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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 1995. Commission File No. 0-2707.
STRUTHERS INDUSTRIES, INC.
----------------------------------------------------
(Exact name of small business issuer in its charter)
Delaware 73-0746455
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 WEST 5TH STREET, SUITE 601, TULSA, OKLAHOMA 74103
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(Address of principal executive office) (Zip Code)
Issuer's telephone number - (918) 582-1788
--------------
Securities registered under Section 12(b) of the Exchange Act:
COMMON STOCK, $0.10 PAR VALUE
-----------------------------
(Title of each class)
AMERICAN STOCK EXCHANGE
-------------------------------------------
(Name of each exchange on which registered)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X ; No .
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $1,623,694
----------
As of May 31, 1996, the registrant had outstanding 11,720,967 shares of its
Common Stock, par value of $0.10, its only class of voting securities. The
aggregate market value of the shares of Common Stock of the registrant held by
non-affiliates on May 31, 1996 was approximately $40,753,000 based upon the
average sales prices on the American Stock Exchange on such date (See Item 5).
DOCUMENTS INCORPORATED BY REFERENCE: No documents are incorporated by reference
into this Report except those Exhibits so incorporated as set forth in the
Exhibit Index.
Transitional Small Business Disclosure Format (Check one): Yes ; No X .
---- -----
The following amendments are hereby made to Form 10-KSB for the year ended
December 31, 1995, which was filed with the Commission on March 28, 1996 and is
incorporated by reference herein.
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ITEM 1. DESCRIPTION OF BUSINESS
(A) BUSINESS DEVELOPMENT
ON PAGE 3, UNDER THE HEADING "ACQUISITION," PARAGRAPH NUMBER THREE SHOULD BE
DELETED.
(B) BUSINESS OF REGISTRANT
CONTINUING OPERATIONS-ENERGY INDUSTRY
UNDER THE HEADING "DRILLING FLUID ADDITIVE SUPPLIER," BEGINNING ON PAGE 4, THE
THIRD AND FIFTH PARAGRAPHS HAVE BEEN AMENDED TO READ AS FOLLOWS:-
Liberal Hull is currently the only supplier of these drilling fluid additives
in the area. While there are other suppliers further away, the cost of delivery
of the product to Liberal Hull's area would not allow them to be cost
competitive with Liberal Hull. Accordingly, Liberal Hull does not believe the
risk of loss of one of its customers is likely, although it would have a
negative impact on Liberal Hull's operations. During 1995, MI Drilling Fluids,
LLC accounted for 18% of consolidated energy revenues. During 1994, Baker
Hughes Inteq, MI Drilling Fluids, LLC, and Baroid Drilling Fluids accounted for
16%, 15% and 11% of consolidated energy revenues, respectively. Bulk cotton
seed hulls are available from a number of mills which remove the cotton fiber
from the hulls.
Liberal Hull utilizes the services of MRI Associates, Inc. in Tulsa, Oklahoma
to manage its operations, including acquisition of raw materials, sales and
billing. Such management agreement which calls for a monthly fee of $4,000, was
effective October 1, 1993 and terminates March 30, 1997 (pursuant to an
extension executed April 1, 1995). The agreement is attached hereto as Exhibit
10(h). Liberal Hull has contracted with Lease America Services to provide all
of the labor force necessary to operate its facility; accordingly, Liberal Hull
has no full or part-time employees. Liberal Hull has no products or services
which require governmental approvals.
UNDER THE HEADING "NATURAL GAS PROCESSING" BEGINNING ON PAGE 4, THE FIRST,
THIRD AND SIXTH PARAGRAPHS HAVE BEEN AMENDED TO READ AS FOLLOWS:
Kinder owns and operates a gas processing plant and gas gathering pipelines
near Kinder, Louisiana, and is primarily engaged in processing natural gas to
remove the liquids, including propane, butane, and other liquids. Kinder shares
the proceeds from such sales with the producers of natural gas based upon
contracted sharing arrangements. The sales of liquids are allocated to all
natural gas producers based upon the quality and volume of gas produced by such
producers each month. The producers are then paid their contractual shares of
the proceeds from the sales of the liquids, which ranges from 45% to 85% of the
total revenue generated each month.
Kinder has a gas gathering pipeline which connects the producers who process
their gas in Kinder's processing plant. Due to the capital costs involved with
the installation of a gathering system, Kinder does not expect to experience
any significant competition for the producers it has under contract. Kinder
does, however, compete with a number of other gas processing plants in selling
the propane, butane and other plant products it produces. Kinder's plant
liquids represent a very small portion of the total amounts sold; accordingly,
Kinder has very little influence on the price it receives for its products as
they are dictated by overall market demand. The loss of a customer for one of
Kinder's products should not have a negative impact as other purchasers are
readily available. During 1995 and 1994, Amerigas accounted for 18% and 17% of
consolidated energy revenues, respectively, while Enron Corp. accounted for 12%
and 11% of consolidated energy revenues in 1995 and 1994, respectively.
