business and affairs of the
Corporation and its subsidiaries, whether or not prepared by the
Executive, other than personal notes prepared by or at the
direction of the Executive, shall be the sole and exclusive
property of the Corporation, and the Executive shall surrender
them to the Corporation at any time upon request by the Board.
(c) NON-COMPETITION. The Executive hereby agrees with
the Corporation that, during the term of his employment hereunder
and for a period of three (3) years following the term of his
employment hereunder (i) he shall not, directly or indirectly,
engage in, or be employed by, or act as a consultant to, or be a
director, officer, owner or partner of or acquire an interest in
Pennzoil Company, Texaco Inc., Ashland Oil, Inc. or Burmah Castrol
PLC, or any direct or indirect parent or subsidiary of any of the
foregoing companies, or any person, firm, corporation or other
entity engaged in the re-refining of oil, the collection and
disposition of waste oil or the distribution of private brands and
specialty oils, (ii) he shall not solicit any employee of the
Corporation or any of its subsidiaries to leave the employment
thereof or in any way interfere with the relationship of such
employee with the Corporation or its subsidiaries and (iii) he
shall not induce or attempt to induce any customer, supplier,
licensee or other individual, corporation or other business
organization having a business relation with the Corporation or
its subsidiaries to cease doing business with the Corporation or
its subsidiaries or in any way interfere with the relationship
between any such customer, supplier, licensee or other person and
the Corporation or its subsidiaries.
(d) ENFORCEMENT. The Executive recognizes that the
provisions of this Paragraph 6 are vitally important to the
-5-
<PAGE> 7
continuing welfare of the Corporation and its subsidiaries and
that money damages constitute a totally inadequate remedy for any
violation thereof. Accordingly, in the event of any such
violation by the Executive, the Corporation and its subsidiaries,
in addition to any other remedies they may have, shall have the
right to institute and maintain a proceeding to compel specific
performance thereof or to issue an injunction restraining any
action by the Executive in violation of this Paragraph 6.
7. TERMINATION. Unless earlier terminated in
accordance with the following provisions of this Paragraph 7, the
Corporation shall continue to employ the Executive and the
Executive shall remain employed by the Corporation during the
entire term of this Agreement as set forth in Paragraph 1(b).
Paragraph 8 hereof sets forth certain obligations of the
Corporation in the event that the Executive's employment hereunder
is terminated. Certain capitalized terms used in this Paragraph 7
and in Paragraph 8 hereof are defined in Paragraph 7(d) below.
(a) DEATH OR DISABILITY. Except to the extent
otherwise provided in Paragraph 8 with respect to certain post-
Date of Termination payment obligations of the Corporation, this
Agreement shall terminate immediately as of the Date of
Termination in the event of the Executive's death or in the event
that the Executive becomes disabled. The Executive will be deemed
to be disabled upon the earlier of (i) the end of a twelve (12)
consecutive month period during which, by reason of physical or
mental injury or disease, the Executive has been unable to perform
substantially the Executive's usual and customary duties under
this Agreement and (ii) the date that a reputable physician
selected by the Board to whom the Executive has no reasonable
objection determines in writing that the Executive will, by reason
of physical or mental injury or disease, be unable to perform
substantially all of the Executive's usual and customary duties
under this Agreement for a period of at least twelve (12)
consecutive months. If any question arises as to whether the
Executive is disabled, upon reasonable request therefor by the
Board, the Executive shall submit to reasonable medical
examination for the purpose of determining the existence, nature
and extent of any such disability. In accordance with Paragraph
10, the Board shall promptly give the Executive written notice of
any such determination of the Executive's disability and of the
decision of the Board to terminate the Executive's employment by
reason thereof. In the event of disability, until the Date of
Termination, the base salary payable to the Executive under
Paragraph 3 hereof shall be reduced dollar-for-dollar by the
amount of disability benefits, if any, paid to the Executive in
accordance with any disability policy or program of the
Corporation.
(b) DISCHARGE FOR CAUSE. In accordance with the
procedures hereinafter set forth, the Board or the Executive
-6-
<PAGE> 8
Committee thereof may discharge the Executive from his employment
hereunder for Cause. Except to the extent otherwise provided in
Paragraph 8 with respect to certain post-Date of Termination
obligations of the Corporation, this Agreement shall terminate
immediately as of the Date of Termination in the event the
Executive is discharged for Cause. Any discharge of the Executive
for Cause shall be communicated by a Notice of Termination to the
Executive given in accordance with Paragraph 10 of this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination is to
be other than the date of receipt of such notice, specifies the
termination date (which date shall in all events be within fifteen
(15) days after the giving of such notice). In the case of a
discharge of the Executive for Cause, the Notice of Termination
shall include a copy of a resolution duly adopted by the Board or
the Executive Committee thereof at a meeting called and held for
such purpose (after reasonable notice to the Executive and
reasonable opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board or the Executive
Committee prior to such vote), finding that, in the reasonable and
good faith opinion of the Board or the Executive Committee, the
Executive was guilty of conduct constituting Cause. No purported
termination of the Executive's employment for Cause shall be
effective without a Notice of Termination.
(c) TERMINATION FOR OTHER REASONS. The Corporation may
discharge the Executive without Cause by giving written notice to
the Executive in accordance with Paragraph 10 at least sixty (60)
days prior to the Date of Termination. The Executive may resign
from his employment by giving written notice to the Corporation in
accordance with Paragraph 10 at least sixty (60) days prior to the
Date of Termination. Except to the extent otherwise provided in
Paragraph 8 with respect to certain post-Date of Termination
obligations of the Corporation, this Agreement shall terminate
immediately as of the Date of Termination in the event the
Executive is discharged without Cause or resigns.
(d) DEFINITIONS. For purposes of this Agreement, the
following capitalized terms shall have the meanings set forth
below:
(i) "Accrued Obligations" shall mean, as of the
Date of Termination, the sum of (A) the Executive's base salary
under Paragraph 3 through the Date of Termination to the extent
not theretofore paid, (B) the amount of any bonus, incentive
compensation, deferred compensation and other cash compensation
accrued by the Executive as of the Date of Termination to the
extent not theretofore paid and (C) any vacation pay, expense
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<PAGE> 9
reimbursements and other cash entitlement accrued by the Executive
as of the Date of Termination to the extent not theretofore paid.
For the purpose of this Paragraph 7(d)(i), amounts shall be deemed
to accrue ratably over the period during which they are earned.
(ii) "Cause" shall mean any of the following that
is materially and demonstrably detrimental to the goodwill of the
Corporation or materially and demonstrably damaging to the
relationships of the Corporation with its customers, suppliers or
employees: (A) except in the event of the Executive's disability,
an act of willful misconduct or gross negligence by the Executive
in the performance of his material duties or obligations to the
Corporation which continues after written notice is received by
the Executive specifying the alleged failure in reasonable detail,
or (B) conviction of the Executive of a felony involving moral
turpitude or (C) a material act of dishonesty or breach of trust
on the part of the Executive resulting or intended to result
directly or indirectly in personal gain or enrichment at the
expense of the Corporation.