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Kinder contracts with Energy Service Investment Corporation in Tulsa, Oklahoma
to manage plant operations and provide the necessary personnel to operate the
plant; accordingly, Kinder has no full or part-time employees. The management
contract calls for management services to be rendered to Kinder with respect to
the operations of the Kinder gas processing plant and field and gas gathering
system in exchange for a monthly fee of $3,000, adjusted annually based on the
U.S. Employment and Earnings Index for Crude Petroleum and Gas Production
Workers. The current monthly rate is $3,265 with an automatic renewal clause
in effect, which automatically extends the agreements for an additional 12
months at the end of each year, unless terminated by either party upon sixty
(60) days' written notice.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
UNDER THE HEADING "LIQUIDITY AND CAPITAL RESOURCES," PARAGRAPH FIVE (5) ON PAGE
10 HAS BEEN AMENDED TO READ AS FOLLOWS:
Due to the availability of net operating loss carryforwards and percentage
depletion carryforwards as of December 31, 1995 of approximately $18,000,000,
income taxes should not adversely impact the Company in the foreseeable future,
except for the impact of alternative minimum tax and certain state income
taxes. The Company experienced a change in control for income tax purposes
during 1993, which limits the annual utilization of the net operating loss and
investment tax credit carryforwards to approximately $2,350,000. The Company
will experience another change in control for income tax purposes during 1996
if the WIN transaction is consummated, which is expected to further reduce the
availability of the net operating loss and investment tax credit carryforwards.
Assuming that the price of a share of common stock of the Company is $3.00, the
number of shares outstanding is 12 million and the federal long-term tax-exempt
rate is 5.31% (the applicable rate in effect in April 1996), the limitation on
the use of the NOL carryforwards which would result if the WIN is consummated
would be $1,911,600.
ITEM 7. FINANCIAL STATEMENTS
IN NOTE 7, "LONG-TERM OBLIGATIONS," THE LAST FULL PARAGRAPH ON PAGE F-18 HAS
BEEN AMENDED TO READ AS FOLLOWS:
The Company is in default on the Liberal Hull note as payments on the note were
discontinued in July 1994. Accordingly, the entire balance is included in
current maturities of long-term obligations at December 31, 1995 (Note 10). The
Liberal Hull default was cured as of March 31, 1996. The Company has no other
long-term debt with cross-default clauses.
IN NOTE 14, "FOURTH QUARTER ADJUSTMENTS" THE THIRD PARAGRAPH ON PAGE F-25 HAS
BEEN AMENDED TO READ AS FOLLOWS:
WIN Agreement -- The Company recognized the additional amount due in connection
with the settlement of its lawsuit discussed in Note 10 of $1,850,000 in
anticipation of completing the agreement with WIN discussed in Note 3.
Management further expensed certain costs, previously capitalized, in
connection with this agreement. A total of $207,776 in costs previously
capitalized were expensed during the fourth quarter of 1995. Included in these
costs was a total of $112,776 in legal fees associated with the acquisition of
WIN and the related investment in Command Entertainment, Inc., both of which
could be capitalized as a part of the basis in the assets acquired. The other
costs of $95,000 were fees paid to investment bankers and consultants relating
to due diligence and the planned future public or private stock offerings of
the Company following the Closing.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. THE EXHIBIT INDEX ON PAGES 23 AND 24 HAS BEEN AMENDED
AND RESTATED AS IT APPEARS FOLLOWING THE SIGNATURE PAGE HEREIN.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this annual report to be signed on
its behalf by the undersigned, thereunto duly authorized.
STRUTHERS INDUSTRIES, INC.
Date: June 12, 1996 By: /s/ G. DAVID GORDON
------------------------- --------------------------------
G. David Gordon,
Acting President and Principal
Financial Officer
Date: June 12, 1996 By: /s/ JAMES R. ROSS
------------------------- --------------------------------
James R. Ross,
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Date: June 12, 1996 By: /s/ G. DAVID GORDON
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G. David Gordon, Director
Date: June 12, 1996 By: /s/ W. LEO MORRIS
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W. Leo Morris, Director
Date: June 12, 1996 By: /s/ JOHN D. WILSON
------------------------- --------------------------------
John D. Wilson, Director
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THE EXHIBIT INDEX IS HEREBY AMENDED TO READ AS FOLLOWS:
EXHIBITS HAVE BEEN OMITTED FROM THIS COPY. COPIES OF EXHIBITS MAY BE OBTAINED
FROM STRUTHERS INDUSTRIES, INC. ("THE COMPANY") UPON REQUEST AND PAYMENT OF THE
COMPANY'S COSTS IN FURNISHING SUCH COPIES. COPIES MAY ALSO BE OBTAINED FROM THE
SECURITIES AND EXCHANGE COMMISSION FOR A SLIGHT CHARGE.
(The foregoing is not applicable to the original(s) hereof.)
EXHIBIT INDEX
<TABLE>
<CAPTION>
SECURITIES
AND EXCHANGE
COMMISSION PAGE
EXHIBIT NO. TYPE OF EXHIBIT NUMBER
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<S> <C> <C>
3 Articles of Incorporation and Bylaws-
3.1 Certificate of Incorporation of the Company and
amendments thereto (filed as Exhibit 3.1 to
Registration Statement on Form S-1 of the
Registrant) (File No.2-68759) and incorporated
herein by reference thereto. N/A
3.2 Bylaws of the Company (filed as Exhibit 3.2 to
Registration Statement on Form S-1) (File No.
2-23219) and incorporated herein by reference
thereto N/A
4 Instruments defining the rights of security holders,
including indentures N/A
9 Voting Trust Agreement N/A
10 Material Contracts
(a) Asset Purchase Agreement between Peacock
Aerospace, Inc. and MPDC, Inc. and Nortek, Inc.
included as Exhibit (2) to the Company's Form
8-K, dated May 21, 1991, and filed with the
Commission and is incorporated herein by
reference thereto N/A
(b) Stock Purchase Agreement between Struthers
Industries, Inc. and Dr. Nasim M. Siddiqui
included as Exhibit (1) to the Company's
Form 8-K, dated March 17, 1993, and filed
with the Commission and is incorporated
herein by reference thereto N/A
(c) Incentive Stock Option Plan included as
Exhibit (1) to the Company's Form S-8,
dated July 9, 1992, and filed with the
Commission and is incorporated herein by
reference thereto N/A
(d) Nonstatutory Stock Option Plans included
as Exhibit (1) to the Company's Forms S-8,
dated July 9, 1992 and November 23, 1992,
and filed with the Commission and is
incorporated herein by reference thereto N/A
(e) May 1, 1994 Employment Agreement with
R. Michael Still included as Exhibit (1)
to the Company's Form 10-KSB, dated
April 10, 1995, and filed with the
Commission and is incorporated herein by
reference thereto N/A
</TABLE>
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<TABLE>
<S> <C> <C>
(f) June 1, 1994 Employment Agreement with
John D. Wilson included as Exhibit (2)
to the Company's Form 10-KSB, dated
April 10, 1995, and filed with the
Commission and is incorporated herein by
reference thereto N/A
(g) 1995-1996 Nonstatutory Stock Option Plan
included as Exhibit (1) to the Company's
Form S-8, dated June 20, 1995 and filed
with the Commission and is incorporated
herein by reference thereto N/A
(h) Service Agreement of Struthers Industries,
Inc. with MRI Associates, Inc. dated
October 1, 1993 25
(i) Management Agreement of Kinder Gas
Processing Corporation with Energy Service
Investment Corporation 29
11 Statement regarding Computation of Per Share
Earnings N/A
13 Annual Report to Security Holders N/A
16 Letter on Change in Certifying Accountants
included as Exhibit 16 to the Company's Form
8-K, dated January 18, 1996 and filed with the
Commission and is incorporated herein by
reference thereto N/A
18 Letter regarding Change in Accounting Principles N/A
19 Previously unfiled documents N/A
22 Subsidiaries of the Registrant - Included in
Item 1(a) N/A
23 Published Report Regarding Matters Submitted to
Vote of Security Holders N/A
24 Consents of Experts and Counsel 50-51
25 Power of Attorney N/A
28 Additional Exhibits N/A
29 Information from reports furnished to state
insurance regulatory authorities N/A
</TABLE>
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FIRST AMENDMENT TO MANAGEMENT CONSULTING AGREEMENT
THIS FIRST AMENDMENT TO MANAGEMENT CONSULTING AGREEMENT ("First
Amendment") is entered into this 1st day of April, 1995, by and between MRI
ASSOCIATES, INC., an Oklahoma corporation ("MRI") and STRUTHERS INDUSTRIES,
INC., a Delaware corporation ("Struthers").
W I T N E S S E T H:
WHEREAS, the parties entered into a Management Consulting Agreement
dated October 1, 1993 ("Agreement"); and
WHEREAS, the parties desire to amend paragraph 6 of this Agreement as
provided below;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the parties agree as follows:
6. Term. The renewal term of this Agreement shall commence on the 1st
day of April, 1995, and shall continue until March 30, 1997.
Ratification. Except as otherwise amended herein, the terms and
conditions of the Agreement are hereby ratified and shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties executed this First Amendment the day
and year first above written.
STRUTHERS INDUSTRIES, INC.,
a Delaware corporation
By: /s/ G. DAVID GORDON
----------------------------------
G. David Gordon, President
MRI ASSOCIATES, INC.,
an Oklahoma corporation
By: /s/ THOMAS L. MANNING
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Thomas L. Manning, President
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MANAGEMENT CONSULTING AGREEMENT
THIS MANAGEMENT CONSULTING AGREEMENT ("Agreement") is entered into this
1st day of October, 1993, by and between MRI ASSOCIATES, INC., an Oklahoma
corporation (hereinafter referred to as "MRI"), and STRUTHERS INDUSTRIES, INC.,
a Delaware corporation (hereinafter referred to as "Struthers").
W I T N E S S E T H:
WHEREAS, on September 30, 1993, Struthers and the Jerry N. Upton
Charitable Trust, the sole owner of Liberal Hull Company ("Liberal Hull"),
entered into an Asset Purchase Agreement whereby Struthers purchased certain
assets of Liberal Hull; and
WHEREAS, Struthers desires to establish a wholly-owned subsidiary of
Struthers known as Liberal Hull Company, an Oklahoma corporation, and utilize
MRI's management services to run this subsidiary; and
WHEREAS, MRI desires to provide such management services upon the terms
and conditions provided below;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, MRI and Struthers agree as follows:
1. Appointment. Struthers hereby retains the services of MRI to
provide management services to Struthers in the operations of Struthers' new
subsidiary, Liberal Hull Company, including, the expansion of Liberal Hull's
business territory, gross sales and profits, implementation of cost saving
management techniques to enhance profitability of Liberal Hull. MRI's duties
will include but not be limited to: attending management seminars, visiting
existing related businesses, reviewing financials, analyzing potential
profitability and prepare written recommendation reports to Struthers. MRI
agrees to use its best efforts in performing the assigned tasks and completing
the assignments within a reasonably set deadlines established by Struthers.