(iii) "Change of Control" shall mean:
(A) The acquisition by any individual,
entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) (a "Person") of 30%
or more of either (i) the then outstanding shares of Capital Stock
of the Corporation (the "Outstanding Corporation Capital Stock")
or (ii) the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the
election of directors (the "Corporation Voting Securities"),
provided, however, that any acquisition by (x) the Corporation or
any of its subsidiaries, or any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any of its
subsidiaries or (y) any Person that is eligible, pursuant to Rule
13d-1(b) under the Exchange Act, to file a statement on Schedule
13G with respect to its beneficial ownership of Corporation Voting
Securities, whether or not such Person shall have filed a
statement on Schedule 13G, unless such Person shall have filed a
statement on Schedule 13D with respect to beneficial ownership of
30% or more of the Corporation Voting Securities or (z) any
corporation with respect to which, following such acquisition,
more than 60% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Corporation
Capital Stock and Corporation Voting Securities immediately prior
to such acquisition in substantially the same proportion as their
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<PAGE> 10
ownership, immediately prior to such acquisition, of the
Outstanding Corporation Capital Stock and Corporation Voting
Securities, as the case may be, shall not constitute a Change of
Control; or
(B) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board, provided that any
individual becoming a director subsequent to the date hereof whose
election or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered
as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the
Corporation (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act); or
(C) Approval by the shareholders of the
Corporation of a reorganization, merger or consolidation (a
"Business Combination"), in each case, with respect to which all
or substantially all of the individuals and entities who were the
respective beneficial owners of the Outstanding Corporation
Capital Stock and Corporation Voting Securities immediately prior
to such Business Combination do not, following such Business
Combination, beneficially own, directly or indirectly, more than
60% of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from
Business Combination in substantially the same proportion as their
ownership immediately prior to such Business Combination of the
Outstanding Corporation Capital Stock and Corporation Voting
Securities, as the case may be; or
(D) (i) a complete liquidation or
dissolution of the Corporation or of (ii) sale or other
disposition of all or substantially all of the assets of the
Corporation other than to a corporation with respect to which,
following such sale or disposition, more than 60% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors is then
owned beneficially, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Corporation
Capital Stock and Corporation Voting Securities immediately prior
to such sale or disposition in substantially the same proportion
as their ownership of the Outstanding Corporation Capital Stock
and Corporation Voting Securities, as the case may be, immediately
prior to such sale or disposition.
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<PAGE> 11
(iv) "Date of Termination" shall mean (A) in the
event of a discharge of the Executive by the Board for Cause, the
date the Executive receives a Notice of Termination, or any later
date specified in such Notice of Termination, as the case may be,
(B) in the event of a discharge of the Executive without Cause or
a resignation by the Executive, the date specified in the written
notice to the Executive (in the case of discharge) or the
Corporation (in the case of resignation) which date shall be no
less than sixty (60) days from the date of such written notice,
(C) in the event of the Executive's death, the date of the
Executive's death, and (D) in the event of termination of the
Executive's employment by reason of disability pursuant to
Paragraph 7(a), the date the Executive receives written notice of
such termination (or, if later, twelve (12) months from the date
the Executive's disability began).
(v) "Good Reason" shall mean any of the following
(A) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's positions with the Corporation as
set forth in this Agreement (including status, offices and
titles), authority, duties or responsibilities as contemplated by
Paragraph 2, or any action by the Corporation which results in
diminution in such positions, authority, duties or
responsibilities, including, without limitation, requiring the
Executive to report to any person or body other than the Board or
the Board of Directors of any successor corporation to, or
ultimate parent corporation of, the Corporation, but excluding for
this purpose any isolated, insubstantial and inadvertent action
not taken in bad faith and which is remedied by the Corporation,
promptly after receipt of written notice thereof given by the
Executive in accordance with Paragraph 10; or (B) any failure by
the Corporation to comply with any or the provisions of this
Agreement, other than any isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied by the
Corporation promptly after receipt of written notice thereof given
by the Executive in accordance with Paragraph 10; or (C) the
Corporation shall give notice to the Executive in accordance with
Paragraph 1(b) that the term of this Agreement shall not be
extended upon the expiration of the then-current term.
(vi) "Severance/Retirement Amount" shall mean an
amount, calculated as of the Date of Termination, which is the
monthly equivalent of a $200,000 annual benefit reduced by the
actuarial equivalent of (A) the Executive's projected primary
Social Security amount and (B) the benefits payable to the
Executive under all tax qualified retirement plans maintained by
the Corporation. For purposes of this Agreement, actuarial
equivalence shall be determined in accordance with the actuarial
assumptions which would be used as of the Date of Termination
under the rules and regulations of the Pension Benefit Guaranty
Corporation in valuing equivalent benefits upon the termination of
single employer Pension Plan. The Executive shall have the status
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<PAGE> 12
of a general unsecured creditor of the Corporation with respect to
the Severance/Retirement Amount and this Agreement constitutes a
mere promise by the Corporation to make payments of the Severance/
Retirement Amount in the future as provided herein. The
Executive's rights to the payment of Severance/Retirement Amount
are not subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of the Executive.
8. OBLIGATIONS OF THE CORPORATION UPON TERMINATION.
The following provisions describe the obligations of the
Corporation to the Executive upon termination of his employment.
The Executive's rights upon termination of employment with respect
to stock options and restricted shares of Capital Stock are set
forth in Paragraphs 5(a) and 5(b) hereof.
(a) DEATH OR DISCHARGE FOR CAUSE. In the event this
Agreement terminates pursuant to Paragraph 7(a) by reason of the
death of the Executive or pursuant to Paragraph 7(b) by reason of
a discharge of the Executive by the Corporation for Cause:
(i) the Corporation shall pay to the Executive, or
his heirs or estate, in the event of the Executive's death, all
Accrued Obligations in a lump sum in cash within thirty (30) days
after the Date of Termination; and
(ii) the Executive, or his heirs or legal
representatives, in the event of the Executive's death, shall be
entitled to receive all benefits accrued by him as of the Date of
Termination under all qualified and nonqualified retirement,
pension, profit sharing and similar plans of the Corporation to
such extent, in such manner and at such time as are provided under
the terms of such plans and arrangements; and
(iii) all other obligations of the Corporation on
hereunder shall cease forthwith; provided, however, that this
clause shall not affect any benefits applicable to former
employees under the terms of welfare, fringe benefit and executive
perquisite plans, programs and arrangements.
(b) DISABILITY, DISCHARGE WITHOUT CAUSE OR RESIGNATION.