2. Compensation. Struthers shall pay MRI for its services to be
rendered hereunder a monthly fee of $4000.00 payable on the 15th day of each
month during the term hereof.
3. Independent Contractor. MRI shall be deemed an independent
contractor for all purposes hereunder. Nothing contained herein shall be
construed to constitute MRI as a partner, employee or agent of Struthers, nor
shall either party have any authority to bind the other in any respect, it
being intended that each shall remain as an independent contractor responsible
for their own actions.
4. Manner of Performance. MRI shall perform its duties hereunder
in the following manner:
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a. MRI shall furnish and use its own equipment and materials during
the course of its performance hereunder;
b. MRI shall work from its own office location, determine its own
working hours, and exercise its own judgment as to the method and manner of said
services;
c. All reasonable and necessary business expenses incurred by MRI
in connection with the performance of its services hereunder, including, but not
limited to, travel, postage, telephone, and other administrative costs, shall be
reimbursed by Struthers upon presentation of documentation thereof by MRI;
d. MRI shall not be prevented from engaging in other reasonable
employment; and
e. MRI shall pay its own worker's compensation, unemployment
compensation, insurance, social security and withholding and all other federal,
state and local taxes or assessments and shall hold Struthers harmless
therefrom.
5. RIGHTS TO INTERESTS AND REVENUES. All right, title and interest in
and to any revenues or interests derived hereunder shall be the sole and
exclusive property of Struthers. All assignments and contracts shall be
obtained in the name of Struthers and shall be the sole property of Struthers,
unless otherwise agreed in writing.
6. TERM. The term of this Agreement shall commence on the 1st day of
October, 1993, and shall continue until September 30, 1994.
7. ACCOUNTING; RECORDS. MRI shall maintain detailed records of all
its business activities, and Struthers shall have the right at all times to
inspect all such records for purposes of determining compliance with this
Agreement. MRI shall present, upon request from time to time, an account of
all its activities and revenues or interests derived therefrom.
8. ASSIGNMENT. This Agreement and the obligations hereunder may not
be assigned by MRI without the prior written consent of Struthers.
9. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Oklahoma.
10. TERMINATION. Either party may terminate this Agreement upon sixty
(60) days prior written notice to the other; provided, however, that if
Struthers gives such notice to MRI, then MRI shall, notwithstanding the
termination of this Agreement, still entitled to receive its compensation for
the full term herein.
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IN WITNESS WHEREOF, the parties executed this Agreement the day and
year first above written.
MRI ASSOCIATES, INC.
By: /s/ THOMAS L. MANNING
---------------------------------
Thomas L. Manning, President
STRUTHERS INDUSTRIES, INC.
By: /s/ JOHN C. EDWARDS
---------------------------------
John C. Edwards, President
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OPERATING AGREEMENT
BETWEEN
ENERGY SERVICE INVESTMENT CORPORATION as "CONTRACTOR"
and
KINDER GAS PROCESSING CORPORATION as "OWNER"
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OPERATING AGREEMENT
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page No.
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<S> <C>
INTRODUCTION....................................................... 1
DEFINITIONS........................................................ 1
TERM............................................................... 3
OPERATING SERVICES................................................. 4
OPERATING FEE...................................................... 8
OPERATING EXPENSES................................................. 9
ACCOUNTING PROCEDURES.............................................. 11
REPORTS............................................................ 12
RELATIONSHIP OF PARTIES............................................ 12
FORCE MAJEURE...................................................... 12
LIENS.............................................................. 14
NOTICES............................................................ 14
ASSIGNMENT......................................................... 15
TERMINATION OF AGREEMENT........................................... 15
TRANSITION UPON TERMINATION........................................ 16
MISCELLANEOUS...................................................... 16
NOTARY PUBLIC...................................................... 18
</TABLE>
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OPERATING AGREEMENT
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THIS AGREEMENT is dated as of July 1, 1993 by and between KINDER GAS
PROCESSING CORPORATION hereinafter referred to as "OWNER", the designated
operator of the Kinder Plant and in behalf of all owners of interests therein,
and ENERGY SERVICE INVESTMENT CORPORATION, an Oklahoma corporation, hereinafter
referred to as "CONTRACTOR".
WITNESSETH:
WHEREAS, OWNER owns an interest in and has been designated to operate
the Kinder Plant, located in Allen Parish, Louisiana, hereinafter called the
"Plant";
WHEREAS, OWNER desires to hire CONTRACTOR to operate said Plant; and
WHEREAS, CONTRACTOR is willing to operate said Plant for OWNER under
certain terms and conditions;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
---------
DEFINITIONS
-----------
As used in this Agreement, the following words and terms shall have the
meanings here ascribed to them:
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A. Annual Budget Means estimates of expenses necessary to operate the
Plant in the next succeeding Calendar Year, or fraction
thereof.
B. AFE Means a document prepared by OWNER which indicates the
(Authority for cost and describes work to be performed.
Expenditure)
C. Approved AFE Means an AFE executed by one or more of the Plant
Owners.
D. Authorized Expenses Means Expenses set forth in an Annual Budget or an
approved AFE or authorized under Paragraph 5.1 hereof.
E. Contract Year Means a period of one year beginning with January 1 and
ending with December 31.
F. Adjustment Factor Means that factor set forth in Paragraph 4.2 hereof.
G. Plant Means the Kinder gas processing plant, field and
gathering system owned by the Plant Owners, all
machinery, equipment, fixtures, appliances, pipe,
valves, fittings, pipelines to and from delivery
points, and material of every nature concerning the gas
processing plant, gathering system, producing wells,
separators, treators and disposal well(s), if any,
installed at or near the Plant site, the
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Plant site and easements, and facilities to handle
storage, disposal and delivery of Plant Products
extracted from the gas.
H. Month Means a calendar month.
I. Plant Owners Means all interest owners in the Plant.
J. Products Means the products, gas, oil (condensate) and salt
water, produced by the Plant in accordance with
specifications provided by OWNER.
K. Gathering System Means the pipeline system that connects the gas wells
to the Plant and the pipeline system that connects the
Plant to the gas sales line.
L. Operating Fee Means the amount OWNER shall pay to CONTRACTOR as
consideration for services rendered by CONTRACTOR.
M. Base Operating Fee Means the amount OWNER shall pay to CONTRACTOR as
consideration for services rendered by CONTRACTOR
during the first Contract Year.
ARTICLE II
TERM
2.1 TERM: The primary term of this Agreement shall be Six (6)
months, commencing on July 1, 1993 and terminating on December 31, 1993;
thereafter, this Agreement shall automatically renew from year to year until
terminated by either party upon sixty (60) days' written notice prior to the
termination of the primary term or any subsequent anniversary thereof.
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3.1 OPERATOR: OWNER hereby hires CONTRACTOR as operator of the
Plant and CONTRACTOR agrees to operate the Plant pursuant to this Agreement.
CONTRACTOR further agrees to perform all acts necessary to the complete
performance of all contracts and agreements relating to the Plant. OWNER will
furnish CONTRACTOR copies of all such pertinent contracts and agreements.
3.2 EMPLOYEES: The number of employees used by CONTRACTOR in
conducting operations hereunder, their selection, the hours of labor, and their
compensation for services performed shall be determined by CONTRACTOR, in
consultation with OWNER and all such employees shall be employees of CONTRACTOR
and not of OWNER.
3.3 RESPONSIBILITIES: CONTRACTOR shall perform the duties of
operator, on behalf of OWNER as provided herein. These services include but
are not limited to the following:
(a) Assisting in the preparing and implementing of Annual
Budgets;
(b) Providing to OWNER reports and information concerning the
Plant, as specified by OWNER;
(c) Manufacturing product in accordance with specifications and
OWNER's instructions;
(d) Operational services required for normal operation of the
Plant;
(e) Providing a monthly gas and Plant product accounting
allocations to OWNER and producers under contract with owner;
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(f) Assisting in the marketing of plant products and gas where
applicable;
(g) Operating, calibrating, and maintaining plant equipment,
plant gathering systems, wells, measurement equipment and ancillary equipment;
(h) Obtaining supplies, materials and equipment required for
operation and maintenance of the Plant;
(i) Generally carrying out technical and supervisory services
necessary for the operation of the Plant; and
(j) Providing recommendations and implementing procedures to
reduce operating costs of Plant consistent with prudent and safe practices.
3.4 STANDARD OF CARE: CONTRACTOR shall perform the services as
operator of the Plant in a safe, proper and workmanlike manner with that degree
of diligence and prudence which would be reasonably and ordinarily exercised by
experienced operators engaged in a similar activity under similar circumstances
and conditions.
3.5 INDEMNIFICATION: CONTRACTOR shall protect, indemnify, defend
and save harmless the Plant Owners, their respective officers, employees and
agents from and against any and all liabilities, claims, demands, expenses,
actions and causes of action of every kind and character (including reasonable
attorney fees associated therewith) of CONTRACTOR'S officers, employees and
agents and the officers, employees and agents of CONTRACTOR'S subcontractors,
if any, because of personal injury, disease or bodily injury (including death
at any time resulting therefrom) and for damage to or destruction of their
property growing out of or incident to or resulting from the performance of any
of the services covered by this Agreement.
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PLANT OWNERS shall protect, indemnify, defend and save harmless the CONTRACTOR,
its officers, employees and agents from and against any and all liabilities,
claims, demands, expenses, actions and causes of action of every kind and
character (including reasonable attorney fees associated therewith) of PLANT
OWNERS' officers, employees and agents and the officers, employees and agents of
PLANT OWNERS' third party contractors, if any, because of personal injury,
disease or bodily injury (including death at any time resulting therefrom) and
for damage to or destruction of their property growing out of or incident to or
resulting from the performance of any of the services covered by this Agreement.
Plant OWNERS agree to protect, indemnify, defend and save harmless CONTRACTOR
from and against any and all liabilities, claims, demands, expenses, actions
and causes of action of every kind and character (including reasonable attorney
fees associated therewith) from any Parish, State or Federal agency for any
taxes due on the Plant, for noncompliance with any laws, rules or regulations
of any kind, or for accounts payable by Plant OWNERS to third parties.
Should CONTRACTOR, in the course of performing the services outlined herein,
determine it necessary to respond to an emergency or unforeseen situation not
clearly within the routine operating or maintenance of the Plant or Gathering
System contemplated by this Agreement, CONTRACTOR may undertake whatever actions
it deems necessary, including but not limited to, evacuation of residents in the
vicinity of the Plant, Wells or Gathering System, ignition of gas or fluids
escaping to the atmosphere, or other actions necessary to bring the Plant, Wells
or Gathering System under control and/or required for the continued operation
and/or preservation of the Plant or Gathering System. Plant Owners agree to
indemnify CONTRACTOR, its agents, employees and representatives from all claims
and damages of any kind arising from or connected with the actions described
above taken in good faith by CONTRACTOR.