In the event that this Agreement terminates pursuant to Paragraph
7(a) by reason of the disability of the Executive or pursuant to
Paragraph 7(c) by reason of the discharge of the Executive by the
Corporation other than for Cause or the resignation of the
Executive:
(i) the Corporation shall pay all Accrued
Obligations to the Executive in a lump sum in cash within thirty
(30) days after the Date of Termination; and
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<PAGE> 13
(ii) the Corporation shall pay the
Severance/Retirement Amount to the Executive as of the first day
of each month commencing with the month immediately following the
month in which the Date of Termination occurs and ending with the
month in which the Executive dies; provided, however, that payment
of the Severance/Retirement Amount shall be suspended during any
period in which the Executive is an employee or independent
contractor of another company with a rate of compensation equal to
or in excess of $16,667 per month; and provided further, however,
that in the event of the Executive's disability, such payments
shall be reduced dollar-for-dollar by the amount of disability
benefits, if any, paid to the Executive in accordance with any
disability policy or program of the Corporation; and
(iii) the Executive shall be entitled to receive
all benefits accrued by him as of the Date of Termination under
all qualified and nonqualified retirement, pension, profit sharing
and similar plans of the Corporation to such extent, in such
manner and at such time as are provided under the terms of such
plans; and
(iv) in the case of the resignation of the
Executive (but not his disability or discharge without Cause), the
Corporation shall continue the maximum medical benefit coverage of
the Executive and his spouse provided under the Corporation's
medical benefit continuation policy, if any, applicable to retired
executives, but such coverage shall cease in the event that
medical benefit coverage is available to the Executive from any
other employer; and
(v) all other obligations of the Corporation
hereunder shall cease forthwith; provided, however, that this
clause shall not affect any benefits applicable to former
employees under the terms of welfare, fringe benefit and executive
perquisite plans, programs and arrangements.
(c) TERMINATION AFTER CHANGE IN CONTROL. In the event
that the Executive is discharged without Cause or resigns with
Good Reason at any time within two years following the date that a
Change in Control occurs, then in addition to any other amounts
due to be paid to the Executive under the foregoing provisions of
this Paragraph 8, the Executive shall be entitled to receive from
the Corporation for a period of three years from the Date of
Termination the Executive's base salary and an annual bonus equal
to the Executive's target bonus for the calendar year in which the
Date of Termination occurs. Notwithstanding the foregoing or any
other provision of this Agreement to the contrary, if tax counsel
to the Corporation determines that any portion of any payment
under this Agreement, or under any other agreement with or plan of
the Corporation (in the aggregate "Total Payments"), would
constitute an "excess parachute payment," then the payments to be
made to the Executive under this Agreement shall be reduced such
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<PAGE> 14
that the value of the aggregate Total Payments that the Executive
is entitled to receive shall be one dollar ($1) less than the
maximum amount which the Executive may receive without becoming
subject to the tax imposed by Section 4999 of the Internal Revenue
Code, or which the Corporation may pay without loss of deduction
under Section 280G(a) of the Internal Revenue Code; provided,
however, that the foregoing limitation on Total Payments shall not
apply in the event that such tax counsel determines that the
benefits to the Executive under this Agreement on an after-tax
basis (i.e., after federal, state and local income and excise
taxes) if such limitation is not applied would exceed the after-
tax benefits to the Executive if such limitation is applied.
9. BINDING EFFECT. This Agreement shall be binding
upon and inure to the benefit of the heirs and representatives of
the Executive and the successors and assigns of the Corporation.
The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation,
acquisition of property or stock, liquidation, or otherwise) to
all or a significant portion of its assets, by agreement in form
and substance satisfactory to the Executive, expressly to assume
and agree to perform this Agreement in the same manner and to the
same extent that the Corporation would be required to perform this
Agreement if no such succession had taken place. Regardless
whether such agreement is executed, this Agreement shall be
binding upon any successor of the Corporation in accordance with
the operation of law and such successor shall be deemed the
"Corporation", for purposes of this Agreement.
10. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed
to have been duly given if delivered by hand or mailed within the
continental United States by first class certified mail, return
receipt requested, postage prepaid, addressed as follows:
(a) if to the Board or the Corporation, to:
Quaker State Corporation
255 Elm Street
Oil City, Pennsylvania 16301
Attention: Chairman, Compensation
Committee
(b) to the Executive, to:
Herbert M. Baum
503 West First Street
Oil City, PA 16301
Such addresses may be changed by written notice sent to the other
party at the last recorded address of that party.
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<PAGE> 15
11. TAX WITHHOLDING. The Corporation shall provide for
the withholding of any taxes required to be withheld by federal,
state and local law with respect to any payment in cash, shares of
Capital Stock and/or other property made by or on behalf of the
Corporation to or for the benefit of the Executive under this
Agreement or otherwise. The Corporation may, at its option:
(i) withhold such taxes from any cash payments owing from the
Corporation to the Executive, (ii) require the Executive to pay to
the Corporation in cash such amount as may be required to satisfy
such withholding obligations and/or (iii) make other satisfactory
arrangements with the Executive to satisfy such withholding
obligations. Special provisions regarding tax withholding with
respect to shares of Capital Stock subject to the Current Stock
Agreements are set forth in Paragraph 5(a).
12. CERTAIN OBLIGATIONS OF THE CORPORATION. At its
expense, and as soon as practicable hereafter, with respect to the
shares of Capital Stock issuable pursuant to Paragraph 5(b), the
Corporation shall (i) register such shares under the Securities
Act of 1933, as amended, on Form S-8, (ii) qualify such shares for
issuance under all applicable state securities laws and (iii)
ensure that such shares are listed for trading on the New York
Stock Exchange. Notwithstanding any other provision of this
Agreement to the contrary, the Corporation shall be under no
obligation to issue any shares of Capital Stock to the Executive
pursuant to this Agreement until, in accordance with the
immediately preceding sentence, such shares are so registered and
qualified and either (x) the Corporation is able to repurchase in
the open market or private transactions, on a legal, practical and
prudent basis, a number of shares of Capital Stock equal to the
number issuable to the Executive or (y) shares of Capital Stock
which are listed for trading on the New York Stock Exchange are
otherwise available for issuance by the Corporation hereunder. In
the event that the issuance of any shares of Capital Stock to the
Executive shall be delayed by reason of the provisions of this
Paragraph 12, the Corporation shall pay to the Executive in cash
on the date of issuance of such shares in the amount that would
have been paid to the Executive as dividends on such shares had
such issuance not been so delayed.
13. ARBITRATION OF ALL DISPUTES.
(a) Any controversy or claim arising out of or
relating to this Agreement or the breach thereof (including the
arbitrability of any controversy or claim), shall be settled by
arbitration in the City of Pittsburgh in accordance with the laws
of the Commonwealth of Pennsylvania by three arbitrators, one of
whom shall be appointed by the Corporation, one by the Executive
and the third of whom shall be appointed by the first two
arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall
be appointed by the American Arbitration Association. The
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<PAGE> 16
arbitration shall be conducted in accordance with the rules of the
American Arbitration Association, except with respect to the
selection of arbitrators which shall be as provided in this
Paragraph 13. The cost of any arbitration proceeding hereunder
shall be borne equally by the Corporation and the Executive. The
award of the arbitrators shall be binding upon the parties.
Judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof.
(b) In the event that it shall be necessary or
desirable for the Executive to retain legal counsel and/or incur
other costs and expenses in connection with the enforcement of any
or all of his rights under this Agreement, and provided that the
Executive substantially prevails in the enforcement of such
rights, the Corporation shall pay (or the Executive shall be
entitled to recover from the Corporation, as the case may be) the
Executive's reasonable attorneys' fees and costs and expenses in
connection with the enforcement of his rights including the
enforcement of any arbitration award.
14. NO ASSIGNMENT. Except as otherwise expressly
provided herein, this Agreement is not assignable by any party and
no payment to be made hereunder shall be subject to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or
other charge.
15. EXECUTION IN COUNTERPARTS. This Agreement may be
executed by the parties hereto in two or more counterparts, each
of which shall be deemed to be an original, but all such
counterparts shall constitute one and the same instrument, and all
signatures need not appear on any one counterpart.
16. JURISDICTION AND GOVERNING LAW. Jurisdiction over
disputes with regard to this Agreement shall be exclusively in the
courts of the Commonwealth of Pennsylvania, and this Agreement
shall be construed and interpreted in accordance with and governed
by the laws of the Commonwealth of Pennsylvania, other than the
conflict of laws provisions of such laws.
17. SEVERABILITY. If any provision of this Agreement
shall be adjudged by any court of competent jurisdiction to be
invalid or unenforceable for any reason, such judgment shall not
affect, impair or invalidate the remainder of this Agreement.
18. PRIOR UNDERSTANDINGS. Except as otherwise provided
in Paragraph 5(a) and 5(b), this Agreement embodies the entire
understanding of the parties hereof, and supersedes all other oral
or written agreements or understandings between them regarding the
subject matter hereof, including, without limitation, the Prior
Employment Agreement. No change, alteration or modification
hereof may be made except in a writing, signed by each of the
parties hereto. The headings in this Agreement are for
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<PAGE> 17
convenience and reference only and shall not be construed as part
of this Agreement or to limit or otherwise affect the meaning
hereof.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the day and year first above
written.
QUAKER STATE CORPORATION
By: CONRAD A. CONRAD
---------------------------
Title: Vice Chairman & Chief
Administrative Officer
EXECUTIVE
HERBERT M. BAUM
-------------------------------
Herbert M. Baum
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<PAGE> 1
Exhibit 10(b)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of September 30,
1994, by and between Quaker State Corporation (hereinafter called
the "Corporation"), a Delaware corporation, and L. David Myatt,
an individual currently residing in Shreveport, Louisiana
(hereinafter called the "Executive");
WITNESSETH THAT:
WHEREAS, the Corporation is a party to an Agreement and Plan
of Merger and a Stock Exchange Agreement, both dated as of August
3, 1994 (together the "Business Combination Agreement"), which
contemplates a series of business transactions involving the
Corporation, a wholly owned subsidiary of the Corporation and
certain corporations referred to in the Business Combination
Agreement collectively as the "Companies;"
WHEREAS, Executive presently serves as an employee of one or
more of the Companies; and
WHEREAS, the parties desire to set forth in this Agreement
the terms and conditions of their employment relationship from
and after the date of closing of the transactions contemplated by
the Business Combination Agreement (the "Closing Date");
NOW, THEREFORE, the Corporation and the Executive, each
intending to be legally bound, hereby mutually covenant and agree
as follows:
1. EMPLOYMENT AND TERM.
(a) EMPLOYMENT. The Corporation hereby offers to employ
the Executive as Vice Chairman of the Corporation and as the
President and Chief Executive Officer of the Motor Oil Division
of the Corporation and the Executive hereby accepts such
employment, for the term set forth in Paragraph 1(b).
(b) TERM. The term of the Executive's employment under
this Agreement shall commence on the Closing Date and end on the
fifth (5th) anniversary thereof, subject to the extension of such
term as hereinafter provided and earlier expiration of such term
as provided in Paragraph 6. The term of this Agreement shall be
extended automatically for one additional year as of such fifth
(5th) anniversary and each annual anniversary date thereof
unless, no later than ninety (90) days prior to any such renewal
<PAGE> 2
date, either the Board of Directors of the Corporation (the
"Board"), on behalf of the Corporation, or the Executive gives
written notice to the other, in accordance with Paragraph 9, that
the term of this Agreement shall not be so extended.
2. DUTIES. During the period of employment as provided in
Paragraph 1(b) hereof, the Executive shall serve as Vice Chairman
of the Corporation and Chief Executive Officer of the Motor Oil
Division of the Corporation and have all powers and duties
consistent with such positions subject to the direction of the
Chairman of the Board and Chief Executive Officer of the
Corporation. The Executive shall be appointed as a member of the
Board immediately upon commencement of the term of this Agreement
and shall thereafter continue to serve as a director if elected
as such. In addition, the Executive shall serve as a member of
the Executive Committee of the Board and of such other committees
of the Board to which he is appointed.
3. SALARY.
(a) BASE SALARY. For services performed by the Executive
for the Corporation pursuant to this Agreement during the period
of employment as provided in Paragraph 1(b) hereof, the
Corporation shall pay the Executive a base salary at the rate of
at least $200,000.00 per year, payable in cash in monthly
payments the 1st of each month; provided, however, that such
stated amount shall be shall be subject to reduction as set forth
in Article 4(j). Any compensation which may be paid to the
Executive under any additional compensation or incentive plan of
the Corporation or which may be otherwise authorized from time to
time by the Board to the base salary to which the Executive shall
be entitled under this Agreement.
(b) SALARY INCREASES. During the period of employment as
provided in Paragraph 1(b) hereof, the base salary of the
Executive shall be reviewed no less frequently than annually by
the Compensation Committee of the Board to determine whether or
not the same should be increased in light of the duties and
responsibilities of the Executive and the performance thereof,
and, if it is determined that an increase is merited, such
increase shall be promptly put into effect and the base salary of
the Executive as so increased shall constitute the base salary of
the Executive for purposes of Paragraph 3(a).