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3.6 INSURANCE: At all times during the term of this Agreement,
CONTRACTOR shall maintain at OWNER's cost the following insurance with
companies satisfactory to OWNER:
(a) Workers' Compensation Insurance to fully comply with all applicable
laws of the state where operations are conducted and Employers' Liability
Insurance with a limit of not less than $100,000 each accident.
(b) Automobile Liability Insurance covering all owned, non-owned and
hired vehicles with a combined single limit of not less than $500,000 each
accident for bodily injury and/or property damage.
(c) Comprehensive General Liability Insurance with a combined single
limit of not less than $1,000,000 each occurrence or each claim made as a
result of an occurrence for bodily injury/personal injury and/or property
damage. Such insurance shall include, but not be limited to CONTRACTOR'S
Products/Completed Operations Coverage, Broad Form Property Damage Coverage
and Blanket Contractual Liability Coverage to insure the indemnity and hold
harmless provisions of this Agreement.
(d) Excess (Umbrella) Liability Coverage with a combined single limit
of not less than $10,000,000 each accident/occurrence/or claim made as a
result of an occurrence to apply as excess insurance above the coverages
specified in (a) through (c) above.
The policy specified in (a) above and any insurance CONTRACTOR carries shall be
endorsed to include a waiver of subrogation in favor of Plant Owners and the
policies specified in (b) through (d) shall include Plant Owners as additional
insureds. Prior to commencing work hereunder, CONTRACTOR shall furnish OWNER
with an insurance certificate or certificates as evidence of the above
coverages and containing the following statement:
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"Thirty (30) days' prior written notice will be given to OWNER in the event of
cancellation or material change in coverage".
ARTICLE IV
OPERATING FEE
4.1 BASE OPERATING FEE: As consideration for the services rendered
by CONTRACTOR hereunder, OWNER shall pay to CONTRACTOR the sum of Three
Thousand ($3,000) Dollars per Month. The first month for which the operating
fee is due shall be the month CONTRACTOR assumes its duties hereunder.
4.2 OPERATING FEE ADJUSTMENT: CONTRACTOR'S compensation for
services provided herein will be adjusted annually, in the following manner:
At the end of each Contract Year throughout the term of this
Agreement, the Employment and Earnings Index for Crude Petroleum
and Gas Production Workers, published by the United States
Department of Labor, Bureau of Labor Statistics (the "Index"),
which is published for the month of December immediately
preceding the end of each Contract year (the "Comparison
Index"), shall be compared with the Index published for the
month of December 1992, which was $701.76 (the "Base Index").
If the Comparison Index is higher than the Base Index, the
Operating Fee to be paid to the Contractor until the next
Adjustment Date shall be set by multiplying the Base Operating
Fee by a fraction, the numerator of which is the Comparison
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Index and the denominator of which is the Base Index. In no
event will the Operating Fee be reduced to an amount less than
the Base Operating Fee. If the Index is discontinued or revised
during the term of this Agreement, such other governmental index
or computation with which the Index is replaced shall be used in
order to obtain substantially the same result as would be
obtained if the Index had not been discontinued or revised.
4.3 CAPITAL IMPROVEMENTS: For any capital expenditure projects
conducted by CONTRACTOR at OWNER's instructions, CONTRACTOR shall receive an
accumulative overhead charge on each project as follows:
(a) Under $100,000 -- 5% of those capital costs
(b) From $100,000 to $1,000,000 -- 3% of capital costs
(c) Over $1,000,000 -- 2% of capital costs
4.4 CONSULTING WORK: For any engineering consulting work provided
by CONTRACTOR to OWNER at Owner's request, Contractor shall charge Owner and
Owner agrees to pay Contractor based on Contractor's prevailing rates for such
work. Contractor's rate for qualified engineers as of June 1, 1993 is
eighty-five dollars per hour ($85/hr.)
ARTICLE V
OPERATING EXPENSES
5.1 OPERATING EXPENSES: CONTRACTOR, pursuant to Article VI hereof,
shall promptly pay and OWNER shall reimburse CONTRACTOR for certain Authorized
Expenses of the Plant including the following:
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(a) Salaries and Wages:
Salaries and wages of CONTRACTOR'S field personnel employed
directly on the Plant property in connection with the Plant
operations. This includes employee benefits for those
employees located at the Plant. CONTRACTOR shall also be
reimbursed for supervisory and specialty personnel who visit
the Plant based on actual salaries and wages, including
benefits, and limited to the actual number of hours spent on
site, plus travel time to site.
(b) Telephone:
Telephone operating expenses of communication between
CONTRACTOR'S Louisiana offices and OWNER's offices,
including mobile phones and pagers.
(c) Truck and Automobile:
Operation and maintenance expenses for vehicles, if any,
used by CONTRACTOR'S supervisory or specialty personnel for
Plant and field operations, based on the IRS allowable rate,
currently $0.280 per actual mile.
(d) Insurance:
Cost of CONTRACTOR's allocated insurance as provided for
in paragraph 3.6 above.
(e) Other Expenditures:
Any other expenditure not covered or dealt with in the
foregoing provisions of this Paragraph 5.1 which is paid by
CONTRACTOR on behalf of OWNER.
5.2 PLANT EXPENSES: OWNER shall pay all invoices for plant
operating supplies and materials on a direct basis. CONTRACTOR shall review and
approve or disapprove invoices delivered to the Plant before forwarding to
OWNER.
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5.3 EMERGENCY EXPENDITURES: Notwithstanding anything else in this
Agreement to the contrary, CONTRACTOR is authorized, on behalf of OWNER, to
make any expenditure or incur commitments for expenditures or take those
actions it deems necessary in the case of an emergency to safeguard lives or
property or to prevent pollution or other environmental damage. CONTRACTOR
shall promptly notify OWNER of any such circumstance and of the amount of
expenditures and commitments for expenditures so made and incurred and actions
so taken, which notification shall be confirmed in writing.
ARTICLE VI
ACCOUNTING PROCEDURES
6.1 STATEMENTS AND INVOICES: CONTRACTOR shall render detailed
invoices to OWNER twice each Month showing the actual expenditures incurred.
Such invoices shall be accompanied by statements which identify all charges and
credits and such other information as OWNER may require. OWNER shall pay said
invoices within fifteen (15) days of receipt.
6.2 AUDITS: OWNER shall have the right at reasonable times, but
not more often than once each Contract Year, and after reasonable advance
notice, to audit the accounts and records of CONTRACTOR relating to
expenditures made in the operation of the Plant, provided that any such audits
or audits relating to any Contract Year must be conducted within that Contract
Year or in the twenty-four (24) month period immediately thereafter. The cost
of any such audit or audits shall be borne solely by OWNER.
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ARTICLE VII
REPORTS
7.1 MONTHLY REPORTS: CONTRACTOR shall provide to OWNER or if
noted, to all Plant Owners by the 30th day of each month a report for the
preceding month that includes a report of operations (summary of key production
data), and monthly stock reports, supported with appropriate production,
shipping and testing data, showing movement of Product into or out of storage,
content of Product and the quantity of Product on hand.
7.2 DAILY REPORTS: CONTRACTOR shall prepare a written daily report
that summarizes each day's key data on the Plant. CONTRACTOR shall phone in or
facsimile a daily report to OWNER for the prior day's operations.
ARTICLE VIII
RELATIONSHIP OF THE PARTIES
8.1 RELATIONSHIP OF THE PARTIES: It is the intent of the parties
that CONTRACTOR shall be an independent contractor in its activities as
operator, and that OWNER shall have no control over CONTRACTOR'S day to day
operations, but may only specify results.
ARTICLE IX
FORCE MAJEURE
9.1 FORCE MAJEURE: In the event of either party hereto being
rendered unable, wholly or in part, by force majeure to carry out its
obligations under this Agreement other than the payment of monies due, it is
agreed that on such
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party giving notice and full particulars of such force majeure, in writing, or
by telephone (confirmed in writing at the earliest opportunity) to the other
party as soon as possible after the occurrence of the cause relied on, then the
obligations of the party giving such notice, so as they are affected by such
force majeure, shall be suspended during the continuance of any inability so
caused but for no longer period, and such cause shall as far as possible be
remedied with all reasonable dispatch.
The term "force majeure" as employed herein shall mean acts of God,
strikes, lockouts or other industrial disturbances, acts of the public enemy,
wars, blockades, insurrections, riots, epidemics, landslides, lightning,
earthquakes, fires, storms, floods, washouts, arrests and restraints of
government and people, civil disturbances, explosions, or any other causes,
whether of the kinds herein enumerated or otherwise, not within the control of
the party claiming suspension and which, by the exercise of due diligence, such
par is unable to prevent or overcome.
It is understood and agreed that the settlement of strikes and lockouts
shall be entirely within the discretion of the party having the difficulty, and
the above requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes or lockouts by
acceding to the demands of any opposing party when such course is inadvisable
in the discretion of the party having the difficulty.
ARTICLE X
LIENS AND GUARANTOR
10.1 LIENS: OWNER herewith agrees to hold CONTRACTOR harmless and
to indemnify against liability for all liens or claims by whom-
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soever filed and arising in connection with OWNER's obligations hereunder.
CONTRACTOR herewith agrees to hold the Plant OWNERS harmless and to indemnify
the Plant OWNERS against liability for all liens or claims by whomsoever files
and arising in connection with CONTRACTOR's failure to comply with its
obligations under this Agreement hereunder.
10.2 GUARANTOR: Struthers Industries, Inc. (Guarantor) shall be a
guarantor of all sums due CONTRACTOR by OWNER under the terms of this
Agreement. If OWNER fails to pay CONTRACTOR any sums due hereunder, guarantor
shall remit upon demand to CONTRACTOR all sums due to CONTRACTOR by OWNER. It
is agreed by both OWNER and Struther Industries, Inc. (as Guarantor) that
CONTRACTOR shall have a lien on the plant Products, and the right to sell and
deliver plant Products to collect the revenue in order to satisfy the payments
due should OWNER fail to remit sums due to CONTRACTOR within thirty (30) days
of the invoice date. These rights shall not be deemed exclusive remedies, but
shall be in addition to all rights afforded CONTRACTOR by this Agreement and by
law. Service of a counterpart of this Agreement upon any purchaser of Products
shall constitute written authorization by OWNER and Guarantor for said
purchaser to pay the proceeds from such sale to CONTRACTOR.