4. OTHER BENEFITS. In addition to the base salary to be
paid to the Executive pursuant to Paragraph 3, the Executive
shall also be entitled to the following:
(a) STOCK OPTIONS. On the date of the first meeting of the
Organization and Compensation Committee of the Board that occurs
after the Closing Date (the "Date of Grant"), the Corporation
shall grant the Executive an option (the "Option") to purchase up
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<PAGE> 3
to 250,000 shares of the Corporation's Capital Stock (the
"Capital Stock") under the Corporation's 1994 Stock Option Plan
(the "1994 Plan"). The Option shall have a term of 10 years from
the Date of Grant. The purchase price per share of Capital Stock
under the Option shall be as follows:
<TABLE>
<CAPTION>
Number of Shares Purchase Price
---------------- --------------
<S> <C>
125,000 Fair market value
62,500 Fair market value + $2
62,500 Fair market value + $3
</TABLE>
Such fair market value shall be determined in accordance with the
terms of the 1994 Plan. The Option shall become vested and
exercisable in 20% increments on the first through the fifth
anniversaries of the Date of Grant (or, if earlier, upon the
occurrence of a Change in Control (as such term is defined in
Paragraph 6(d) hereof)). To the extent not previously exercised,
the Option shall expire no earlier than the third anniversary of
the Date of Termination (as such term is defined in Paragraph
6(d) hereof); provided, however, that if the Executive's
employment is terminated for Cause (as such term is defined in
Paragraph 6(d) hereof), then the Option shall expire on the Date
of Termination. The Option shall be evidenced by a written stock
option award agreement between the Corporation and the Executive
in form and substance reasonably satisfactory to the Corporation
and the Executive, which agreement shall set forth the terms and
conditions of the Option consistent with this Agreement and the
1994 Plan.
(b) PARTICIPATION IN BENEFIT PLANS. Except as otherwise
expressly provided herein, the Executive shall be entitled to all
employee benefits associated with Band Two of the Corporation's
Executive Compensation Program, as same may be amended from time
to time by the Board to the extent the Executive is eligible for
participation under the terms of such plans, programs and
arrangements. The Executive and his dependents shall be enrolled
in the Corporation's health, life, disability and other insurance
plans and programs immediately upon his commencement of
employment hereunder and without any exclusion for pre-existing
conditions.
(c) EXPENSE REIMBURSEMENT. The Corporation shall reimburse
the Executive, upon proper accounting, for reasonable business
expenses and disbursements incurred by him in the course of the
performance of his duties under this Agreement.
(d) VACATION AND HOLIDAYS. The Executive shall be entitled
to four (4) weeks of vacation during each calendar year during
which this Agreement is in effect, or such greater period as the
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<PAGE> 4
Board or the Compensation Committee thereof may approve, and to
paid holidays given by the Corporation to its domestic employees
generally, without reduction in salary or other benefits.
Vacation time for a calendar year shall be forfeited if not used
during each year.
(e) CLUB MEMBERSHIPS. The Corporation shall, upon proper
accounting, pay the cost of the Executive's membership in one
country club and in one business club.
(f) PHYSICAL EXAMINATIONS. The Corporation shall reimburse
the Executive, upon proper accounting, for the cost of an annual
physical examination. Such a physical examination shall be
mandatory in each year during the term of this Agreement, and the
Executive shall cause copies of the physician's report for each
such examination to be furnished to the Chairmen of the Executive
Committee and the Organization and Compensation Committee of the
Board.
(g) LEGAL ADVICE. The Corporation shall, upon proper
accounting, pay the reasonable fees and disbursements of the
Executive's legal counsel in connection with the negotiation of
this Agreement.
(h) SPLIT-DOLLAR INSURANCE. The Corporation shall pay the
annual premium on a second to die insurance policy on the life of
Executive and his spouse pursuant to a split-dollar agreement
with the owner of the policy up to the amount of $140,000 per
year for as long as the Executive is an employee of the
Corporation or serves as a member of the Board or the Board of
Directors of a wholly owned subsidiary of the Corporation. The
amount of this premium payment may, in the sole discretion of the
Corporation, reduce the Executive's annual base salary by 60% of
the total premium paid; provided, however, that such reduction of
Executive's base salary shall not reduce his base salary for
purposes of the calculation of Executive's annual employee
benefits associated with Band Two of the Corporation's Executive
Compensation Program. The life insurance policy shall be subject
to a split dollar agreement and collateral assignment, in form
and substance satisfactory to the Corporation and the Executive,
under which, among other things, the Executive shall agree to
reimburse the Corporation for the amount of the premiums paid by
the Corporation with respect to such life insurance policy, such
reimbursement to occur no later than the earlier of (i) the date
of death of the second to die of the Executive and his spouse or
(ii) the date on which such life insurance policy is canceled,
terminated or redeemed, in whole or in part, for its cash value.
5. COVENANTS OF THE EXECUTIVE. In order to induce the
Corporation to enter into this Agreement, the Executive hereby
agrees as follows:
-4-
<PAGE> 5
(a) CONFIDENTIALITY. Except for and on behalf of the
Corporation with the consent of or as directed by the Board, the
Executive shall keep confidential and shall not divulge to any
other person or entity, during the term of employment or
thereafter, any of the business secrets or other confidential
information regarding the Corporation and its subsidiaries which
has not otherwise become public knowledge; provided, however,
that nothing in this Agreement shall preclude the Executive from
disclosing information (i) to parties retained to perform
services for the Corporation or its subsidiaries, or (ii) under
any other circumstances to the extent such disclosure is, in the
reasonable judgment of the Executive, appropriate or necessary to
further the best interests of the Corporation or its
subsidiaries, or (iii) as may be required by law.
(b) RECORDS. All papers, books and records of every kind
and description relating to the business and affairs of the
Corporation and its subsidiaries, whether or not prepared by the
Executive, other than personal notes prepared by or at the
direction of the Executive, shall be the sole and exclusive
property of the Corporation, and the Executive shall surrender
them to the Corporation at any time upon request by the Board.
(c) NON-COMPETITION. The Executive hereby agrees with the
Corporation that, during the term of his employment hereunder and
for a period of three (3) years following the term of his
employment hereunder (i) he shall not, directly or indirectly,
engage in, or be employed by, or act as a consultant to, or be a
director, officer, owner or partner of or acquire an interest in
Pennzoil Company, Texaco Inc., Ashland Oil, Inc. or Burmah
Castrol PLC, or any direct or indirect parent or subsidiary of
any of the foregoing companies, or any person, firm, corporation
or other entity engaged in the continental United States in the
re-refining of oil, the collection and disposition of waste oil
or the distribution of private brands and specialty oils, (ii) he
shall not solicit any employee of the Corporation or any of its
subsidiaries to leave the employment thereof or in any way
interfere with the relationship of such employee with the
Corporation or its subsidiaries and (iii) he shall not induce or
attempt to induce any customer, supplier, licensee or other
individual, corporation or other business organization having a
business relation with the Corporation or its subsidiaries to
cease doing business with the Corporation or its subsidiaries or
in any way interfere with the relationship between any such
customer, supplier, licensee or other person and the Corporation
or its subsidiaries.