ARTICLE XI
NOTICES
11.1 NOTICES: Any statement, bill or payment shall be considered
final after two (2) years from the date of issuance, provided there is no
previous request by either party for correction or adjustment of said
document. Notices and statements provided to be given hereunder shall be
deemed sufficiently given and served if deposited in the United States
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<PAGE> 17
mail, postage prepaid, and addressed to the respective parties or their
designees at the address stated below or to such other address as they hereafter
designate in writing:
If to OWNER: If to CONTRACTOR:
KINDER GAS PROCESSING CORPORATION ENERGY SERVICE INVESTMENT CORP.
C/O John C. Edwards One Warren Place, Suite 300
Struthers Industries, Inc. 6100 S. Yale
8118 E. 63rd Street Tulsa, OK 74136
Tulsa, OK 74133
ARTICLE XII
ASSIGNMENT
12.1 ASSIGNMENT: This Agreement may not be assigned in whole or in
part by either party, except by express written consent of both parties.
ARTICLE XIII
TERMINATION OF AGREEMENT
13.1 TERMINATION: OWNER reserves the right to terminate this
Agreement prior to the anniversary date if:
(a) CONTRACTOR does not meet its obligations hereunder;
(b) OWNER is no longer the designated operator of the Plant;
(c) The producing well's connected to the Plant cease to produce
in economic quantities or in such event the designated operator
elects to plug and abandon said wells. If OWNER elects to
terminate this agreement prior to any anniversary date,
CONTRACTOR shall be notified sixty (60) days prior to such
termination.
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ARTICLE XIV
TRANSITION UPON TERMINATION
14.1 TRANSITION: In the event of termination of this Agreement, the
parties shall cooperate to make the transition to the new operator as
expeditious as possible. At a reasonable time prior to such termination,
CONTRACTOR shall provide to the new operator copies of such operating manual or
other plant operating information as CONTRACTOR shall have available.
ARTICLE XV
MISCELLANEOUS
15.1 MISCELLANEOUS: The validity and interpretation of this Agreement
shall be governed by the laws of the State of Louisiana.
The invalidity or unenforceability of any other provision of this
Agreement, shall not affect the validity or enforceability of any other
provision of this Agreement, and each other provision of this Agreement shall be
severable and enforceable to the extent permitted by law.
Failure or delay by either party in exercising any right or power under
this Agreement shall not operate as a waiver of that right or power.
This Agreement is the entire Agreement between the parties as to its
subject matter, and there are no other contracts, oral or written, as to that
subject matter, expressed or implied. This Agreement may be modified only in
writing signed by both parties.
This Agreement may be executed in any number of counterparts and by the
different parties hereto by separate counterparts, each of which when
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so executed shall be an original, and all of which shall constitute one and the
same instrument. Complete sets of counterparts shall be lodged with each party.
IN WITNESS WHEREOF, the parties hereto have subscribed their names
effective as of the day and year first above written.
WITNESS KINDER GAS PROCESSING CORPORATION
[SIG] By: [SIG]
- ---------------------------------- ------------------------------------
Its: President
-----------------------------------
WITNESS STRUTHERS INDUSTRIES, INC. (Guarantor)
[SIG] By: [SIG]
- ---------------------------------- ------------------------------------
Its: President
-----------------------------------
WITNESS ENERGY SERVICE INVESTMENT CORPORATION
[SIG] By: [SIG]
- ---------------------------------- ------------------------------------
Its: President
-----------------------------------
<PAGE> 20
STATE OF OKLAHOMA
COUNTY OF TULSA
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this 4th day of June, 1993, personally appeared J. Michael Geer, to me
known to be the identical person who subscribed the name of ENERGY SERVICE
INVESTMENT CORPORATION, to the within and foregoing instrument and duly
acknowledged to me that he executed the same as his free and voluntary act and
deed of such corporation for the uses, purposes and consideration therein
expressed and set forth.
GIVEN UNDER MY HAND AND SEAL OF OFFICE the day and year last above
written.
My Commission Expires:
January 30, 1994 [SIG]
- ----------------------------- ------------------------------
Notary Public
STATE OF OKLAHOMA
COUNTY OF TULSA
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this 11th day of June, 1993, personally appeared John C. Edwards, to
me known to be the identical person who subscribed the name of KINDER GAS
PROCESSING CORPORATION to the within and foregoing instrument and duly
acknowledged to me that he executed the same as his free and voluntary act and
deed of such corporation for the uses, purposes and consideration therein
expressed and set forth.
GIVEN UNDER MY HAND AND SEAL OF OFFICE the day and year last above
written.
My Commission Expires:
Feb. 28, 1994 [SIG]
- ----------------------------- ------------------------------
Notary Public
<PAGE> 21
STATE OF OKLAHOMA
COUNTY OF TULSA
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this 11th day of June, 1993, personally appeared John C. Edwards to me
known to be the identical person who subscribed the name of STRUTHERS
INDUSTRIES, INC., to the within and foregoing instrument and duly acknowledged
to me that he executed the same as his free and voluntary act and deed of such
corporation for the uses, purposes and consideration therein expressed and set
forth.
GIVEN UNDER MY HAND AND SEAL OF OFFICE the day and year last above
written.
My Commission Expires:
Feb. 28, 1994 [SIG]
- ---------------------------------- --------------------------------
Notary Public
49