(d) ENFORCEMENT. The Executive recognizes that the
provisions of this Paragraph 5 are vitally important to the
continuing welfare of the Corporation and its subsidiaries and
that money damages constitute a totally inadequate remedy for any
violation thereof. Accordingly, in the event of any such
-5-
<PAGE> 6
violation by the Executive, the Corporation and its subsidiaries,
in addition to any other remedies they may have, shall have the
right to institute and maintain a proceeding to compel specific
performance thereof or to issue an injunction restraining any
action by the Executive in violation of this Paragraph 5.
6. TERMINATION. Unless earlier terminated in accordance
with the following provisions of this Paragraph 6, the
Corporation shall continue to employ the Executive and the
Executive shall remain employed by the Corporation during the
entire term of this Agreement as set forth in Paragraph 1(b).
Paragraph 7 hereof sets forth certain obligations of the
Corporation in the event that the Executive's employment
hereunder is terminated. Certain capitalized terms used in this
Paragraph 6 and in Paragraph 7 hereof are defined in Paragraph
6(d) below.
(a) DEATH OR DISABILITY. Except to the extent otherwise
provided in Paragraph 7 with respect to certain post-Date of
Termination payment obligations of the Corporation, this
Agreement shall terminate immediately as of the Date of
Termination in the event of the Executive's death or in the event
that the Executive becomes disabled. The Executive will be
deemed to be disabled upon the earlier of (i) the end of a twelve
(12) consecutive month period during which, by reason of physical
or mental injury or disease, the Executive has been unable to
perform substantially the Executive's usual and customary duties
under this Agreement and (ii) the date that a reputable physician
selected by the Board to whom the Executive has no reasonable
objection determines in writing that the Executive will, by
reason of physical or mental injury or disease, be unable to
perform substantially all of the Executive's usual and customary
duties under this Agreement for a period of at least twelve (12)
consecutive months. If any question arises as to whether the
Executive is disabled, upon reasonable request therefor by the
Board, the Executive shall submit to reasonable medical
examination for the purpose of determining the existence, nature
and extent of any such disability. In accordance with Paragraph
9, the Board shall promptly give the Executive written notice of
any such determination of the Executive's disability and of the
decision of the Board to terminate the Executive's employment by
reason thereof. In the event of disability, until the Date of
Termination, the base salary payable to the Executive under
Paragraph 3 hereof shall be reduced dollar-for-dollar by the
amount of disability benefits, if any, paid to the Executive in
accordance with any disability policy or program of the
Corporation.
(b) DISCHARGE FOR CAUSE. In accordance with the procedures
hereinafter set forth, the Board or the Executive Committee
thereof may discharge the Executive from his employment hereunder
for Cause. Except to the extent otherwise provided in Paragraph
-6-
<PAGE> 7
7 with respect to certain post-Date of Termination obligations of
the Corporation, this Agreement shall terminate immediately as of
the Date of Termination in the event the Executive is discharged
for Cause. Any discharge of the Executive for Cause shall be
communicated by a Notice of Termination to the Executive given in
accordance with Paragraph 9 of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination is to be other
than the date of receipt of such notice, specifies the
termination date (which date shall in all events be within
fifteen (15) days after the giving of such notice). In the case
of a discharge of the Executive for Cause, the Date of
Termination shall include a copy of a resolution duly adopted by
the Board or the Executive Committee thereof at a meeting called
and held for such purpose (after reasonable notice to the
Executive and reasonable opportunity for the Executive, together
with the Executive's counsel, to be heard before the Board or the
Executive Committee prior to such vote), finding that, in the
reasonable and good faith opinion of the Board or the Executive
Committee, the Executive was guilty of conduct constituting
Cause. No purported termination of the Executive's employment
for Cause shall be effective without a Notice of Termination.
(c) TERMINATION FOR OTHER REASONS. The Corporation may
discharge the Executive without Cause by giving written notice to
the Executive in accordance with Paragraph 9 at least sixty (60)
days prior to the Date of Termination. The Executive may resign
from his employment by giving written notice to the Corporation
in accordance with Paragraph 9 at least sixty (60) days prior to
the Date of Termination. Except to the extent otherwise provided
in Paragraph 7 with respect to certain post-Date of Termination
obligations of the Corporation, this Agreement shall terminate
immediately as of the Date of Termination in the event the
Executive is discharged without Cause or resigns.
(d) DEFINITIONS. For purposes of this Agreement, the
following capitalized terms shall have the meanings set forth
below:
(i) "Accrued Obligations" shall mean, as of the Date
of Termination, the sum of (A) the Executive's base salary under
Paragraph 3 through the Date of Termination to the extent not
theretofore paid, (B) the amount of any bonus, incentive
compensation, deferred compensation and other cash compensation
accrued by the Executive as of the Date of Termination to the
extent not theretofore paid and (C) any vacation pay, expense
reimbursements and other entitlements accrued by the Executive as
of the Date of Termination to the extent not theretofore paid.
-7-
<PAGE> 8
For the purpose of this Paragraph 6(d)(i), amounts shall be
deemed to accrue ratably over the period during which they are
earned.
(ii) "Cause" shall mean any of the following that is
materially and demonstrably detrimental to the goodwill of the
Corporation or materially and demonstrably damaging to the
relationships of the Corporation with its customers, suppliers or
employees: (A) except in the event of the Executive's
disability, an act of willful misconduct or gross negligence by
the Executive in the performance of his material duties or
obligations to the Corporation which continues after written
notice is received by the Executive specifying the alleged
failure in reasonable detail, or (B) conviction of the Executive
of a felony involving moral turpitude or (C) a material act of
dishonesty or breach of trust on the part of the Executive
resulting or intended to result directly or indirectly in
personal gain or enrichment at the expense of the Corporation.
(iii) "Change of Control" shall mean:
(A) The acquisition, other than from the
Corporation, by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) (a "Person") of 30% or more
of either (i) the then outstanding shares of Capital Stock of the
Corporation (the "Outstanding Corporation Capital Stock") or (ii)
the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the
election of directors (the "Corporation Voting Securities"),
provided, however, that any acquisition by (x) the Corporation or
any of its subsidiaries, or any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any of its
subsidiaries or (y) any Person that is eligible, pursuant to Rule
13d-1(b) under the Exchange Act, to file a statement on Schedule
13G with respect to its beneficial ownership of Corporation
Voting Securities, whether or not such Person shall have filed a
statement on Schedule 13G, unless such Person shall have filed a
statement on Schedule 13D with respect to beneficial ownership of
30% or more of the Corporation Voting Securities or (z) any
corporation with respect to which, following such acquisition,
more than 60% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Corporation
Capital Stock and Corporation Voting Securities immediately prior
to such acquisition in substantially the same proportion as their
-8-
<PAGE> 9
ownership, immediately prior to such acquisition, of the
Outstanding Corporation Capital Stock and Corporation Voting
Securities, as the case may be, shall not constitute a Change of
Control; or
(B) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board, provided that any
individual becoming a director subsequent to the date hereof
whose election or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the
election of the Directors of the Corporation (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act); or
(C) Approval by the shareholders of the
Corporation of a reorganization, merger or consolidation (a
"Business Combination"), in each case, with respect to which all
or substantially all of the individuals and entities who were the
respective beneficial owners of the Outstanding Corporation
Capital Stock and Corporation Voting Securities immediately prior
to such Business Combination do not, following such Business
Combination, beneficially own, directly or indirectly, more than
60% of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from
Business Combination in substantially the same proportion as
their ownership immediately prior to such Business Combination of
the Outstanding Corporation Capital Stock and Corporation Voting
Securities, as the case may be; or
(D) (i) a complete liquidation or dissolution of
the Corporation or of (ii) sale or other disposition of all or
substantially all of the assets of the Corporation other than to
a corporation with respect to which, following such sale or
disposition, more than 60% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors is then owned beneficially, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Corporation Capital Stock and Corporation Voting
Securities immediately prior to such sale or disposition in
substantially the same proportion as their ownership of the
Outstanding Corporation Capital Stock and Corporation Voting
-9-
<PAGE> 10
Securities, as the case may be, immediately prior to such sale or
disposition.
(iv) "Date of Termination" shall mean (A) in the event
of a discharge of the Executive by the Board for Cause, the date
the Executive receives a Notice of Termination, or any later date
specified in such Notice of Termination, as the case may be, (B)
in the event of a discharge of the Executive without Cause or a
resignation by the Executive, the date specified in the written
notice to the Executive (in the case of discharge) or the
Corporation (in the case of resignation) which date shall be no
less than sixty (60) days from the date of such written notice,
(C) in the event of the Executive's death, the date of the
Executive's death, and (D) in the event of termination of the
Executive's employment by reason of disability pursuant to
Paragraph 6(a), the date the Executive receives written notice of
such termination (or, if later, twelve (12) months from the date
the Executive's disability began).
(v) "Good Reason" shall mean any of the following (A)
the assignment to the Executive of any duties inconsistent in any
respect with the Executive's positions with the Corporation as
set forth in this Agreement (including status, offices, titles
and reporting requirements), authority, duties or
responsibilities as contemplated by Paragraph 2, or any action by
the Corporation which results in diminution in such positions,
authority, duties or responsibilities, excluding for this purpose
any isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Corporation, promptly
after receipt of written notice thereof given by the Executive in
accordance with Paragraph 9; or (B) any failure by the
Corporation to comply with any of the provisions of this
Agreement, other than any isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied by the
Corporation promptly after receipt of written notice thereof
given by the Executive in accordance with Paragraph 9, or (C) the
Corporation shall give notice to the Executive in accordance with
Paragraph 1(b) that the term of this Agreement shall not be
extended upon the expiration of the then-current term.
7. OBLIGATIONS OF THE CORPORATION UPON TERMINATION.
The following provisions describe the obligations of the
Corporation to the Executive upon termination of his employment.
The Executive's rights upon termination of employment with
respect to the Options are set forth in Paragraph 4(a) hereof.
(a) DEATH OR DISCHARGE FOR CAUSE. In the event this
Agreement terminates pursuant to Paragraph 6(a) by reason of the
death of the Executive or pursuant to Paragraph 6(b) by reason of
a discharge of the Executive by the Corporation for Cause;
-10-
<PAGE> 11
(i) the Corporation shall pay to the Executive, or his
heirs or estate in the event of the Executive's death, all
Accrued Obligations in a lump sum in cash within thirty (30) days
after the Date of Termination; and
(ii) the Executive, or his heirs or legal
representatives, in the event of the Executive's death, shall be
entitled to receive all benefits accrued by him as of the Date of
Termination under all qualified and nonqualified retirement,
pension, profit sharing and similar plans of the Corporation to
such extent, in such manner and at such time as are provided
under the terms of such plans and arrangements; and
(iii) all other obligations of the Corporation
hereunder shall cease forthwith; provided, however, that this
clause shall not affect any benefits applicable to former
employees under the terms of welfare, fringe benefit and
executive perquisite plans, programs and arrangements.
(b) DISABILITY, DISCHARGE WITHOUT CAUSE OR RESIGNATION. In
the event that this Agreement terminates pursuant to Paragraph
6(a) by reason of the disability of the Executive or pursuant to
Paragraph 6(c) by reason of the discharge of the Executive by the
Corporation other than for Cause or the resignation of the
Executive;
(i) the Corporation shall pay all Accrued Obligations
to the Executive in a lump sum in cash within thirty (30) days
after the Date of Termination: and
(ii) the Executive shall be entitled to receive all
benefits accrued by him as of the Date of Termination under all
qualified and nonqualified retirement, pension, profit sharing
and similar plans of the Corporation to such extent, in such
manner and at such time as are provided under the terms of such
plans; and
(iii) all other obligations of the Corporation
hereunder shall cease forthwith; provided, however, that this
clause shall not affect any benefits applicable to former
employees under the terms of welfare, fringe benefit and
executive perquisite plans, programs and arrangements.
(c) TERMINATION AFTER CHANGE IN CONTROL. In the event that
the Executive is discharged without Cause or resigns with Good
Reason at any time within two years following the date that a
Change in Control occurs, then in addition to any other amounts
due to be paid to the Executive under the foregoing provisions of
this Paragraph 7, the Executive shall be entitled to receive from
the Corporation for a period of three years from the Date of
Termination the Executive's base salary and an annual bonus equal
-11-
<PAGE> 12
to the Executive's target bonus for the calendar year in which
the Date of Termination occurs.
8. BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of the heirs and representatives of the
Executive and the successors and assigns of the Corporation. The
Corporation shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation,
acquisition of property or stock, liquidations or otherwise) to
all or a significant portion of its assets, by agreement in form
and substance satisfactory to the Executive, expressly to assume
and agree to perform this Agreement in the same manner and to the
same extent that the Corporation would be required to perform
this Agreement if no such succession had taken place. Regardless
whether such agreement is executed, this Agreement shall be
binding upon any successor of the Corporation in accordance with
the operation of law and such successor shall be deemed the
"Corporation", for purposes of this Agreement.
9. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed
to have been duly given if delivered by hand or mailed within the
continental United States by first class certified mail, return
receipt requested, postage prepaid, addressed as follows:
(a) if to the Board or the Corporation, to
Quaker State Corporation
255 Elm Street
Oil City, Pennsylvania 16301
Attention: Chairman, Compensation
Committee
(b) to the Executive, to:
L. David Myatt
1311 Leonard Rd.
Shreveport, Louisiana 71115
Such addresses may be changed by written notice sent to the other
party at the last recorded address of that party.
10. TAX WITHHOLDING. The Corporation shall provide for the
withholding of any taxes required to be withheld by federal,
state and local law with respect to any payment in cash, shares
of Capital Stock and/or other property made by or on behalf of
the Corporation to or for the benefit of the Executive under this
Agreement or otherwise. The Corporation may, at its option: (i)
withhold such taxes from any cash payments owing from the
Corporation to the Executive, including but not limited to any
such payments owing under any provision of this Agreement, (ii)
require the Executive to pay to the Corporation in cash such
-12-
<PAGE> 13
amount as may be required to satisfy such withholding obligations
and/or (iii) make other satisfactory arrangements with the
Executive to satisfy such withholding obligations.
11. CERTAIN OBLIGATIONS OF THE CORPORATION. At its
expense, and as soon as practicable hereafter, with respect to
the shares of Capital Stock issuable upon exercise of the Option
the Corporation shall (i) register such shares under the
Securities Act of 1933, as amended, on Form S-8, to the extent
sufficient shares of Capital Stock have not been previously
registered, (ii) qualify such shares for issuance under all
applicable state securities laws and (iii) ensure that such
shares are listed for trading on the New York Stock Exchange.
Notwithstanding any other provisions of this Agreement to the
contrary, the Corporation shall be under no obligation to issue
any shares of Capital Stock to the Executive pursuant to this
Agreement until, in accordance with the immediately preceding
sentence, such shares are so registered and either (x) the
Corporation is able to repurchase in the open market or private
transaction, on a legal, practical and prudent basis, a number of
shares of Capital Stock equal to the number issuable to the
Executive or (y) shares of Capital Stock which are listed for
trading on the New York Stock Exchange are otherwise available
for issuance by the Corporation hereunder. In the event that the
issuance of any shares to the Executive shall be delayed by
reason of the provisions of the Paragraph 11, the Corporation
shall pay to the Executive in cash on the date of issuance of
such shares an amount equal to the dividends that would have been
paid to the Executive on such shares had such issuance not been
so delayed.
12. ARBITRATION OF ALL DISPUTES.
(a) Any controversy or claim arising out of or relating to
this Agreement or the breach thereof (including the arbitrability
of any controversy or claim), shall be settled by arbitration in
the City of Pittsburgh in accordance with the laws of the
Commonwealth of Pennsylvania by three arbitrators, one of whom
shall be appointed by the Corporation, one by the Executive and
the third of whom shall be appointed by the first two
arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator
shall be appointed by the American Arbitration Association. The
arbitration shall be conducted in accordance with the rules of
the American Arbitration Association, except with respect to the
selection of arbitrators which shall be as provided in this
Paragraph 12. The cost of any arbitration proceeding hereunder
shall be borne equally by the Corporation and the Executive. The
award of the arbitrators shall be binding upon the parties.
Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
-13-
<PAGE> 14
(b) In the event that it shall be necessary or desirable
for the Executive to retain legal counsel and/or incur other
costs and expenses in connection with the enforcement of any or
all of his rights under this Agreement, and provided that the
Executive substantially prevails in the enforcement of such
rights, the Corporation shall pay (or the Executive shall be
entitled to recover from the Corporation, as the case may be) the
Executive's reasonable attorneys' fees and costs and expenses in
connection with the enforcement of his rights including the
enforcement of any arbitration award.
13. NO ASSIGNMENT. Except as otherwise expressly provided
herein, this Agreement is not assignable by any party and no
payment to be made hereunder shall be subject to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or
other charge.
14. EXECUTION IN COUNTERPARTS. This Agreement may be
executed by the parties hereto in two or more counterparts, each
of which shall be deemed to be an original, but all such
counterparts shall constitute one and the same instrument, and
all signatures need not appear on any one counterpart.
15. SEVERABILITY. If any provision of this Agreement shall
be adjudged by any court of competent jurisdiction to be invalid
or unenforceable for any reason, such judgment shall not affect,
impair or invalidate the remainder of this Agreement.
16. PRIOR UNDERSTANDINGS. This Agreement embodies the
entire understanding of the parties hereof, and supersedes all
other oral or written agreements or understandings between them
regarding the subject matter hereof. No change, alteration or
modification hereof may be made except in a writing, signed by
each of the parties hereto. The headings in this Agreement are
for convenience and reference only and shall not be construed as
part of this Agreement or to limit or otherwise affect the
meaning hereof.
-14-
<PAGE> 15
17. APPLICABLE LAW. This Agreement shall be construed and
interpreted in accordance with and governed by the laws of the
Commonwealth of Pennsylvania other than the conflict of laws
provisions of such laws.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the day and year first above
written.
ATTEST: QUAKER STATE CORPORATION
GERALD W. CALLAHAN By: CONRAD A. CONRAD
- -------------------------- -----------------------
Title: President and Chief
Operations Officer
EXECUTIVE
L. DAVID MYATT
---------------------------
L. David Myatt
-15-
<PAGE> 1
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
Quaker State Corporation and Subsidiaries
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
9/30/94 9/30/93 9/30/94 9/30/93
- -------------------------------------------------------------------------------------------------
(in thousands except per share data, unaudited)
<S> <C> <C> <C> <C>
1. Net income $ 5,398 $ 3,976 $16,050 $11,760
=================================================================================================
2. Average number of shares of capital stock outstanding 27,295 27,245 27,347 27,189
3. Shares issuable upon exercise of dilutive stock
options outstanding during the period, based on
average market prices 95 40 91 26
4. Shares issuable upon exercise of dilutive stock
options outstanding during the period, based on
higher of average or period-end market prices 113 67 97 37
5. Average number of capital and capital equivalent
shares outstanding (2 + 3) 27,390 27,285 27,438 27,215
6. Average number of capital shares outstanding,
assuming full dilution (2 + 4) 27,408 27,312 27,444 27,226
7. Net income per capital and capital equivalent share
(1 divided by 5) $.19 $.14 $.58 $.43
=================================================================================================
8. Net income per capital share assuming full dilution
(1 divided by 6) $.19 $.14 $.58 $.43
=================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 38,424
<SECURITIES> 0
<RECEIVABLES> 108,601
<ALLOWANCES> 3,022
<INVENTORY> 70,394
<CURRENT-ASSETS> 241,976
<PP&E> 595,698
<DEPRECIATION> 350,802
<TOTAL-ASSETS> 643,752
<CURRENT-LIABILITIES> 149,975
<BONDS> 0
<COMMON> 31,492
0
0
<OTHER-SE> 221,201
<TOTAL-LIABILITY-AND-EQUITY> 643,752
<SALES> 528,097
<TOTAL-REVENUES> 532,779
<CGS> 232,851
<TOTAL-COSTS> 348,000
<OTHER-EXPENSES> 163,102
<LOSS-PROVISION> 1,343
<INTEREST-EXPENSE> 3,580
<INCOME-PRETAX> 16,754
<INCOME-TAX> 5,465
<INCOME-CONTINUING> 11,289
<DISCONTINUED> 4,761
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,050
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.58
</TABLE>
